Plum Creek Timber 10Q 2011 Q2 Quarterly report

Table of Contents

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, 2011



o	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 State of Delaware		I.R.S. Employer Identification No. 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

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

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of outstanding shares of the registrant’s common stock, as of July 25, 2011 was 161,985,207.

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter ended June 30, 2011

TABLE OF CONTENTS

Table of Contents

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)	2011		2010
REVENUES:
Timber	$	126	$	133
Real Estate	79		43
Manufacturing	74		78
Other	5		4
Total Revenues	284		258

COSTS AND EXPENSES:
Cost of Goods Sold:
Timber	101		100
Real Estate	27		16
Manufacturing	67		68
Other	1		1
Total Cost of Goods Sold	196		185
Selling, General and Administrative	25		21
Total Costs and Expenses	221		206

Other Operating Income (Expense), net	—		4

Operating Income	63		56

Equity Earnings from Timberland Venture	16		15

Interest Expense, net:
Interest Expense (Debt Obligations to Unrelated Parties)	20		19
Interest Expense (Note Payable to Timberland Venture)	15		15
Total Interest Expense, net	35		34

Income before Income Taxes	44		37

Provision for Income Taxes	—		2

Net Income	$	44	$	35

PER SHARE AMOUNTS:

Net Income per Share – Basic	$	0.27	$	0.21
Net Income per Share – Diluted	$	0.27	$	0.21

Dividends Declared – per Common Share Outstanding	$	0.42	$	0.42

Weighted-Average Number of Shares Outstanding
– Basic	162.0		162.3
– Diluted	162.3		162.5

See accompanying Notes to Consolidated Financial Statements

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)



	Six Months Ended June 30,
(In Millions, Except Per Share Amounts)	2011		2010
REVENUES:
Timber	$	267	$	284
Real Estate	141		142
Manufacturing	141		138
Other	10		11
Total Revenues	559		575

COSTS AND EXPENSES:
Cost of Goods Sold:
Timber	208		209
Real Estate	49		51
Manufacturing	128		122
Other	1		1
Total Cost of Goods Sold	386		383
Selling, General and Administrative	53		50
Total Costs and Expenses	439		433

Other Operating Income (Expense), net	3		9

Operating Income	123		151

Equity Earnings from Timberland Venture	30		29

Interest Expense, net:
Interest Expense (Debt Obligations to Unrelated Parties)	41		39
Interest Expense (Note Payable to Timberland Venture)	29		29
Total Interest Expense, net	70		68

Income before Income Taxes	83		112

Provision for Income Taxes	1		1

Income from Continuing Operations	82		111

Gain on Sale of Properties, net of tax	—		11

Net Income	$	82	$	122

PER SHARE AMOUNTS:

Income from Continuing Operations - Basic	$	0.51	$	0.68
Income from Continuing Operations - Diluted	$	0.50	$	0.68

Net Income per Share – Basic	$	0.51	$	0.75
Net Income per Share – Diluted	$	0.50	$	0.75

Dividends Declared – per Common Share Outstanding	$	0.84	$	0.84

Weighted-Average Number of Shares Outstanding
– Basic	161.9		162.6
– Diluted	162.2		162.8

See accompanying Notes to Consolidated Financial Statements

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



(In Millions, Except Per Share Amounts)	June 30, 2011			December 31, 2010
ASSETS
Current Assets:
Cash and Cash Equivalents	$	253		$	252
Accounts Receivable	33			21
Like-Kind Exchange Funds Held in Escrow	35			—
Inventories	43			49
Deferred Tax Asset	7			7
Assets Held for Sale	39			57
Other Current Assets	16			24
	426			410

Timber and Timberlands, net	3,383			3,405
Property, Plant and Equipment, net	142			146
Equity Investment in Timberland Venture	203			201
Deferred Tax Asset	6			10
Investment in Grantor Trusts (at Fair Value)	38			35
Other Assets	42			44
Total Assets	$	4,240		$	4,251

LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt	$	395		$	94
Line of Credit	227			166
Accounts Payable	31			25
Interest Payable	26			23
Wages Payable	12			23
Taxes Payable	14			12
Deferred Revenue	36			25
Other Current Liabilities	8			7
	749			375

Long-Term Debt	1,293			1,643
Note Payable to Timberland Venture	783			783
Other Liabilities	81			76
Total Liabilities	2,906			2,877

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, Outstanding (net of Treasury Stock) – 162.0 at June 30, 2011 and 161.6 at December 31, 2010	2			2
Additional Paid-In Capital	2,256			2,243
Retained Earnings (Accumulated Deficit)	(3		)	51
Treasury Stock, at Cost, Common Shares – 26.2 at June 30, 2011 and 26.2 at December 31, 2010	(912		)	(911		)
Accumulated Other Comprehensive Income (Loss)	(9		)	(11		)
Total Stockholders’ Equity	1,334			1,374
Total Liabilities and Stockholders’ Equity	$	4,240		$	4,251

See accompanying Notes to Consolidated Financial Statements

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Six Months Ended June 30,
(In Millions)	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	82		$	122
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Depreciation, Depletion and Amortization	44			48
Basis of Real Estate Sold	43			43
Equity Earnings from Timberland Venture	(30		)	(29		)
Distributions from Timberland Venture	28			28
Deferred Income Taxes	4			1
Gain on Sale of Properties and Other Assets	—			(13		)
Deferred Revenue from Long-Term Gas Leases (Net of Amortization)	12			6
Working Capital Changes Impacting Cash Flow:
Like-Kind Exchange Funds	(35		)	—
Other Working Capital Changes	4			(7		)
Other	5			8
Net Cash Provided By Operating Activities	157			207

CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (Excluding Timberland Acquisitions)	(28		)	(31		)
Timberlands and Minerals Acquired	(12		)	—
Proceeds from Sale of Properties and Other Assets	—			13
Net Cash Used In Investing Activities	(40		)	(18		)

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends	(136		)	(136		)
Borrowings on Line of Credit	555			1,137
Repayments on Line of Credit	(494		)	(1,137		)
Principal Payments and Retirement of Long-Term Debt	(49		)	(53		)
Proceeds from Stock Option Exercises	9			2
Acquisition of Treasury Stock	(1		)	(51		)
Net Cash Used In Financing Activities	(116		)	(238		)

Increase (Decrease) In Cash and Cash Equivalents	1			(49		)
Cash and Cash Equivalents:
Beginning of Period	252			299

End of Period	$	253		$	250

See accompanying Notes to Consolidated Financial Statements

Table of Contents

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, 2011, the company owned and managed approximately 6.7 million acres of timberlands in the Northwest, Southern, and Northeast United States, and owned 8 wood product conversion facilities in the Northwest United States (2 of which have been indefinitely curtailed). Included in the 6.7 million acres are about 1.0 million acres of higher value timberlands, which are expected to be sold and/or developed over the next fifteen years for recreational, conservation or residential purposes. Included within the 1.0 million acres of higher value timberlands are approximately 800,000 acres we expect to sell for recreational uses, approximately 100,000 acres we expect to sell for conservation and approximately 100,000 acres that are identified as having development potential. In addition, the company has approximately 300,000 acres of non-strategic timberlands, which are expected to be sold in smaller acreage transactions over the near and medium term. In the meantime, all of our timberlands continue to be managed 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, generally does not pay 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 value 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 U.S. generally accepted accounting principles to be included in a full set of financial statements. The consolidated balance sheet at December 31, 2010 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 2010 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.

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 2. Earnings Per Share

The following tables set 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,
	2011		2010
Net Income Available to Common Stockholders	$	44	$	35
Denominator for Basic Earnings per Share	162.0		162.3
Effect of Dilutive Securities – Stock Options	0.3		0.2
Effect of Dilutive Securities – Restricted Stock, Restricted Stock Units and Value Management Plan	—		—
Denominator for Diluted Earnings per Share – Adjusted for Dilutive Securities	162.3		162.5
Per Share Amounts:
Net Income Per Share – Basic	$	0.27	$	0.21
Net Income Per Share – Diluted	$	0.27	$	0.21

	Six Months Ended June 30,
	2011		2010
Income from Continuing Operations	$	82	$	111
Gain on Sale of Properties, net of tax	—		11
Net Income Available to Common Stockholders	$	82	$	122
Denominator for Basic Earnings per Share	161.9		162.6
Effect of Dilutive Securities – Stock Options	0.3		0.2
Effect of Dilutive Securities – Restricted Stock, Restricted Stock Units and Value Management Plan	—		—
Denominator for Diluted Earnings per Share – Adjusted for Dilutive Securities	162.2		162.8
Per Share Amounts – Basic:
Income from Continuing Operations	$	0.51	$	0.68
Gain on Sale of Properties, net of tax	$	—	$	0.07
Net Income	$	0.51	$	0.75
Per Share Amounts – Diluted:
Income from Continuing Operations	$	0.50	$	0.68
Gain on Sale of Properties, net of tax	$	—	$	0.07
Net Income	$	0.50	$	0.75

Under the company's Stock Incentive Plan, the company grants restricted stock units, which prior to vesting, are entitled to non-forfeitable cash payments equal to dividends paid on the company's common shares. These awards are considered participating securities for purposes of computing basic and diluted earnings per share.

Table of Contents

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 exercise prices of the options 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 30 (shares in millions):



	Quarter Ended June 30,
	2011	2010
Number of Options	1.1	2.0
Range of Exercise Prices	$41.55 to $43.23	$33.75 to $43.23
Expiration on or before	February 2021	February 2020



	Six Months Ended June 30,
	2011	2010
Number of Options	1.0	1.9
Range of Exercise Prices	$41.55 to $43.23	$33.75 to $43.23
Expiration on or before	February 2021	February 2020

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 3. Inventory

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



	June 30, 2011		December 31, 2010
Raw Materials (primarily logs)	$	4	$	12
Work-In-Process	1		1
Finished Goods	27		24
	32		37
Supplies	11		12
Total	$	43	$	49

Note 4. Timber and Timberlands

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



	June 30, 2011		December 31, 2010
Timber and Logging Roads, net	$	2,240	$	2,261
Timberlands	1,143		1,144
Timber and Timberlands, net	$	3,383	$	3,405

Note 5. Property, Plant and Equipment

Property, Plant and Equipment consisted of the following (in millions):



	June 30, 2011			December 31, 2010
Land, Buildings and Improvements	$	85		$	84
Machinery and Equipment	314			309
	399			393
Accumulated Depreciation	(257		)	(247		)
Property, Plant and Equipment, net	$	142		$	146

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 6. Borrowings

Debt consisted of the following (in millions):



	June 30, 2011		December 31, 2010
Variable Rate Debt
Term Credit Agreement ^(A)	$	350	$	350
Revolving Line of Credit ^(B)	227		166
Fixed Rate Debt
Senior Notes	1,338		1,387
Note Payable to Timberland Venture	783		783
Total Debt	2,698		2,686
Less:
Current Portion of Long-Term Debt	395		94
Line of Credit	227		166
Long-Term Portion	$	2,076	$	2,426


(A)	As of June 30, 2011, the interest rate on the $350 million term credit agreement was 0.57%. This agreement matures June 15, 2012.


(B)	As of June 30, 2011, the weighted-average interest rate for the borrowings on the line of credit was 1.65%. As of June 30, 2011, we had $227 million of borrowings and $3 million of standby letters of credit outstanding; $370 million remained available for borrowing under our $600 million line of credit. As of July 1, 2011, all of the borrowings outstanding under our line of credit were repaid.

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 7. Stockholders’ Equity

The changes in the company’s stockholders’ equity accounts were as follows during 2011 (in millions):



	Common Stock					Retained Earnings (Accumulated Deficit)						Accumulated Other Comprehensive Income (Loss)
	Shares	Dollars		Paid-in Capital		Retained Earnings (Accumulated Deficit)			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Equity
January 1, 2011	161.6	$	2	$	2,243	$	51		$	(911	)	$	(11	)	$	1,374
Net Income						38									38
Other Comprehensive Income (Loss), net of tax												1			1
Total Comprehensive Income															39
Dividends						(68		)							(68		)
Stock Option Exercises	0.2			7											7
Shares Issued under Stock Incentive Plans	0.1	—		—											—
Share-based Compensation				2											2
Common Stock Repurchased	—	—							(1		)				(1		)
March 31, 2011	161.9	$	2	$	2,252	$	21		$	(912	)	$	(10	)	$	1,353
Net Income						44									44
Other Comprehensive Income (Loss), net of tax												1			1
Total Comprehensive Income															45
Dividends						(68		)							(68		)
Stock Option Exercises	0.1	—		2											2
Share-based Compensation				2											2
June 30, 2011	162.0	$	2	$	2,256	$	(3	)	$	(912	)	$	(9	)	$	1,334

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 8. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis. The company’s fair value measurements of its financial instruments, measured on a recurring basis, are categorized as Level 1 measurements under the fair value hierarchy in the Accounting Standards Codification. A Level 1 valuation is based on quoted prices in active markets at the measurement date for identical unrestricted assets or liabilities. Summarized below are the Level 1 assets reported in the company’s financial statements at fair value, measured on a recurring basis (in millions):



	Balance at June 30, 2011		Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets of Identical Assets (Level 1 Measurements)
Cash Equivalents ^(A)	$	249	$	249
Available-for-Sale Securities ^(B)	33		33
Trading Securities ^(B)	5		5
Total	$	287	$	287

	Balance at December 31, 2010		Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets of Identical Assets (Level 1 Measurements)
Cash Equivalents ^(A)	$	249	$	249
Available-for-Sale Securities ^(B)	30		30
Trading Securities ^(B)	5		5
Total	$	284	$	284


(A)	Consists of several money market funds and is included in the $253 million and $252 million of Cash and Cash Equivalents in the Consolidated Balance Sheets at June 30, 2011 and December 31, 2010, respectively.


(B)	Consists of several mutual funds and is included in Investment in Grantor Trusts in the Consolidated Balance Sheets at June 30, 2011 and December 31, 2010. At June 30, 2011, investments in these mutual funds were approximately 50% in domestic (U.S.) equities, 20% in international equities and 30% in debt securities.

Available-for-Sale Securities. Certain investments in the grantor trusts relate to the company's non-qualified pension plans and are classified as available-for-sale securities. The company has invested in various money market, debt and equity mutual funds and plans to use these investments to fund its non-qualified pension obligations. Unrealized holding gains and losses are included as a component of accumulated other comprehensive income. The company records changes in unrealized holding gains and losses in Other Comprehensive Income, unless an other than temporary impairment has occurred, which is then charged to expense. Changes in the fair value of available-for-sale securities were not material to the company's financial position or results of operations.

Trading Securities. Certain investments in the grantor trusts relate to the company's deferred compensation plans and are classified as trading securities. Deferred compensation amounts are invested in various money market, debt and equity mutual funds. The company plans to use these investments to fund deferred compensation obligations. Realized gains and losses and changes in unrealized gains and losses (and a corresponding amount of compensation expense) are recognized in the company's Consolidated Statements of Income. Deferred compensation obligations are included in Other Liabilities and were $5 million at June 30, 2011 and $5 million at December 31, 2010. Changes in the fair value of trading securities were not material to the company's financial position or results of operations.

Other Instruments. The carrying amount of notes receivable approximates fair value due to the short-term maturities of these instruments. The estimated fair value of the company's debt was approximately $2.90 billion and $2.83 billion at June 30, 2011 and December 31, 2010, respectively, and the carrying amount was $2.70 billion and $2.69 billion at June 30, 2011 and December 31, 2010, respectively. The fair value of the company's Public Debt (publicly issued Senior Notes) is estimated using market quotes. The fair value of the company's Private Debt (Senior Notes with various maturities and fixed interest rates which are privately placed with various lenders) is estimated using the same rates adjusted for the different maturities. The fair value of the company's Note Payable to Timberland Venture is estimated using the same rates as the Public Debt adjusted by an estimated

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

risk premium for holding company debt and the different maturity. The fair value of our Term Credit Agreement was determined by adjusting the spread over LIBOR to a current market spread for comparable debt.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis. There were no fair value measurements of assets or liabilities measured on a nonrecurring basis during the six-month periods ended June 30, 2011 and 2010.

Note 9. 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,
	2011			2010
Service Cost	$	2		$	2
Interest Cost	2			2
Expected Return on Plan Assets	(2		)	(2		)
Total Pension Cost	$	2		$	2

	Six Months Ended June 30,
	2011			2010
Service Cost	$	4		$	4
Interest Cost	4			4
Expected Return on Plan Assets	(4		)	(4		)
Total Pension Cost	$	4		$	4

Note 10. Commitments and Contingencies

Contingencies. The company is subject to regulations regarding forest, harvest and manufacturing practices and is, from time to time, involved in various legal proceedings, including environmental and regulatory matters, incidental to its business. Reserves have been established for any probable losses.

Unrecorded Contingencies. Management currently believes that resolving other 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.

Note 11. Variable Interest Entities

On October 1, 2008, the company contributed 454,000 acres of timberlands located in its Southern Resources Segment to Southern Diversified Timber, LLC (“the Timberland Venture”) in exchange for a $705 million preferred interest and a 9% common interest valued at $78 million. The Timberland Venture’s other member, an affiliate of The Campbell Group LLC, contributed $783 million of cash in exchange for 91% of the Timberland Venture’s common interest. Following the contribution, the company borrowed $783 million from the Timberland Venture (“Note Payable to Timberland Venture”). The company accounts for its interest in the Timberland Venture under the equity method of accounting.

The Timberland Venture is a variable interest entity. The primary operating activities of the Timberland Venture consist of owning timberlands and entering into cutting contracts with an affiliate of the other member. Besides quarterly interest payments on the Note Payable to Timberland Venture, the company has not provided financing or other support to the venture. The venture is financed by a $15 million line of credit obtained by the Timberland Venture.

We are not the primary beneficiary of the Timberland Venture. The company does not manage the day-to-day operations of the

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Timberland Venture, it has only limited protective rights and its involvement is generally limited to receiving distributions on its preferred and common interests. We are not the primary beneficiary because we do not direct the activities that most significantly impact the Timberland Venture’s economic performance. We believe that the activities that most significantly impact the Timberland Venture’s economic performance include managing the timberlands along with the timing and extent of the harvesting activities, neither of which we control.

The carrying amount of the investment is $203 million at June 30, 2011 and $201 million at December 31, 2010, and it is reported in the Consolidated Balance Sheets as Equity Investment in Timberland Venture. Our maximum exposure to loss is $203 million, the carrying amount of the investment. Generally, losses are first allocated among the common interests based on positive capital accounts in which we hold a 9% common interest. No losses are allocated to our preferred interest ($705 million) until the common interests have absorbed losses of approximately $861 million.

Note 12. Summarized Income Statement Information of Affiliate

The earnings of the Timberland Venture are a significant component of consolidated earnings. See Note 11 of the Notes to Consolidated Financial Statements. Equity earnings for the Timberland Venture were $30 million for the six-month period ending June 30, 2011, and were $29 million for the six-month period ending June 30, 2010. Equity earnings includes the amortization of the difference between the book value of the company’s investment and its proportionate share of the Timberland Venture’s net assets of $3 million and $3 million for each of the six-month periods ended June 30, 2011 and 2010. Furthermore, interest expense in connection with the loan from the Timberland Venture was $29 million and $29 million for each of the six-month periods ended June 30, 2011 and 2010. The table below presents summarized income statement information for the Timberland Venture for the six months ended June 30 (in millions):



	Six Months Ended June 30,
	2011			2010
Revenues	$	7		$	10
Cost of Goods Sold^(A)	8			12
Selling, General and Administrative Expenses	1			1
Operating Income (Loss)	(2		)	(3		)
Interest Income, net	29			29
Net Income before Allocation to Preferred and Common Interests	$	27		$	26


(A)	Cost of Goods Sold includes Depreciation, Depletion and Amortization of $6 million and $10 million for the six-month periods ended June 30, 2011 and 2010, respectively.

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 13. 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^(A)		Other		Total^(C)

Quarter Ended June 30, 2011
External Revenues	$	42	$	84	$	79	$	74	$	5	$	284
Intersegment Revenues	2		—		—		—		—		2
Depreciation, Depletion and Amortization	5		12		1		3		—		21
Basis of Real Estate Sold	—		—		24		—		—		24
Other Operating Gain	—		—		—		—		—		—
Operating Income	3		15		50		5		4		77

Quarter Ended June 30, 2010
External Revenues	$	44	$	89	$	43	$	78	$	4	$	258
Intersegment Revenues	2		—		—		—		—		2
Depreciation, Depletion and Amortization	7		12		1		3		—		23
Basis of Real Estate Sold	—		—		11		—		—		11
Other Operating Gain	1		—		—		2		—		3
Operating Income	3		24		26		10		4		67

	Northern Resources		Southern Resources		Real Estate		Manufactured Products^(A)		Other^(B)		Total^(C)

Six Months Ended June 30, 2011
External Revenues	$	94	$	173	$	141	$	141	$	10	$	559
Intersegment Revenues	5		—		—		—		—		5
Depreciation, Depletion and Amortization	11		24		1		6		—		42
Basis of Real Estate Sold	—		—		43		—		—		43
Other Operating Gain	—		—		—		—		2		2
Operating Income	10		34		88		9		11		152

Six Months Ended June 30, 2010
External Revenues	$	97	$	187	$	142	$	138	$	11	$	575
Intersegment Revenues	8		—		—		—		—		8
Depreciation, Depletion and Amortization	14		25		1		6		—		46
Basis of Real Estate Sold	—		—		43		—		—		43
Other Operating Gain	1		—		—		2		5		8
Operating Income	7		54		88		14		15		178


(A)	During the second quarter of 2010, the company sold certain lumber manufacturing assets for a gain of $2 million. For the quarter and six months ended June 30, 2010, the $2 million gain is reported as Other Operating Gain in our Manufactured Products Segment and is included in Other Operating Income (Expense), net in the Consolidated Statements of Income.

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


(B)	During the first quarter of 2011, the company received a payment of $2 million for the settlement of a dispute that related to certain mineral rights. For the six months ended June 30, 2011, the $2 million payment is reported as Other Operating Gain in our Other Segment and is included in Other Operating Income (Expense), net in the Consolidated Statements of Income.

During the first quarter of 2010, the company agreed to terminate a land lease for consideration of $5 million from the lessor. The land lease had been accounted for as an operating lease. For the six months ended June 30, 2010, the $5 million consideration is reported as Other Operating Gain in our Other Segment since the consideration was primarily for the release of mineral rights. For the six months ended June 30, 2010, the $5 million is included in Other Operating Income (Expense), net in the Consolidated Statements of Income.

During the first quarter of 2010, the company received $21 million for the sale of an undivided 50% interest in natural gas rights on approximately 110,000 acres in West Virginia and to modify an existing natural gas lease on the same acres. The company allocated the proceeds based on relative fair value and determined that $11 million was for the sale of the natural gas rights and $10 million was for a lease bonus related to the modification of exploration rights under the existing lease. The fair value of the undivided 50% interest in natural gas rights was derived using an income approach based on discounted future cash flows. For the six months ended June 30, 2010, the sale is reported as Gain on Sale of Properties, net of tax in the Consolidated Statements of Income and was not included in the Other Segment’s operating income. The fair value of the modification to the exploration rights under the existing lease was based on market analyses and comparable leases. The $10 million, along with the remaining deferred revenue at the time of the modification of $12 million associated with the original granting of exploration rights in 2008, is being amortized into revenue of the Other Segment over the expected three-year term.


(C)	Consolidated depreciation, depletion and amortization includes unallocated corporate depreciation of $1 million and $1 million for each of the quarterly periods ended June 30, 2011 and June 30, 2010; and $2 million and $2 million for each of the six-month periods ended June 30, 2011 and June 30, 2010.

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,
	2011			2010
Total Segment Operating Income	$	77		$	67
Corporate and Other Unallocated Expenses	(14		)	(12		)
Other Unallocated Operating Income (Expense), net	—			1
Operating Income	63			56
Equity Earnings from Timberland Venture	16			15
Total Interest Expense, net	(35		)	(34		)
Income before Income Taxes	$	44		$	37

	Six Months Ended June 30,
	2011			2010
Total Segment Operating Income	$	152		$	178
Corporate and Other Unallocated Expenses	(30		)	(28		)
Other Unallocated Operating Income (Expense), net	1			1
Operating Income	123			151
Equity Earnings from Timberland Venture	30			29
Total Interest Expense, net	(70		)	(68		)
Income before Income Taxes	$	83		$	112

Table of Contents

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 14. Subsequent Events

Quarterly Dividend. On August 2, 2011, the Board of Directors authorized the company to make a dividend payment of $0.42 per share, or approximately $68 million, which will be paid on August 31, 2011 to stockholders of record on August 16, 2011.

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

Included in this item are the consolidated financial statements related to Plum Creek Timberlands, L.P., a Delaware Limited Partnership and a 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 of 2009 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, 2011, Plum Creek Timberlands, L.P. has publicly issued and outstanding $1.033 billion aggregate principal amount of Senior Notes ("Public Debt") pursuant to the shelf registration statement.

PLUM CREEK TIMBERLANDS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)



	Quarter Ended June 30,
(In Millions)	2011			2010
REVENUES:
Timber	$	126		$	133
Real Estate	79			43
Manufacturing	74			78
Other	5			4
Total Revenues	284			258

COSTS AND EXPENSES:
Cost of Goods Sold:
Timber	101			100
Real Estate	27			16
Manufacturing	67			68
Other	1			1
Total Cost of Goods Sold	196			185
Selling, General and Administrative	25			21
Total Costs and Expenses	221			206

Other Operating Income (Expense), net	—			4

Operating Income	63			56

Equity Earnings from Timberland Venture	16			15

Interest Expense, net	20			19

Income before Income Taxes	59			52

Provision for Income Taxes	—			2

Net Income before Allocation to Series T-1 Preferred Interest and Partners	59			50
Net Income Allocable to Series T-1 Preferred Interest	(15		)	(15		)
Net Income Available to Common Interest Partners	$	44		$	35

See accompanying Notes to Consolidated Financial Statements

Table of Contents

PLUM CREEK TIMBERLANDS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)



	Six Months Ended June 30,
(In Millions)	2011			2010
REVENUES:
Timber	$	267		$	284
Real Estate	141			142
Manufacturing	141			138
Other	10			11
Total Revenues	559			575

COSTS AND EXPENSES:
Cost of Goods Sold:
Timber	208			209
Real Estate	49			51
Manufacturing	128			122
Other	1			1
Total Cost of Goods Sold	386			383
Selling, General and Administrative	53			50
Total Costs and Expenses	439			433

Other Operating Income (Expense), net	3			9

Operating Income	123			151

Equity Earnings from Timberland Venture	30			29

Interest Expense, net	41			39

Income before Income Taxes	112			141

Provision for Income Taxes	1			1

Income from Continuing Operations	111			140

Gain on Sale of Properties, net of tax	—			11

Net Income before Allocation to Series T-1 Preferred Interest and Partners	111			151
Net Income Allocable to Series T-1 Preferred Interest	(29		)	(29		)
Net Income Available to Common Interest Partners	$	82		$	122

See accompanying Notes to Consolidated Financial Statements

Table of Contents

PLUM CREEK TIMBERLANDS, L.P.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



(In Millions)	June 30, 2011		December 31, 2010
ASSETS
Current Assets:
Cash and Cash Equivalents	$	253	$	252
Accounts Receivable	33		21
Like-Kind Exchange Funds Held in Escrow	35		—
Inventories	43		49
Deferred Tax Asset	7		7
Assets Held for Sale	39		57
Other Current Assets	16		24
	426		410

Timber and Timberlands, net	3,383		3,405
Property, Plant and Equipment, net	142		146
Equity Investment in Timberland Venture	203		201
Deferred Tax Asset	6		10
Investment in Grantor Trusts ($38 and $35 at Fair Value in 2011 and 2010)	39		36
Other Assets	42		44
Total Assets	$	4,241	$	4,252

LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt	$	395	$	94
Line of Credit	227		166
Accounts Payable	31		25
Interest Payable	19		16
Wages Payable	12		23
Taxes Payable	14		12
Deferred Revenue	36		25
Other Current Liabilities	8		7
	742		368

Long-Term Debt	1,293		1,643
Other Liabilities	82		77
Total Liabilities	2,117		2,088

Commitments and Contingencies

PARTNERSHIP CAPITAL
Series T-1 Preferred Interest	790		790
Partners’ Capital (Common Partnership Interests)	1,334		1,374
Total Partnership Capital	2,124		2,164
Total Liabilities and Partnership Capital	$	4,241	$	4,252

See accompanying Notes to Consolidated Financial Statements

Table of Contents

PLUM CREEK TIMBERLANDS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Six Months Ended June 30,
(In Millions)	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income before Allocation to Preferred Partnership Interest and Partners	$	111		$	151
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Depreciation, Depletion and Amortization	44			48
Basis of Real Estate Sold	43			43
Equity Earnings from Timberland Venture	(30		)	(29		)
Distributions from Timberland Venture	28			28
Deferred Income Taxes	4			1
Gain on Sale of Properties and Other Assets	—			(13		)
Deferred Revenue from Long-Term Gas Leases (Net of Amortization)	12			6
Working Capital Changes Impacting Cash Flow:
Like-Kind Exchange Funds	(35		)	—
Other Working Capital Changes	4			(7		)
Other	5			8
Net Cash Provided By Operating Activities	186			236

CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (Excluding Timberland Acquisitions)	(28		)	(31		)
Timberlands and Minerals Acquired	(12		)	—
Proceeds from Sale of Properties and Other Assets	—			13
Net Cash Used In Investing Activities	(40		)	(18		)

CASH FLOWS FROM FINANCING ACTIVITIES
Cash Distributions to Common Partners	(128		)	(185		)
Cash Distributions for Series T-1 Preferred Interest	(29		)	(29		)
Borrowings on Line of Credit	555			1,137
Repayments on Line of Credit	(494		)	(1,137		)
Principal Payments and Retirement of Long-Term Debt	(49		)	(53		)
Net Cash Used In Financing Activities	(145		)	(267		)

Increase (Decrease) In Cash and Cash Equivalents	1			(49		)
Cash and Cash Equivalents:
Beginning of Period	252			299

End of Period	$	253		$	250

See accompanying Notes to Consolidated Financial Statements

Table of Contents

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. (“Parent”), a Delaware Corporation and a 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” or “Parent” relate to Plum Creek Timber Company, Inc. and all of its wholly-owned consolidated subsidiaries.

At June 30, 2011, the Operating Partnership owned and managed approximately 6.7 million acres of timberlands in the Northwest, Southern, and Northeast United States, and owned 8 wood product conversion facilities in the Northwest United States (2 of which have been indefinitely curtailed). Included in the 6.7 million acres are about 1.0 million acres of higher value timberlands, which are expected to be sold and/or developed over the next fifteen years for recreational, conservation or residential purposes. Included within the 1.0 million acres of higher value timberlands are approximately 800,000 acres we expect to sell for recreational uses, approximately 100,000 acres we expect to sell for conservation and approximately 100,000 acres that are identified as having development potential. In addition, the Operating Partnership has approximately 300,000 acres of non-strategic timberlands, which are expected to be sold in smaller acreage transactions over the near and medium term. In the meantime, all of our timberlands continue to be managed 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. Plum Creek has no assets or liabilities other than its direct and indirect ownership interests in Plum Creek Timberlands, L.P. and its interest in Plum Creek Ventures I, LLC (“PC Ventures”), a 100% owned subsidiary of Plum Creek. The Parent has no operations other than its investment in these subsidiaries 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, generally does not pay corporate-level income tax. However, the Operating Partnership conducts certain non-REIT activities through various wholly-owned 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 sale of some of our higher value 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 statutory corporate 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 U.S. generally accepted accounting principles 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, 2010, which were included on Form 10-K of Plum Creek Timber Company, Inc. and filed with the SEC on February 25, 2011, 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.

Table of Contents

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 2. Inventory

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



	June 30, 2011		December 31, 2010
Raw Materials (primarily logs)	$	4	$	12
Work-In-Process	1		1
Finished Goods	27		24
	32		37
Supplies	11		12
Total	$	43	$	49

Note 3. Timber and Timberlands

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



	June 30, 2011		December 31, 2010
Timber and Logging Roads, net	$	2,240	$	2,261
Timberlands	1,143		1,144
Timber and Timberlands, net	$	3,383	$	3,405

Note 4. Property, Plant and Equipment

Property, Plant and Equipment consisted of the following (in millions):



	June 30, 2011			December 31, 2010
Land, Buildings and Improvements	$	85		$	84
Machinery and Equipment	314			309
	399			393
Accumulated Depreciation	(257		)	(247		)
Property, Plant and Equipment, net	$	142		$	146

Table of Contents

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 5. Borrowings

Debt consisted of the following (in millions):



	June 30, 2011		December 31, 2010
Variable Rate Debt
Term Credit Agreement ^(A)	$	350	$	350
Revolving Line of Credit ^(B)	227		166
Fixed Rate Debt
Senior Notes	1,338		1,387
Total Debt	1,915		1,903
Less:
Current Portion of Long-Term Debt	395		94
Line of Credit	227		166
Long-Term Portion	$	1,293	$	1,643


(A)	As of June 30, 2011, the interest rate on the $350 million term credit agreement was 0.57%. This agreement matures June 15, 2012.


(B)	As of June 30, 2011, the weighted-average interest rate for the borrowings on the line of credit was 1.65%. As of June 30, 2011, we had $227 million of borrowings and $3 million of standby letters of credit outstanding; $370 million remained available for borrowing under our $600 million line of credit. As of July 1, 2011, all of the borrowings outstanding under our line of credit were repaid.

Table of Contents

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 6. Partners’ Capital

The changes in the Operating Partnership’s capital accounts were as follows during 2011 (in millions):



	Preferred Partnership Interest			Common Partners’ Capital			Accumulated Other Comprehensive Income (Loss)			Total Partnership Capital
January 1, 2011	$	790		$	1,385		$	(11	)	$	2,164
Net Income before Allocation to Series T-1 Preferred Interest and Partners				52						52
Other Comprehensive Income (Loss), net of tax							1			1
Total Comprehensive Income										53
Net Income Allocation to Series T-1 Preferred Interest	14			(14		)				—
Distributions to Partners (Common Partnership Interests)				(62		)				(62		)
Distributions for Series T-1 Preferred Interest	(14		)							(14		)
Capital Contributions from Parent				2						2
March 31, 2011	$	790		$	1,363		$	(10	)	$	2,143
Net Income before Allocation to Series T-1 Preferred Interest and Partners				59						59
Other Comprehensive Income (Loss), net of tax							1			1
Total Comprehensive Income										60
Net Income Allocation to Series T-1 Preferred Interest	15			(15		)				—
Distributions to Partners (Common Partnership Interests)				(66		)				(66		)
Distributions for Series T-1 Preferred Interest	(15		)							(15		)
Capital Contributions from Parent				2						2
June 30, 2011	$	790		$	1,343		$	(9	)	$	2,124

Table of Contents

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 7. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis. The Operating Partnership’s fair value measurements of its financial instruments, measured on a recurring basis, are categorized as Level 1 measurements under the fair value hierarchy in the Accounting Standards Codification. A Level 1 valuation is based on quoted prices in active markets at the measurement date for identical unrestricted assets or liabilities. Summarized below are the Level 1 assets reported in the Operating Partnership’s financial statements at fair value, measured on a recurring basis (in millions):



	Balance at June 30, 2011		Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets of Identical Assets (Level 1 Measurements)
Cash Equivalents ^(A)	$	249	$	249
Available-for-Sale Securities ^(B)	33		33
Trading Securities ^(B)	5		5
Total	$	287	$	287

	Balance at December 31, 2010		Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets of Identical Assets (Level 1 Measurements)
Cash Equivalents ^(A)	$	249	$	249
Available-for-Sale Securities ^(B)	30		30
Trading Securities ^(B)	5		5
Total	$	284	$	284


(A)	Consists of several money market funds and is included in the $253 million and $252 million of Cash and Cash Equivalents in the Consolidated Balance Sheets at June 30, 2011 and December 31, 2010, respectively.


(B)	Consists of several mutual funds and is included in Investment in Grantor Trusts in the Consolidated Balance Sheets at June 30, 2011 and December 31, 2010. At June 30, 2011, investments in these mutual funds were approximately 50% in domestic (U.S.) equities, 20% in international equities and 30% in debt securities.

Available-for-Sale Securities. Certain investments in the grantor trusts relate to the Operating Partnership's non-qualified pension plans and are classified as available-for-sale securities. The Operating Partnership has invested in various money market, debt and equity mutual funds and plans to use these investments to fund its non-qualified pension obligations. Unrealized holding gains and losses are included as a component of accumulated other comprehensive income. The Operating Partnership records changes in unrealized holding gains and losses in Other Comprehensive Income, unless an other than temporary impairment has occurred, which is then charged to expense. Changes in the fair value of available-for-sale securities were not material to the Operating Partnership's financial position or results of operations.

Trading Securities. Certain investments in the grantor trusts relate to the Operating Partnership's deferred compensation plans and are classified as trading securities. Deferred compensation amounts are invested in various money market, debt and equity mutual funds. The Operating Partnership plans to use these investments to fund deferred compensation obligations. Realized gains and losses and changes in unrealized gains and losses (and a corresponding amount of compensation expense) are recognized in the Operating Partnership's Consolidated Statements of Income. Deferred compensation obligations are included in Other Liabilities and were $5 million at June 30, 2011 and $5 million at December 31, 2010. Changes in the fair value of trading securities were not material to the Operating Partnership's financial position or results of operations.

Other Instruments. The carrying amount of notes receivable approximates fair value due to the short-term maturities of these instruments. The estimated fair value of the Operating Partnership's debt was approximately $1.99 billion and $1.95 billion at June 30, 2011 and December 31, 2010, respectively, and the carrying amount was $1.92 billion and $1.90 billion at June 30, 2011 and December 31, 2010, respectively. The fair value of the Operating Partnership's Public Debt (publicly issued Senior Notes) is

Table of Contents

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

estimated using market quotes. The fair value of the Operating Partnership's Private Debt (Senior Notes with various maturities and fixed interest rates which are privately placed with various lenders) is estimated using the same rates adjusted for the different maturities. The fair value of our Term Credit Agreement was determined by adjusting the spread over LIBOR to a current market spread for comparable debt.

Note 8. 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,
	2011			2010
Service Cost	$	2		$	2
Interest Cost	2			2
Expected Return on Plan Assets	(2		)	(2		)
Total Pension Cost	$	2		$	2

	Six Months Ended June 30,
	2011			2010
Service Cost	$	4		$	4
Interest Cost	4			4
Expected Return on Plan Assets	(4		)	(4		)
Total Pension Cost	$	4		$	4

Note 9. Commitments and Contingencies

Contingencies. The Operating Partnership is subject to regulations regarding forest, harvest and manufacturing practices and is, from time to time, involved in various legal proceedings, including environmental and regulatory matters, incidental to its business. Reserves have been established for any probable losses.

Unrecorded Contingencies. Management currently believes that resolving other 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.

Note 10. Variable Interest Entities

On October 1, 2008, a subsidiary of the Operating Partnership, Plum Creek Timber Operations I, LLC (“PC Member”), contributed 454,000 acres of timberlands located in its Southern Resources Segment to Southern Diversified Timber, LLC (“the Timberland Venture”) in exchange for a $705 million preferred interest and a 9% common interest valued at $78 million. The Timberland Venture’s other member, an affiliate of The Campbell Group LLC, contributed $783 million of cash in exchange for 91% of the Timberland Venture’s common interest. Following the formation of the Timberland Venture, Plum Creek Ventures I, LLC (“PC Ventures”), a 100% wholly-owned subsidiary of Plum Creek Timber Company, Inc., borrowed $783 million from the Timberland Venture. PC Ventures used the proceeds from the borrowing to make a $783 million capital contribution to the Operating Partnership. The Operating Partnership accounts for its interest in the Timberland Venture under the equity method of accounting.

Table of Contents

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Timberland Venture is a variable interest entity. The primary operating activities of the Timberland Venture consist of owning timberlands and entering into cutting contracts with an affiliate of the other member. Besides quarterly distributions to PC Ventures which it uses to fund interest payments on the loan owed by PC Ventures, the Operating Partnership has not provided financing or other support to the venture. The venture is financed by a $15 million line of credit obtained by the Timberland Venture.

We are not the primary beneficiary of the Timberland Venture. PC Member does not manage the day-to-day operations of the Timberland Venture, it has only limited protective rights and its involvement is generally limited to receiving distributions on its preferred and common interests. We are not the primary beneficiary because we do not direct the activities that most significantly impact the Timberland Venture’s economic performance. We believe that the activities that most significantly impact the Timberland Venture’s economic performance include managing the timberlands along with the timing and extent of the harvesting activities, neither of which we control.

Note 11. Summarized Income Statement Information of Affiliate

The earnings of the Timberland Venture are a significant component of consolidated earnings. See Note 10 of the Notes to Consolidated Financial Statements. Equity earnings for the Timberland Venture were $30 million for the six-month period ending June 30, 2011, and were $29 million for the six-month period ending June 30, 2010. Equity earnings includes the amortization of the difference between the book value of the Operating Partnership’s investment and its proportionate share of the Timberland Venture’s net assets of $3 million and $3 million for each of the six-month periods ended June 30, 2011 and 2010. The table below presents summarized income statement information for the Timberland Venture for the six months ended June 30 (in millions):



	Six Months Ended June 30,
	2011			2010
Revenues	$	7		$	10
Cost of Goods Sold^(A)	8			12
Selling, General and Administrative Expenses	1			1
Operating Income (Loss)	(2		)	(3		)
Interest Income, net	29			29
Net Income before Allocation to Preferred and Common Interests	$	27		$	26


(A)	Cost of Goods Sold includes Depreciation, Depletion and Amortization of $6 million and $10 million for the six-month periods ended June 30, 2011 and 2010, respectively.

Table of Contents

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 12. 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^(A)		Other		Total ^(C)

Quarter Ended June 30, 2011
External Revenues	$	42	$	84	$	79	$	74	$	5	$	284
Intersegment Revenues	2		—		—		—		—		2
Depreciation, Depletion and Amortization	5		12		1		3		—		21
Basis of Real Estate Sold	—		—		24		—		—		24
Other Operating Gain	—		—		—		—		—		—
Operating Income	3		15		50		5		4		77

Quarter Ended June 30, 2010
External Revenues	$	44	$	89	$	43	$	78	$	4	$	258
Intersegment Revenues	2		—		—		—		—		2
Depreciation, Depletion and Amortization	7		12		1		3		—		23
Basis of Real Estate Sold	—		—		11		—		—		11
Other Operating Gain	1		—		—		2		—		3
Operating Income	3		24		26		10		4		67

	Northern Resources		Southern Resources		Real Estate		Manufactured Products^(A)		Other ^(B)		Total ^(C)

Six Months Ended June 30, 2011
External Revenues	$	94	$	173	$	141	$	141	$	10	$	559
Intersegment Revenues	5		—		—		—		—		5
Depreciation, Depletion and Amortization	11		24		1		6		—		42
Basis of Real Estate Sold	—		—		43		—		—		43
Other Operating Gain	—		—		—		—		2		2
Operating Income	10		34		88		9		11		152

Six Months Ended June 30, 2010
External Revenues	$	97	$	187	$	142	$	138	$	11	$	575
Intersegment Revenues	8		—		—		—		—		8
Depreciation, Depletion and Amortization	14		25		1		6		—		46
Basis of Real Estate Sold	—		—		43		—		—		43
Other Operating Gain	1		—		—		2		5		8
Operating Income	7		54		88		14		15		178


(A)	During the second quarter of 2010, the Operating Partnership sold certain lumber manufacturing assets for a gain of $2 million. For the quarter and six months ended June 30, 2010, the $2 million gain is reported as Other Operating Gain in our Manufactured Products Segment and is included in Other Operating Income (Expense), net in the Consolidated Statements of Income.


(B)	During the first quarter of 2011, the Operating Partnership received a payment of $2 million for the settlement of a dispute that related to certain mineral rights. For the six months ended June 30, 2011, the $2 million payment is reported as Other

Table of Contents

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Operating Gain in our Other Segment and is included in Other Operating Income (Expense), net in the Consolidated Statements of Income.

During the first quarter of 2010, the Operating Partnership agreed to terminate a land lease for consideration of $5 million from the lessor. The land lease had been accounted for as an operating lease. For the six months ended June 30, 2010, the $5 million consideration is reported as Other Operating Gain in our Other Segment since the consideration was primarily for the release of mineral rights. For the six months ended June 30, 2010, the $5 million is included in Other Operating Income (Expense), net in the Consolidated Statements of Income.

During the first quarter of 2010, the Operating Partnership received $21 million for the sale of an undivided 50% interest in natural gas rights on approximately 110,000 acres in West Virginia and to modify an existing natural gas lease on the same acres. The Operating Partnership allocated the proceeds based on relative fair value and determined that $11 million was for the sale of the natural gas rights and $10 million was for a lease bonus related to the modification of exploration rights under the existing lease. The fair value of the undivided 50% interest in natural gas rights was derived using an income approach based on discounted future cash flows. For the six months ended June 30, 2010, the sale is reported as Gain on Sale of Properties, net of tax in the Consolidated Statements of Income and was not included in the Other Segment’s operating income. The fair value of the modification to the exploration rights under the existing lease was based on market analyses and comparable leases. The $10 million, along with the remaining deferred revenue at the time of the modification of $12 million associated with the original granting of exploration rights in 2008, is being amortized into revenue of the Other Segment over the expected three-year term.


(C)	Consolidated depreciation, depletion and amortization includes unallocated corporate depreciation of $1 million and $1 million for each of the quarterly periods ended June 30, 2011 and June 30, 2010; and $2 million and $2 million for each of the six-month periods ended June 30, 2011 and June 30, 2010.

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,
	2011			2010
Total Segment Operating Income	$	77		$	67
Corporate and Other Unallocated Expenses	(14		)	(12		)
Other Unallocated Operating Income (Expense), net	—			1
Operating Income	63			56
Equity Earnings from Timberland Venture	16			15
Interest Expense, net	(20		)	(19		)
Income before Income Taxes	$	59		$	52

	Six Months Ended June 30,
	2011			2010
Total Segment Operating Income	$	152		$	178
Corporate and Other Unallocated Expenses	(30		)	(28		)
Other Unallocated Operating Income (Expense), net	1			1
Operating Income	123			151
Equity Earnings from Timberland Venture	30			29
Interest Expense, net	(41		)	(39		)
Income before Income Taxes	$	112		$	141

Table of Contents

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

Forward-Looking Statement

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, 2010. 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 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2011.

Table of Contents

Organization of the Company

In management’s discussion and analysis of financial condition and results of operations (Item 2 of this form), when we refer to “Plum Creek,” “the company,” “we,” “us,” or “our,” we mean Plum Creek Timber Company, Inc. and its consolidated subsidiaries. References to Notes to Consolidated Financial Statements refer to the Notes to the Consolidated Financial Statements of Plum Creek Timber Company, Inc. included in Item 1 of this Form 10-Q.

Plum Creek Timber Company, Inc., a Delaware Corporation and a real estate investment trust, or “REIT”, for federal income tax purposes, is the parent company of Plum Creek Timberlands, L.P., a Delaware Limited Partnership (the “Operating Partnership” or “Partnership”), and Plum Creek Ventures I, LLC, a Delaware Limited Liability Company (“PC Ventures”). Plum Creek conducts substantially all of its activities through the Operating Partnership and various wholly-owned subsidiaries of the Operating Partnership.

The Operating Partnership has borrowed and has currently outstanding $1.9 billion principal amount of debt, including $1.0 billion of publicly issued notes. PC Ventures has borrowed and has currently outstanding $783 million in principal amount of debt (“the Note Payable to Timberland Venture”) from an entity (“the Timberland Venture”) in which a subsidiary of the Operating Partnership has a common and preferred equity interest. See Note 11 of the Notes to Consolidated Financial Statements. PC Ventures used the proceeds from the borrowing to make a $783 million capital contribution to the Operating Partnership in exchange for a preferred equity interest in the Operating Partnership. PC Ventures has no other activities and the Operating Partnership has no ownership interest in PC Ventures.

The Note Payable to Timberland Venture is an obligation of PC Ventures and not an obligation of the Operating Partnership. Therefore, any discussion of the Note Payable to Timberland Venture below is not applicable to the Operating Partnership. Unless otherwise specified, all other discussion and analysis below are applicable to both Plum Creek and the Operating Partnership.

Recent Events

Clean Water Act - Ninth Circuit Ruling. In August, 2010, a three judge panel of the U.S. Court of Appeals for the Ninth Circuit ruled in Northwest Environmental Defense Center (NEDC) v. Brown that ditches and culverts associated with “forest roads” were “point sources” under the Clean Water Act (“CWA”) and thus required National Pollution Discharge Elimination System (NPDES) permits should storm water runoff that is channeled and/or conveyed from such sources be discharged into waters of the United States. In May, 2011, the court denied a petition for rehearing, leaving its prior decision in place. The plaintiff alleged that the defendants violated the CWA by not obtaining EPA permits for stormwater runoff from logging roads into systems of ditches, culverts and channels that is then discharged into forest streams and rivers. The plaintiff further alleged that timber hauling on logging roads is a major source of sediment that flows through the stormwater collection system.

This decision overturns a long standing EPA rule that had exempted such sources of runoff from CWA permitting. Since 1976, the EPA has promulgated and amended a regulation specifically exempting from NPDES permitting requirements “point source” silviculture activities such as nursery operations, site preparation, reforestation and subsequent silvicultural treatment, thinning, prescribed burning, pest and fire control, harvesting operations, surface drainage, or road construction and maintenance from which there is “natural runoff” (the Silviculture Rule). Under the Silviculture Rule, the EPA did not require permitting for discharges from ditches, culverts and channels that collect stormwater runoff from logging roads. Instead, these forestry sources of stormwater runoff are regulated by the states, many of which do so by adopting best management practices.

The outcome of the court's decision is uncertain. The Company anticipates that a petition for review will be filed with the United States Supreme Court seeking to appeal the decision. In addition, legislation is being considered in Congress that would restore the Silviculture Rule exemption. However, at this point, it is unclear whether the Supreme Court will hear the case and if it did what the outcome would be. Moreover, it is unclear what the outcome of the Congressional action, if any, will be.

Should the decision stand, its impact on the company and the timber industry is unknown. It is unclear whether the EPA would require NPDES permits for forest roads outside of the area covered by the Ninth Circuit. It is also unclear what, if any, additional regulatory restrictions would be imposed by the NPDES permitting process. Further, if logging and other forest management roads and operations currently within the scope of the Silviculture Rule were placed within the NPDES permitting regime, it is possible that CWA "Total Maximum Daily Load" (TMDL) allocations in various stream drainages, "anti-degradation," and other NPDES requirements could be affected. A significant increase in operational and compliance costs for landowners and operators is possible depending upon the regulatory response to the court's decision.

Table of Contents

Results of Operations

Second Quarter 2011 Compared to Second Quarter 2010

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



	Quarter Ended June 30,						Change
	2011			2010			Change
Operating Income by Segment
Northern Resources	$	3		$	3		$	—
Southern Resources	15			24			(9		)
Real Estate	50			26			24
Manufactured Products	5			10			(5		)
Other	4			4			—
Total Segment Operating Income	77			67			10
Other Costs and Eliminations	(14		)	(12		)	(2		)
Other Unallocated Operating Income (Expense), net	—			1			(1		)
Operating Income	$	63		$	56		$	7

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



	Quarter Ended June 30, 2011			Quarter Ended June 30, 2010
	Harvest Tons (millions)	Average Sales Realization		Harvest Tons (millions)	Average Sales Realization
Sawlog ($/Ton Delivered)	0.471	$	72	0.484	$	66
Pulpwood ($/Ton Delivered)	0.244	$	40	0.348	$	38
Total	0.715			0.832

Revenues decreased by $2 million, or 4%, to $44 million in the second quarter of 2011 compared to the second quarter of 2010. This decrease was due primarily to lower pulpwood harvest volumes ($4 million) and lower sawlog harvest volumes ($1 million), partially offset by higher sawlog prices ($3 million). Pulpwood harvest volumes were 30% lower compared to the second quarter of 2010 due primarily to unusually wet weather in the current quarter that limited access to timberlands.

Sawlog prices were 9% higher in the second quarter of 2011 compared to the second quarter of 2010. Higher sawlog prices were due primarily to the increase in demand from China for the export of sawlogs from the Pacific Northwest. Log shipments from the U.S. to China during the first four months of 2011 increased more than four times over shipments during the same period of the prior year, and we expect favorable demand to continue.

Northern Resources Segment operating income was 7% of its revenues for both the second quarter of 2011 and the second quarter of 2010. Despite higher sawlog prices, operating income was $3 million for both the second quarter of 2011 and the second quarter of 2010 due primarily to higher log and haul costs. On a per ton basis, costs increased 13% ($3 million) due primarily to more expensive harvesting methods, longer hauling distances, and higher fuel costs. Segment costs and expenses decreased by $2 million, or 5%, to $41 million for the second quarter of 2011 due primarily to lower harvest levels, partially offset by higher log and haul costs.

Table of Contents

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



	Quarter Ended June 30, 2011			Quarter Ended June 30, 2010
	Harvest Tons (millions)	Average Sales Realization		Harvest Tons (millions)	Average Sales Realization
Sawlog ($/Ton Stumpage)	1.126	$	19	1.122	$	23
Pulpwood ($/Ton Stumpage)	1.592	$	9	1.448	$	12
Total	2.718			2.570

Revenues decreased by $5 million, or 6%, to $84 million in the second quarter of 2011 compared to the second quarter of 2010. This decrease was due primarily to lower pulpwood prices ($5 million) and lower sawlog prices ($4 million), partially offset by higher pulpwood volumes ($4 million). Pulpwood prices were 30% lower on a stumpage basis (12% lower on a delivered basis) in the second quarter of 2011 compared to the second quarter of 2010. Despite favorable paper markets, pulpwood prices declined due primarily to unusually dry harvesting conditions during the first half of 2011 compared to unusually wet harvesting conditions along with the temporary supply-chain disruption in global pulp markets as a result of the February 2010 earthquake in Chile, during the first half of 2010. Pulpwood harvest volumes were 10% higher during the second quarter of 2011 compared to the second quarter of 2010 due primarily to favorable harvesting conditions and good paper markets.

Sawlog prices were 19% lower on a stumpage basis (10% lower on a delivered basis) in the second quarter of 2011 compared to the second quarter of 2010. This decrease was due primarily to an ample supply of logs as a result of favorable harvesting conditions, weak demand and, to a lesser extent, selling a greater proportion of smaller diameter sawlogs. The demand for sawlogs remained weak due to depressed lumber and plywood prices and near record low housing starts. Housing starts in the U.S. were 5% lower during the first six months of 2011 compared to the first six months of 2010.

Southern Resources Segment operating income was 18% of its revenues for the second quarter of 2011 and 27% for the second quarter of 2010. This decrease was due primarily to lower sawlog and pulpwood prices and higher log and haul costs. Segment costs and expenses increased by $4 million, or 6%, to $69 million due primarily to an increase in the cost of fuel. Log and haul costs on a per ton basis increased 9% ($3 million) in the second quarter of 2011 compared to the second quarter of 2010.

Real Estate Segment.



	Quarter Ended June 30, 2011					Quarter Ended June 30, 2010
Property	Acres Sold	Revenues (millions)		Revenue per Acre		Acres Sold	Revenues (millions)		Revenue per Acre
Small Non-Strategic	2,695	$	4	$	1,125	1,950	$	2	$	1,120
Large Non-Strategic	—	—		—		—	—		—
Conservation	59,425	62		1,050		215	—		1,450
Higher and Better Use / Recreational	6,320	13		2,060		18,175	41		2,210
Development Properties	—	—		—		60	—		5,985
Total	68,440	$	79			20,400	$	43

Revenues increased by $36 million, or 84%, to $79 million in the second quarter of 2011 compared to the second quarter of 2010. This increase is due primarily to higher revenue from the sale of conservation properties ($62 million) offset in part by a decrease in the number of higher and better use / recreational acres sold ($26 million).

Revenues from the sale of conservation properties increased due primarily to selling large parcels in Florida, Arkansas and Louisiana. Conservation sales vary significantly from period to period and are primarily impacted by government and not-for-profit funding, the limited number of conservation buyers, and the timing of our transactions. Additionally, the price per acre for conservation properties can vary significantly due to the geographic location and the rationale for the conservation designation.

Table of Contents

this weak demand, we have focused our listings in markets with lower values and, accordingly, have reduced our listings in markets with higher values to preserve shareholder value.

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 ability of buyers to obtain financing, the number of competing 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 (especially for conservation sales). Also, in any period the sales average will vary based on the location and physical characteristics of the parcels sold.

Real Estate Segment operating income was 63% of its second quarter revenues for 2011 compared to 60% for 2010. Real Estate Segment costs and expenses increased by $12 million to $29 million in the second quarter of 2011 due primarily to selling more acres during 2011.

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



	Quarter Ended June 30, 2011			Quarter Ended June 30, 2010
	Sales Volume	Average Sales Realization ^(A)		Sales Volume	Average Sales Realization ^(A)
Lumber	29,654 MBF	$	529	30,813 MBF	$	522
Plywood	44,842 MSF	$	382	47,002 MSF	$	397
Fiberboard	43,070 MSF	$	608	50,010 MSF	$	607


(A)	Represents product prices at the mill level.

Revenues decreased by $4 million, or 5%, to $74 million in the second quarter of 2011 compared to the second quarter of 2010. This decrease was due primarily to lower MDF sales volume ($5 million).

MDF sales volume was 14% lower during the second quarter of 2011 due primarily to supply disruptions in the prior year, which increased our sales volume. In 2010, the supply of MDF was temporarily constrained due to the February 2010 earthquake in Chile.

Manufactured Products Segment operating income was 7% of its revenues for the second quarter of 2011 compared to 13% of its revenues for the second quarter of 2010. This decrease in operating performance was due primarily to a $2 million gain from the sale of certain lumber manufacturing assets during the second quarter of 2010 and increased manufacturing costs, primarily resin, in our MDF business. The $2 million gain is included in Other Operating Income (Expense), net in the Consolidated Statements of Income for the quarter ended June 30, 2010. Manufactured Products Segment costs and expenses decreased by $1 million, or 1%, to $69 million for the second quarter of 2011 due primarily to lower sales volume, offset in part by higher resin costs ($1 million). We continue to operate our manufacturing facilities at a reduced capacity.

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 2011 and by $11 million during the second quarter of 2010. The increase of $3 million was due primarily to lower intercompany log profit recognized (in the second quarter of 2011) and higher expenses for professional services. 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 2011.

Provision for Income Taxes. The provision for income taxes was zero for the second quarter of 2011 compared to $2 million for the second quarter of 2010. The decrease in tax expense of $2 million is due primarily to lower operating income of $5 million in our manufacturing business.

Table of Contents

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

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



	Six Months Ended June 30,						Change
	2011			2010			Change
Operating Income by Segment
Northern Resources	$	10		$	7		$	3
Southern Resources	34			54			(20		)
Real Estate	88			88			—
Manufactured Products	9			14			(5		)
Other	11			15			(4		)
Total Segment Operating Income	152			178			(26		)
Other Costs and Eliminations	(30		)	(28		)	(2		)
Other Unallocated Operating Income (Expense), net	1			1			—
Operating Income	$	123		$	151		$	(28	)

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



	Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
	Harvest Tons (millions)	Average Sales Realization		Harvest Tons (millions)	Average Sales Realization
Sawlog ($/Ton Delivered)	0.977	$	70	1.111	$	62
Pulpwood ($/Ton Delivered)	0.722	$	40	0.875	$	38
Total	1.699			1.986

Revenues decreased by $6 million, or 6%, to $99 million in the first six months of 2011 compared to the first six months of 2010. This decrease was due primarily to lower sawlog harvest volumes ($8 million) and lower pulpwood harvest volumes ($6 million), partially offset by higher sawlog prices ($8 million). Sawlog harvest volumes were 12% lower compared to the same period of 2010. During the first half of 2010, we temporarily increased sawlog harvest levels in order to increase the supply of logs at our mills in response to improving lumber and plywood prices and to fulfill commitments under log supply agreements that were deferred in 2009 due to weak product prices. Additionally, sawlog harvest levels were constrained during the first half of 2011 due to unusually heavy snowfall and wet weather. Pulpwood harvest volumes were 17% lower due primarily to our planned decrease in pulpwood harvests and wet weather conditions that limited harvesting. Total harvest levels for all of 2011 are expected to be comparable to the 4.0 million tons harvested during 2010; however, the mix of sawlogs is expected to increase from 54% to approximately 59% to capture favorable prices.

Sawlog prices were 14% higher in the first six months of 2011 compared to the first six months of 2010. Higher sawlog prices were due primarily to the increase in demand from China for the export of sawlogs from the Pacific Northwest. Log shipments from the U.S. to China during the first four months of 2011 increased more than four times over shipments during the same period of the prior year, and we expect favorable demand to continue.

Northern Resources Segment operating income was 10% of its revenues for the first six months of 2011 and 7% for the first six months of 2010. This increase was due primarily to higher sawlog prices. Segment costs and expenses decreased by $9 million, or 9%, to $89 million for the first six months of 2011 due primarily to lower harvest levels, partially offset by higher log and haul costs. On a per ton basis, costs increased 7% ($4 million) in the first six months of 2011 due primarily to more expensive harvesting methods, longer hauling distances, and higher fuel costs.

Table of Contents

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



	Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
	Harvest Tons (millions)	Average Sales Realization		Harvest Tons (millions)	Average Sales Realization
Sawlog ($/Ton Stumpage)	2.412	$	19	2.396	$	23
Pulpwood ($/Ton Stumpage)	3.086	$	9	2.974	$	13
Total	5.498			5.370

Revenues decreased by $14 million, or 8%, to $173 million in the first six months of 2011 compared to the first six months of 2010. This decrease was due primarily to lower pulpwood prices ($10 million) and lower sawlog prices ($5 million), partially offset by higher pulpwood volumes ($3 million). Pulpwood prices were 29% lower on a stumpage basis (12% lower on a delivered basis) in the first six months of 2011 compared to the first six months of 2010. Despite favorable paper markets, pulpwood prices declined due primarily to unusually dry harvesting conditions during the first half of 2011 compared to unusually wet harvesting conditions, along with the temporary supply-chain disruption of pulp as a result of the February 2010 earthquake in Chile, during the first half of 2010.

Sawlog prices were 16% lower on a stumpage basis (7% lower on a delivered basis) in the first six months of 2011 compared to the first six months of 2010. This decrease was due primarily to an ample supply of logs as a result of favorable harvesting conditions, weak demand and, to a lesser extent, selling a greater proportion of smaller diameter sawlogs. The demand for sawlogs remained weak due to depressed lumber and plywood prices and near record low housing starts. Housing starts in the U.S. were 5% lower during the first six months of 2011 compared to the first six months of 2010.

Pulpwood harvest volumes were 4% higher during the first six months of 2011 compared to the first six months of 2010 due primarily to favorable harvesting conditions and good paper markets. Total harvest levels (sawlogs and pulpwood) for all of 2011 are expected to decrease approximately 3% compared to the 11.5 million tons harvested during 2010; however, the mix of pulpwood (56%) is expected to be comparable to the percentage harvested during 2010.

Southern Resources Segment operating income was 20% of its revenues for the first six months of 2011 and 29% for the first six months of 2010. This decrease was due primarily to lower sawlog and pulpwood prices and higher log and haul costs. Segment costs and expenses increased by $6 million, or 5%, to $139 million due primarily to an increase in the cost of fuel. Log and haul costs on a per ton basis increased 8% ($6 million) in the first six months of 2011 compared to the first six months of 2010.

Real Estate Segment.



	Six Months Ended June 30, 2011					Six Months Ended June 30, 2010
Property	Acres Sold	Revenues (millions)		Revenue per Acre		Acres Sold	Revenues (millions)		Revenue per Acre
Small Non-Strategic	5,255	$	6	$	1,070	31,590	$	28	$	900
Large Non-Strategic	30,295	43		1,405		24,310	32		1,320
Conservation	59,760	63		1,055		35,335	19		550
Higher and Better Use / Recreational	14,115	29		2,080		27,255	60		2,185
Development Properties	—	—		—		790	3		3,270
Total	109,425	$	141			119,280	$	142

Revenues decreased by $1 million to $141 million in the first six months of 2011 compared to the first six months of 2010. Revenue during the first six months of 2011 was primarily from selling large parcels of conservation properties in Florida, Arkansas and Louisiana and approximately 30,000 acres of large non-strategic properties. In comparison, during the first six months of 2010, we sold approximately 83,000 acres in several large sales that included approximately 35,000 acres of conservation properties for $19 million, approximately 23,000 acres of small non-strategic properties for $21 million, and approximately 24,000 acres of large non-strategic properties for $32 million. Additionally, revenues from the sale of higher and better use / recreational acres during the first six months of 2011 decreased by $31 million compared to the same period in the prior year.

Conservation sales vary significantly from period to period and are primarily impacted by government and not-for-profit funding,

Table of Contents

the limited number of conservation buyers, and the timing of our transactions. Additionally, the price per acre for conservation properties can vary significantly due to the geographic location and the rationale for the conservation designation.

Revenues from the sale of higher and better use / recreational properties declined due primarily to weak demand and fewer offerings. Demand for higher and better use / recreational properties (especially our higher value properties) remains weak due to concerns over near-term real estate values, low consumer confidence, and the inability of buyers to secure debt financing. As a result of this weak demand, we have focused our listings in markets with lower values and, accordingly, have reduced our listings in markets with higher values to preserve shareholder value.

We expect revenues from real estate sales during 2011 to range between $250 million and $300 million which includes selling timberlands that are less strategic to the company (large non-strategic sales).

In both 2011 and 2010, Real Estate Segment operating income was 62% of its first half revenues. Real Estate Segment costs and expenses decreased by $1 million to $53 million in the first half of 2011.

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



	Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
	Sales Volume	Average Sales Realization ^(A)		Sales Volume	Average Sales Realization ^(A)
Lumber	58,904 MBF	$	531	59,604 MBF	$	512
Plywood	88,998 MSF	$	377	92,106 MSF	$	375
Fiberboard	83,760 MSF	$	608	85,357 MSF	$	599


(A)	Represents product prices at the mill level.

Revenues increased by $3 million, or 2%, to $141 million in the first six months of 2011 compared to the first six months of 2010. This slight increase in revenues was due primarily to higher MDF sales prices ($1 million) and higher lumber sales prices ($1 million), offset in part by lower MDF sales volume ($1 million). The Manufactured Products Segment continues to be impacted by weakness in the U.S. housing market and low levels of demand for wood products.

Manufactured Products Segment operating income was 6% of its revenues for the first six months of 2011 compared to 10% of its revenues for the first six months of 2010. This decrease in operating performance was due primarily to increased raw materials costs and a $2 million gain from the sale of certain lumber manufacturing assets during the second quarter of 2010. The $2 million gain is included in Other Operating Income (Expense), net in the Consolidated Statements of Income for the six months ended June 30, 2010. Manufactured Products Segment costs and expenses increased by $6 million, or 5%, to $132 million for the first six months of 2011 due primarily to higher raw materials costs, consisting mostly of higher resin costs at MDF ($2 million), higher log costs ($1 million) and higher costs of supplies to produce specialty plywood products ($1 million). These cost increases were offset in part by lower sales volume. We continue to operate our manufacturing facilities at a reduced capacity.

Other Segment. Operating income decreased $4 million to $11 million in the first six months of 2011 compared to the first six months of 2010 due primarily to a $5 million operating gain in connection with the termination of a land lease (primarily for the release of mineral rights) in the first quarter of 2010. Partially offsetting the decrease in operating income was a payment of $2 million that we received during the first quarter of 2011 for the settlement of a dispute that related to certain mineral rights. The $2 million and $5 million gains are recorded in our Other Segment and reported as Other Operating Income (Expense), net in our Consolidated Statements of Income.

During the first quarter of 2010, we received cash proceeds of $21 million for the sale of an undivided 50% interest in mineral

Table of Contents

rights (natural gas reserves on properties located in West Virginia) and to amend an agreement covering existing exploration rights. We allocated $11 million to the sale of mineral rights and $10 million to the modification of exploration rights. The sale of mineral rights is reported as Gain on Sale of Properties, net of tax in our Consolidated Statements of Income and was not included in the Other Segment's operating income. The remaining consideration of $10 million related to the modified exploration rights, along with the remaining deferred revenue at the time of the modification of $12 million associated with the original granting of exploration rights in 2008, is being amortized into revenue of the Other Segment over the expected three-year term.

Other Costs and Eliminations. Other costs and eliminations (which consist of corporate overhead and intercompany profit elimination) decreased operating income by $29 million during the first six months of 2011 and by $27 million during the first six months of 2010.

Interest Expense, net. Interest expense, net of interest income, increased $2 million, or 3%, to $70 million in the first six months of 2011. This increase was due primarily to an increase in the proportion of fixed-rate debt outstanding in the first six months of 2011 compared to the same period in the prior year.

Provision for Income Taxes. The provision for income taxes was $1 million for both the first six months of 2011 and the first six months of 2010. During the first six months of 2011, we recorded a valuation allowance of $3 million to reflect the estimated amount of deferred tax assets that may not be realized, which was offset by reduced tax expense from lower operating income of $5 million in our manufacturing business in the current year. The valuation allowance is related to certain state net operating loss carryforwards and other associated deferred tax assets that we do not believe it is more likely than not they will be realized in future periods.

Our determination of the realization of deferred tax assets is based upon management's judgment of various future events and uncertainties, including the timing, nature and amount of future taxable income earned by certain wholly-owned subsidiaries. A valuation allowance is recognized if management believes it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. At June 30, 2011, we have recorded deferred tax assets of $47 million (net of a $3 million valuation allowance) and deferred tax liabilities of $34 million. Management believes that due to the reversal of various taxable temporary differences and/or the planned execution of prudent and feasible tax planning strategies, sufficient taxable income can be generated to utilize the company's remaining deferred tax assets for which a valuation allowance was determined to be unnecessary.

Gain on Sale of Properties, net of tax. During 2010, we sold an undivided 50% interest in mineral rights (natural gas reserves) on properties located in West Virginia for $11 million. See Other Segment above for detailed discussion of the transaction.

Table of Contents

Financial Condition and Liquidity

We believe we have a strong balance sheet and do not foresee any near-term liquidity issues. At June 30, 2011, we had a cash balance of $253 million and had availability of $370 million under our line of credit. During the six months ended June 30, 2011, we generated cash from operating activities of $157 million and we refinanced $49 million of maturing 7.83% senior notes with our line of credit. We have summarized our sources and uses of cash in a table near the end of this section.

The following table summarizes total cash flows for operating, investing and financing activities for the six months ended June 30 (in millions):



	Six Months Ended June 30,
	2011			2010			Change
Net Cash Provided By Operating Activities	$	157		$	207		$	(50	)
Net Cash Used In Investing Activities	(40		)	(18		)	(22		)
Net Cash Used In Financing Activities	(116		)	(238		)	122
Change in Cash and Cash Equivalents	$	1		$	(49	)	$	50

Cash Flows from Operating Activities. Net cash provided by operating activities for the six months ended June 30, 2011 totaled $157 million compared to $207 million for the same period in 2010. This decrease of $50 million is due primarily to a $24 million working capital change and a combined $22 million decrease in operating income from both of our Resources Segments and our Manufactured Products Segments. See Results of Operations for a discussion of the factors impacting these segments.

We may enter into like-kind (tax-deferred) exchange transactions to sell and acquire timberlands. The unfavorable working capital change is due primarily to the timing of when proceeds from a like-kind exchange escrow account are either reinvested in replacement property or distributed to the company. Proceeds associated with a forward like-kind exchange are either reinvested in like-kind property within 180 days, or 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. At June 30, 2011, there are $35 million of proceeds held in a forward like-kind exchange escrow account compared to no proceeds held in a forward like-kind exchange account at December 31, 2010. There were no proceeds in a forward like-kind exchange account at either June 30, 2010 or December 31, 2009.

Capital Expenditures. Capital expenditures (excluding timberland and mineral acquisitions) for the six months ended June 30, 2011 were $29 million compared to $32 million for the same period in 2010. During the second quarter of 2011, we acquired mineral reserves for $12 million. Planned capital expenditures for 2011 (excluding timberland and mineral acquisitions) are expected to be approximately $75 million and include approximately $63 million for our timberlands, $4 million for our manufacturing facilities, $4 million for real estate development investments, and $5 million for investments in information technology. The timberland expenditures are primarily for reforestation and other expenditures associated with the planting and growing of trees. Approximately 55% of planned capital expenditures in 2011 are discretionary, primarily expenditures for silviculture. Capital expenditures at our manufacturing facilities consist primarily of expenditures to sustain operating activities.

Debt Financing. We strive to maintain a balance sheet that provides the financial flexibility to pursue our strategic objectives. In order to maintain this financial flexibility, our objective is to maintain an investment grade credit rating. This is reflected in our moderate use of debt, established access to credit markets and no material covenant restrictions in our debt agreements that would prevent us from prudently using debt capital. All of our borrowings, except for the Note Payable to Timberland Venture, are made by Plum Creek Timberlands, L.P., the company's wholly-owned operating partnership (“the Partnership”). Furthermore, all of the outstanding indebtedness of the Partnership is unsecured.

Line of Credit. We have a $600 million revolving line of credit agreement that matures in January 2015. As of June 30, 2011, the weighted-average interest rate for the borrowings on the line of credit was 1.65%. The interest rate on the line of credit is based on LIBOR plus 1.50%. This rate can range from LIBOR plus 1.275% to LIBOR plus 2% depending on our debt ratings. In addition to interest expense on outstanding borrowings, we pay an annual facility fee equal to 0.25% of the entire line regardless of the amount drawn on the line during the year. Subject to customary covenants, the line of credit allows for borrowings from time to time up to $600 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, 2011, we had $227 million of borrowings and $3 million of standby letters of credit outstanding; $370 million remained available for borrowing under our line of credit. As of July 1, 2011, all of the borrowings outstanding under our line of credit were repaid.

Term Credit Agreement. The company has a $350 million term credit agreement that matures in June 2012. As of June 30, 2011,

Table of Contents

the interest rate for the term credit agreement was 0.57%. The interest rate is based on LIBOR plus 0.375%. 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 that are substantially the same as those of the revolving line of credit. The agreement allows for prepayment of the borrowings at any time prior to the maturity date without premium or penalty.

Senior Notes. The company has outstanding Senior Notes with various maturities and fixed interest rates. As of June 30, 2011, the company had $309 million aggregate principal amount of Senior Notes outstanding that are privately placed borrowings with various lenders (“Private Debt”). The Private Debt matures serially through 2016.

As of June 30, 2011, the company had publicly issued and outstanding $1.0 billion aggregate principal amount of Senior Notes (“Public Debt”). The Public Debt consists of $575 million aggregate principal amount of 4.70% Public Debt which matures in 2021 and 5.875% Public Debt with an aggregate principal amount of $458 million which matures in 2015. The Public Debt is issued by the Partnership and is fully and unconditionally guaranteed by Plum Creek Timber Company, Inc.

Senior Notes outstanding, including unamortized discount, consisted of the following (in millions):



	June 30, 2011		December 31, 2010
Senior Notes
Public Debt	$	1,029	$	1,029
Private Debt	309		358
Total Senior Notes	$	1,338	$	1,387

Plum Creek Timber Company, Inc. and the Partnership have filed a shelf registration statement with the Securities and Exchange Commission. Under the shelf registration statement, 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 the Partnership, from time to time, may offer and sell debt securities. The company and the Partnership intend to maintain a shelf registration statement with respect to such securities.

Debt Covenants. Our Senior Notes, Term Credit Agreement and Line of Credit contain various restrictive covenants, none of which are expected to materially impact the financing of our ongoing operations. We are in compliance with all of our borrowing agreement covenants as of June 30, 2011.

Our Line of Credit and Term Credit Agreement require that we maintain certain interest coverage and maximum leverage ratios. We have no covenants and restrictions associated with changes in our debt ratings. Furthermore, there are no material covenants associated with our Note Payable to Timberland Venture, and this indebtedness is not considered in computing any of our debt covenants since the debt is an obligation of Plum Creek Timber Company, Inc. and not the Partnership.

The borrowing agreements for the Private Debt include limitations on the incurrence of indebtedness, making restricted payments (such as payments of cash dividends or stock repurchases), harvest levels and sales of assets. The restricted payments covenant is based on a computation of “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. At June 30, 2011, our entire cash balance of $253 million is available to make restricted payments.

As of June 30, 2011, we can borrow the entire amount available under our Line of Credit, and we expect to be able to incur at least this level of additional indebtedness for the next twelve months.

Future Cash Requirements. Cash required to meet our future financial needs will be significant. In the next twelve months, we have $395 million of scheduled debt principal payment requirements. We expect to fund these debt payments at or near maturity with new borrowings or a combination of cash and new borrowings. Additionally, we believe that our current cash on hand and cash flows from continuing operations will be sufficient for the next twelve months to fund planned capital expenditures, interest payments on our indebtedness and our dividend.

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

Table of Contents



	Six Months Ended June 30,
	2011			2010			Change
Sources of Cash:
Operations ^(A)	$	161		$	187		$	(26	)
Changes in Working Capital	(31		)	(7		)	(24		)
Cash Distributions from Timberland Venture	28			28			—
Cash from Stock Option Exercises	9			2			7
Cash from Sale of Properties and Other Assets	—			13			(13		)
Increase Debt Obligations, net	12			—			12
Total Sources of Cash	179			223			(44		)
Uses of Cash:
Returned to Stockholders:
Dividends	(136		)	(136		)	—
Common Stock Repurchases	(1		)	(51		)	50
Reinvest in the Business:
Capital Expenditures, including Real Estate Development ^(B)	(29		)	(32		)	3
Timberlands and Minerals Acquired	(12		)	—			(12		)
Reduce Debt Obligations, net	—			(53		)	53
Total Uses of Cash	(178		)	(272		)	94
Change in Cash and Cash Equivalents	$	1		$	(49	)	$	50


(A)	Calculated from the Consolidated Statements of Cash Flows by adding Depreciation, Depletion and Amortization, Basis of Real Estate Sold, Equity Earnings from Timberland Venture, Gain on Sales of Properties and Other Assets, Deferred Revenue from Long-Term Gas Leases (Net of Amortization), Deferred Income Taxes and Other Operating Activities to Net Income.


(B)	Calculated from the Consolidated Statements of Cash Flows by adding Capital Expenditures (excluding Timberland and Mineral Acquisitions) and Expenditures for Real Estate Development, which are included in Other Operating Activities, net. Expenditures for Real Estate Development were $1 million and $1 million for each of the six-month periods ending June 30, 2011 and 2010.

Equity. On August 2, 2011, the Board of Directors declared a dividend of $0.42 per share, or approximately $68 million, which will be paid on August 31, 2011 to stockholders of record on August 16, 2011. 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 Directors' discretion. At June 30, 2011, $200 million is available for share repurchases under the current Board of Directors' authorization.

Table of Contents

Other Information - New Accounting Standards

Presentation of Comprehensive Income. In June 2011, the Financial Accounting Standards Board (“FASB”) revised the manner in which entities present comprehensive income in their financial statements. The new guidance will require entities to report the components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. The new accounting standard does not change the items that are reported in other comprehensive income. The accounting standard is effective for Plum Creek beginning January 1, 2012. We expect the adoption of this new accounting standard will result in a separate financial statement for comprehensive income and do not expect any impact on our financial condition, results of operations or cash flows.

Fair Value Measurements and Disclosures. In May 2011, the FASB issued revised guidance on how to measure fair value and the related disclosures for such fair value measurements. While the revised guidance is largely consistent with existing fair value measurement principles under current accounting standards, the guidance does expand certain disclosure requirements. The revised accounting standard is effective for Plum Creek beginning January 1, 2012. While we are still evaluating the revised standard, we expect to make additional disclosures regarding fair value measurements in our financial statements but do not expect any impact on our financial condition, results of operations or cash flows.

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 2010 Annual Report on Form 10-K.

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Approximately $2.1 billion (including $783 million of related party obligations) 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. We also have variable rate debt that 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 and variable rate debt (in millions):



	2011			2012			2013			2014			2015			Thereafter			Total		Fair Value^(A)
June 30, 2011
Fixed Rate Debt
Third Party Obligations
Principal Due^(B)	$	46		$	3		$	250		$	3		$	462		$	579		$	1,343	$	1,414
Average Interest Rate^(C)	5.6		%	5.5		%	5.4		%	5.2		%	5.2		%	4.7		%
Related Party Obligations
Principal Due																$	783		$	783	$	908
Interest Rate																7.4		%
Variable Rate Debt^(D)				$	350														$	350	$	348
	2010			2011			2012			2013			2014			Thereafter			Total		Fair Value

June 30, 2010
Fixed Rate Debt
Third Party Obligations
Principal Due^(B)	3			$	308		$	3		$	250		$	3		$	467		$	1,034	$	1,112
Average Interest Rate^(C)	6.7		%	6.5		%	6.2		%	6.1		%	5.9		%	5.9		%
Related Party Obligations
Principal Due																$	783		$	783	$	871
Interest Rate																7.4		%
Variable Rate Debt							$	600											$	600	$	577

(A)

The fair value of the company's Public Debt is estimated using market quotes; the fair value of the company's Private Debt with unrelated third parties is estimated using the same rates adjusted for the different maturities. The fair value of the company's Note Payable to Timberland Venture is estimated using the same rates as the Public Debt adjusted by an estimated risk premium for holding company debt and the different maturity. The increase in fair value of our fixed rate debt compared to June 30, 2010 (excluding related party debt) was due primarily to the issuance of $575 million of Public Debt in November of 2010, partially offset by principal repayments of $265 million of Private Debt during the twelve month period. The increase in the fair value of our Note Payable to Timberland Venture at June 30, 2011 compared to June 30, 2010 was due primarily to lower market interest rates. In June 2011, credit spreads (the difference between corporate debt rates and treasury rates) were lower than June 2010, resulting in lower market interest rates and a corresponding increase in fair value. The fair value of our floating rate term loan (variable rate debt) as of June 30, 2011 and June 30, 2010 was determined by adjusting the spread over LIBOR to a current market spread for comparable debt as of June 30, 2011 and June 30, 2010.


(B)	Excludes unamortized discount of $5 million and $6 million at June 30, 2011 and 2010, respectively.


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

(D)

As of June 30, 2011, the interest rate for the $350 million term credit agreement was 0.57%. The interest rate on the term credit agreement is based on LIBOR plus 0.375%. This rate can range from LIBOR plus 0.3% to LIBOR plus 1.15% depending on our debt ratings. Not included in the above table are borrowings under our $600 million revolving line of credit of $227 million. As of June 30, 2011, the weighted-average interest rate on the $227 million of borrowings was 1.65%. The interest rate on the line of credit is based on LIBOR plus 1.50%. This rate can range from LIBOR plus 1.275% to LIBOR plus 2% depending on our debt ratings. As of July 1, 2011, all of the borrowings outstanding under our line of credit were repaid.

Table of Contents

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 10 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, 2010, as filed with the Securities and Exchange Commission on February 25, 2011.

Table of Contents

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 2011:



Period	Total Number of Shares Purchased ^(A)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ^(B)	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs ^(B)
April 1, 2011 through April 30, 2011	16 shares of common stock	$	43.68	— shares of common stock	$ 200 million
May 1, 2011 through May 31, 2011	347 shares of common stock	$	43.09	— shares of common stock	$ 200 million
June 1, 2011 through June 30, 2011	— shares of common stock	$	—	— shares of common stock	$ 200 million
Total	363 shares of common stock	$	43.12	— shares of common stock

(A)

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 price per share surrendered is based on the closing price of the company’s stock on the vesting dates of the awards.


(B)	The Board of Directors, from time to time, has authorized a share repurchase program. On August 3, 2010, the Board of Directors authorized an additional $200 million share repurchase program, which was publicly announced on August 4, 2010. At June 30, 2011, the remaining share repurchase authorization was $200 million.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None.

Table of Contents

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.

The agreements included as exhibits to this report are included to provide information about their terms and not to provide any other factual or disclosure information about the company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement that were made solely for the benefit of the other parties to the agreement and:


•	should not be treated as categorical statements of fact, but rather as a way of allocating the risk among the parties if those statements prove to be inaccurate;


•	may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;


•	may apply standards of materiality in a way that is different from what may be viewed as material to investors; and


•	were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.

Table of Contents

INDEX TO EXHIBITS



Exhibit Designation		Nature of Exhibit

2.1		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).

2.2		Contribution Agreement dated as of August 22, 2008 between Plum Creek Timber Operations I, LLC and TCG Member, LLC (Exhibit 2.1 to Form 8-K, File No. 1-10239, filed August 27, 2008).

2.3		Limited Liability Company Agreement of Southern Diversified Timber, LLC dated as of October 1, 2008 between Plum Creek Timber Operations I, LLC and TCG Member, LLC (Exhibit 2.2 to Form 8-K, File No. 1-10239, filed October 7, 2008).

3.1		Restated Certificate of Incorporation of Plum Creek Timber Company, Inc., as amended (Exhibit 3.1 to Form 10-Q, File No. 1-10239, for the quarter ended June 30, 2009).

3.2		Amended and Restated By-laws of Plum Creek Timber Company, Inc., as amended (Exhibit 3.2 to Form 10-K, File No. 1-10239, for the year ended December 31, 2009).

3.3		Amended and Restated Agreement of Limited Partnership of Plum Creek Timberlands, L.P. (Exhibit 3.3 to Form 10-K, File No. 1-10239, for the year ended December 31, 2010).

12.1		Statements regarding computation of ratios.

31.1		Certification of Rick R. Holley 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 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.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Table of Contents

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: August 5, 2011

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

Plum Creek Timber (PCL) Inactive 10-Q2011 Q2 Quarterly report

Content analysis