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 April 30, ~~2004~~2005

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

For the transition period from to

Commission File Number 1-566

GREIF, INC.

(Exact name of registrant as specified in its charter)

Delaware

31-4388903

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


425 Winter Road, Delaware, Ohio		43015
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (740) 549-6000

Not Applicable

Former name, former address and former fiscal year, if changed since last report.

Indicated 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. Yesx No¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yesx No¨

The number of shares outstanding of each of the issuer’s classes of common stock at the close of business on April 30, ~~2004~~2005 was as follows:


Class A Common Stock		~~10,797,605~~11,537,381 shares
Class B Common Stock		~~11,661,189~~11,561,189 shares

PART I. FINANCIAL INFORMATION

~~ITEM 1.~~

~~CONSOLIDATED FINANCIAL STATEMENTS~~

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME

(UNAUDITED)

(Dollars in thousands, except per share amounts)

   Three months ended
April 30,

Six months ended
April 30,

   2004
2003
2004
2003

Net sales
   $ 542,189 $ 470,807 $ 1,011,049 $ 905,485
Costs of products sold
   452,928 388,564 852,338 747,513


Gross profit
   89,261 82,243 158,711 157,972
Selling, general and administrative expenses
   55,745 59,000 106,770 118,501
Restructuring charges
   12,278 17,449 27,537 18,988
Gain on sale of assets
   1,122 1,934 5,231 2,345


Operating profit
   22,360 7,728 29,635 22,828
Interest expense, net
   10,716 13,923 22,963 27,477
Other income, net
   694 2,138 916 2,362


Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests
   12,338 (4,057 ) 7,588 (2,287 )
Income tax expense (benefit)
   3,800 (1,298 ) 2,337 (732 )
Equity in earnings of affiliates and minority interests
   (89 ) (1,654 ) (168 ) (2,749 )


Income (loss) before cumulative effect of change in accounting principle
   8,449 (4,413 ) 5,083 (4,304 )
Cumulative effect of change in accounting principle
   —   —   —   4,822


Net income (loss)
   $ 8,449 $ (4,413 ) $ 5,083 $ 518


Basic and diluted earnings (loss) per share:

Class A Common Stock (before cumulative effect)
   $ 0.30 $ (0.16 ) $ 0.18 $ (0.15 )
Class A Common Stock (after cumulative effect)
   $ 0.30 $ (0.16 ) $ 0.18 $ 0.02
Class B Common Stock (before cumulative effect)
   $ 0.45 $ (0.24 ) $ 0.27 $ (0.23 )
Class B Common Stock (after cumulative effect)
   $ 0.45 $ (0.24 ) $ 0.27 $ 0.02


	Three months ended April 30,						Six months ended April 30,
	2005			2004			2005			2004
Net sales	$	612,960		$	542,189		$	1,195,524		$	1,011,049
Cost of products sold		515,042			452,928			1,008,880			852,338

Gross profit		97,918			89,261			186,644			158,711

Selling, general and administrative expenses		56,068			55,745			115,789			106,770
Restructuring charges		10,621			12,278			17,807			27,537
Gain on sale of assets		4,194			1,122			14,538			5,231

Operating profit		35,423			22,360			67,586			29,635

Interest expense, net		10,693			10,716			20,786			22,963
Debt extinguishment charge		2,828			—			2,828			—
Other income, net		1,973			694			1,207			916

Income before income tax expense and equity in earnings of affiliates and minority interests		23,875			12,338			45,179			7,588

Income tax expense		7,001			3,800			12,966			2,337
Equity in earnings of affiliates and minority interests		(107	)		(89	)		(310	)		(168	)

Net income	$	16,767		$	8,449		$	31,903		$	5,083

Basic earnings per share:
Class A Common Stock	$	0.58		$	0.30		$	1.12		$	0.18
Class B Common Stock	$	0.88		$	0.45		$	1.67		$	0.27

Diluted earnings per share:
Class A Common Stock	$	0.57		$	0.30		$	1.09		$	0.18
Class B Common Stock	$	0.88		$	0.45		$	1.67		$	0.27

See accompanying Notes to Consolidated Financial Statements

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

April 30,
2004
October 31,
2003

   (Unaudited)
ASSETS
Current assets

Cash and cash equivalents
   $ 29,592 $ 49,767
Trade accounts receivable, less allowance of $12,013 in 2004 and $11,225 in 2003
   306,462 294,957
Inventories
   160,407 167,157
Net assets held for sale
   14,330 6,311
Deferred tax assets
   8,898 10,875
Other current assets
   60,393 54,390


   580,082 583,457


Long-term assets

Goodwill, net of amortization
   242,707 252,309
Other intangible assets, net of amortization
   28,701 30,654
Investment in affiliates
   5,395 4,421
Other long-term assets
   64,262 47,995


   341,065 335,379


Properties, plants and equipment

Timber properties, net of depletion
   88,367 86,437
Land
   103,183 100,615
Buildings
   315,275 320,229
Machinery and equipment
   822,212 831,815
Capital projects in progress
   44,498 36,522


   1,373,535 1,375,618
Accumulated depreciation
   (492,283 ) (463,243 )


   881,252 912,375


   $ 1,802,399 $ 1,831,211

ASSETS


	April 30, 2005			October 31, 2004
	(Unaudited)
Current assets
Cash and cash equivalents	$	52,029		$	38,109
Trade accounts receivable – less allowance of $8,972 in 2005 and $11,454 in 2004		282,564			307,750
Inventories		222,149			191,457
Net assets held for sale		14,630			14,753
Deferred tax assets		5,738			6,636
Other current assets		66,567			53,977

		643,677			612,682

Long-term assets
Goodwill		235,853			237,803
Other intangible assets, net of amortization		25,454			27,524
Other long-term assets		56,363			54,547

		317,670			319,874

Properties, plants and equipment
Timber properties, net of depletion		130,263			129,141
Land		69,522			68,349
Buildings		322,978			321,183
Machinery and equipment		860,804			851,800
Capital projects in progress		42,404			37,192

		1,425,971			1,407,665
Accumulated depreciation		(568,957	)		(526,983	)

		857,014			880,682

	$	1,818,361		$	1,813,238

See accompanying Notes to Consolidated Financial Statements

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

April 30,
2004

October 31,
2003

   (Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities

Accounts payable
   $ 158,906 $ 158,333
Accrued payrolls and employee benefits
   34,603 43,126
Restructuring reserves
   18,911 15,972
Short-term borrowings
   20,200 15,605
Current portion of long-term debt
   —   3,000
Other current liabilities
   66,708 76,282


   299,328 312,318


Long-term liabilities

Long-term debt
   624,114 643,067
Deferred tax liability
   159,778 159,825
Postretirement benefit liability
   48,683 48,504
Other long-term liabilities
   85,930 93,047


   918,505 944,443


Minority interest
   1,532 1,886


Shareholders’ equity

Common stock, without par value
   17,975 12,207
Treasury stock, at cost
   (63,772 ) (64,228 )
Retained earnings
   678,353 681,043
Accumulated other comprehensive loss:

- foreign currency translation
   (10,549 ) (15,314 )
- interest rate derivatives
   (10,270 ) (12,938 )
- minimum pension liability
   (28,703 ) (28,206 )


   583,034 572,564


   $ 1,802,399 $ 1,831,211

LIABILITIES AND SHAREHOLDERS’ EQUITY


	April 30, 2005			October 31, 2004
	(Unaudited)
Current liabilities
Accounts payable	$	241,930		$	281,265
Accrued payrolls and employee benefits		41,913			49,633
Restructuring reserves		14,252			17,283
Short-term borrowings		23,506			11,621
Other current liabilities		77,369			77,416

		398,970			437,218

Long-term liabilities
Long-term debt		466,215			457,415
Deferred tax liability		149,177			148,639
Pension liability		46,420			44,036
Postretirement benefit liability		49,401			48,667
Other long-term liabilities		34,583			46,444

		745,796			745,201

Minority interest		1,290			1,725

Shareholders’ equity
Common stock, without par value		41,147			27,382
Treasury stock, at cost		(69,438	)		(65,360	)
Retained earnings		734,773			711,919
Accumulated other comprehensive income (loss):
- foreign currency translation		13,627			5,655
- interest rate derivatives		(4,399	)		(7,097	)
- minimum pension liability		(43,405	)		(43,405	)

		672,305			629,094

	$	1,818,361		$	1,813,238

See accompanying Notes to Consolidated Financial Statements

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Dollars in thousands)


For the six months ended April 30,	2004			2003			2005			2004
Cash flows from operating activities:
Net income	$	5,083		$	518		$	31,903		$	5,083
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation, depletion and amortization		52,807			43,527			50,174			52,807
Asset impairments		2,252			1,698			3,896			2,252
Deferred income taxes		3,851			5,136			2,832			3,851
Gain on disposals of properties, plants and equipment, net		(5,231	)		(2,345	)		(14,538	)		(5,231	)
Equity in earnings of affiliates, net of dividends received, and minority interests		(1,328	)		161			310			(1,328	)
Cumulative effect of change in accounting principle		—			(4,822	)
Increase (decrease) in cash from changes in certain assets and liabilities:
Trade accounts receivable		(8,200	)		1,601			25,041			(8,200	)
Inventories		8,153			(7,459	)		(30,829	)		8,153
Other current assets		(5,615	)		12,921			(12,609	)		(5,615	)
Other long-term assets		(6,674	)		(658	)		(200	)		(6,674	)
Accounts payable		(2,167	)		(2,299	)		(39,254	)		(2,167	)
Accrued payroll and employee benefits		(8,423	)		(9,797	)		(7,720	)		(8,423	)
Restructuring reserves		2,939			6,018			(3,031	)		2,939
Other current liabilities		(11,502	)		(3,932	)		(7	)		(11,502	)
Postretirement benefit liability		179			(1,520	)		3,118			179
Other long-term liabilities		(4,607	)		(9,942	)		(12,362	)		(4,607	)

Net cash provided by operating activities		21,517			28,806
Net cash (used in) provided by operating activities								(3,276	)		21,517

Cash flows from investing activities:
Purchases of properties, plants and equipment		(28,096	)		(22,988	)		(26,200	)		(28,096	)
Proceeds on disposals of properties, plants and equipment		5,666			4,826			17,687			5,666

Net cash used in investing activities		(22,430	)		(18,162	)		(8,513	)		(22,430	)

Cash flows from financing activities:
Payments on long-term debt		(21,952	)		(8,220	)
Proceeds from (payments on) long-term debt								11,217			(21,952	)
Proceeds from short-term borrowings		4,252			7,877			12,880			4,252
Dividends paid		(7,774	)		(7,770	)		(9,049	)		(7,774	)
Acquisitions of treasury stock		(29	)		(1,031	)		(5,291	)		(29	)
Exercise of stock options		6,166			—			14,767			6,166

Net cash used in financing activities		(19,337	)		(9,144	)
Net cash provided by (used in) financing activities								24,524			(19,337	)

Effects of exchange rates on cash		75			(6,704	)		1,185			75

Net decrease in cash and cash equivalents		(20,175	)		(5,204	)
Net increase (decrease) in cash and cash equivalents								13,920			(20,175	)
Cash and cash equivalents at beginning of period		49,767			25,396			38,109			49,767

Cash and cash equivalents at end of period	$	29,592		$	20,192		$	52,029		$	29,592

See accompanying Notes to Consolidated Financial Statements

GREIF, INC. AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, ~~2004~~2005

NOTE 1 —– BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated balance sheets as of April 30, ~~2004~~2005 and October 31, ~~2003,~~2004 and the consolidated statements of ~~operations~~income and cash flows for the three-month and six-month periods ended April 30, ~~2004~~2005 and ~~2003 and cash flows for the six-month periods ended April 30,~~ 2004 ~~and 2003~~ of Greif, Inc. and subsidiaries (the “Company”). These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended October 31, ~~2003~~2004 (the ~~“2003~~“2004 Form 10-K”).

The Company’s fiscal year begins on November 1 and ends on October 31 of the following year. Any references to the year ~~2004~~2005 or ~~2003,~~2004, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ending in that year.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates.

Certain prior year amounts have been reclassified to conform to the ~~2004~~2005 presentation.

Stock-Based Compensation

At April 30, ~~2004,~~2005, the Company had various stock-based compensation plans as described in Note 10 to the Notes to Consolidated Financial Statements in the ~~2003~~2004 Form 10-K. The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans. If compensation cost would have been determined based on fair values at the date of grant under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” pro forma net income ~~(loss)~~ and earnings ~~(loss)~~ per share would have been as follows (Dollars in thousands, except per share amounts):

Three months
ended April 30,

Six months
ended April 30,

   2004
   2003
2004
   2003

Net income (loss) as reported
   $ 8,449    $ (4,413 ) $ 5,083    $ 518
Deduct total stock option expense determined under fair value method, net of tax
   767    1,022 1,456    1,974




Pro forma net income (loss)
   $ 7,682    $ (5,435 ) $ 3,627    $ (1,456 )




Basic and diluted earnings (loss) per share:

Class A Common Stock:

As reported
   $ 0.30    $ (0.16 ) $ 0.18    $ 0.02
Pro forma
   $ 0.27    $ (0.19 ) $ 0.13    $ (0.05 )
Class B Common Stock:

As reported
   $ 0.45    $ (0.24 ) $ 0.27    $ 0.02
Pro forma
   $ 0.41    $ (0.29 ) $ 0.19    $ (0.08 )


	Three months ended April 30,				Six months ended April 30,
	2005		2004		2005		2004
Net income as reported	$	16,767	$	8,449	$	31,903	$	5,083
Deduct total stock option expense determined under fair value method, net of tax		331		467		604		944

Pro forma net income	$	16,436	$	7,982	$	31,299	$	4,139

Earnings per share:

Class A Common Stock:
Basic – as reported	$	0.58	$	0.30	$	1.12	$	0.18
Basic – pro forma	$	0.57	$	0.28	$	1.10	$	0.15
Diluted – as reported	$	0.57	$	0.30	$	1.09	$	0.18
Diluted – pro forma	$	0.56	$	0.28	$	1.07	$	0.15

Class B Common Stock:
Basic – as reported	$	0.88	$	0.45	$	1.67	$	0.27
Basic – pro forma	$	0.86	$	0.42	$	1.63	$	0.22
Diluted – as reported	$	0.88	$	0.45	$	1.67	$	0.27
Diluted – pro forma	$	0.86	$	0.42	$	1.63	$	0.22

NOTE 2 —– RECENT ACCOUNTING STANDARDS

In December ~~2003,~~2004, the Financial Accounting Standards Board ~~(“FASB”)~~ issued a revision to SFAS No. ~~132, “Employers Disclosures about Pensions and Other Postretirement Benefits.” The~~123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”). This revision ~~relates~~will require the Company to ~~employers’ disclosures about pension plans and other postretirement benefit plans. It does not alter~~measure the ~~measurement or recognition provisions~~cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the ~~original~~award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. SFAS No. ~~132. It requires additional disclosures regarding assets, obligations, cash flows~~123R was effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. However, based on a new rule by the Securities and ~~net periodic benefit costs~~Exchange Commission, companies are allowed to implement SFAS No. 123R at the beginning of ~~pension plans~~their next fiscal year instead of the next reporting period that begins after June 15, 2005 (November 1, 2005 for the Company). SFAS No. 123R will apply to all awards granted after the required effective date and ~~other defined benefit postretirement plans. Excluding certain disclosure requirements,~~to awards modified, repurchased or canceled after that date. As of the ~~revised Statement~~required effective date, the Company will apply SFAS No. 123R using a modified version of prospective application. Under this transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123R for either recognition or pro forma disclosures. For periods before the required effective date, the Company has elected not to apply a modified version of retrospective application under which financial statements ~~with fiscal years ended after December 15, 2003. Interim period disclosures~~for prior periods are ~~effective for interim periods beginning after December 15, 2003 and have been included in Note 14 to the Notes to Consolidated Financial Statements in this Form 10-Q.~~

~~In December 2003, the FASB issued a revision to Interpretation~~adjusted by SFAS No. 46, “Consolidation of Variable Interest Entities.” This Interpretation defines when a business enterprise must consolidate a variable interest entity. The Interpretation provisions are effective for variable interest entities commonly referred to as special-purpose entities for periods ending after March 15, 2004. The Company does not have any material unconsolidated variable interest entities as of April 30, 2004 that would require consolidation.123R. Adoption of SFAS No. 123R is expected to result in compensation cost of approximately $1.0 million in the ~~subsequent provisions~~consolidated statements of ~~the Interpretation did not have a material impact on the Company’s financial position~~income in 2006, assuming no additional stock options are granted during 2005 or ~~results of operations.~~2006.

NOTE 3 —– SALE OF EUROPEAN ACCOUNTS RECEIVABLE

To further reduce borrowing costs, the Company entered into an arrangement to sell on a regular basis up to €55 million ($70.8 million at April 30, 2005) of certain outstanding accounts receivable of its European subsidiaries to a major international bank. At April 30, 2005, €42.9 million ($55.2 million) of accounts receivable were sold under this arrangement. The Company will continue to service these accounts receivable, although no interests have been retained. The acquiring international bank has full title and interest to the accounts receivable, will be free to further dispose of the accounts receivable sold to it and will be fully entitled to receive and retain for its own account the total collections of such accounts receivable. These accounts receivable have been removed from the balance sheet since they meet the applicable criteria of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

NOTE 4 – INVENTORIES

Inventories are summarized as follows (Dollars in thousands):


	April 30, 2004			October 31, 2003			April 30, 2005			October 31, 2004
Finished goods	$	53,626		$	44,894		$	66,446		$	60,615
Raw materials and work-in-process		138,132			153,482			190,993			168,477

		191,758			198,376			257,439			229,092
Reduction to state inventories on last-in, first-out basis		(31,351	)		(31,219	)		(35,290	)		(37,635	)

	$	160,407		$	167,157		$	222,149		$	191,457

NOTE ~~4 —~~5 – NET ASSETS HELD FOR SALE

Net assets held for sale represent land, buildings and land improvements less accumulated depreciation for locations that ~~have been closed.~~meet the classification requirements of net assets held for sale as defined in SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.” As of April 30, ~~2004,~~2005, there were 1610 facilities held for sale. The net assets held for sale are being marketed for sale and it is the Company’s intention to complete ~~the~~these sales within the upcoming year.

NOTE ~~5 —~~6 – GOODWILL AND OTHER INTANGIBLE ASSETS

The Company periodically reviews goodwill and indefinite-lived intangible assets for impairment as required by SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company has performed the required impairment tests and has concluded that no impairment exists at this time.

Changes to the carrying amount of goodwill for the six-month period ended April 30, ~~2004~~2005 are as follows (Dollars in thousands):

   Industrial
Packaging &
Services
Paper,
Packaging &
Services
   Total

Balance at October 31, 2003
   $ 220,619 $ 31,690    $ 252,309
Goodwill acquired
   8 1,697    1,705
Goodwill adjustment
   (8,879 ) —      (8,879 )
Currency translation
   (2,428 ) —      (2,428 )



Balance at April 30, 2004
   $ 209,320 $ 33,387    $ 242,707

~~The goodwill acquired relates to refinements to the allocation of the investment in CorrChoice, Inc. in the Paper, Packaging & Services segment.~~


	Industrial Packaging & Services			Paper, Packaging & Services		Total
Balance at October 31, 2004	$	204,975		$	32,828	$	237,803
Goodwill adjustments		(1,510	)		—		(1,510	)
Currency translation		(440	)		—		(440	)

Balance at April 30, 2005	$	203,025		$	32,828	$	235,853

The goodwill adjustment was recorded during the second quarter of 2005 to recognize ~~the cash surrender value of reinsurance contracts that are used~~a deferred tax asset related to ~~fund pension payments in Europe. The adjustment, which relates to the~~ Van Leer Industrial Packaging prior to its acquisition ~~was recorded~~by the Company in ~~the second quarter of 2004.~~2001.

All other intangible assets for the periods presented, except for $3.4 million, net, related to the Tri-Sure Trademark, are subject to amortization and are being amortized using the straight-line method over periods that range from two to 20 years. The detail of other intangible assets by class as of April 30, ~~2004~~2005 and October 31, ~~2003~~2004 are as follows (Dollars in thousands):


	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets		Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets
April 30, 2004:
April 30, 2005:
Trademarks and patents	$	18,077	$	5,359	$	12,718	$	18,077	$	6,727	$	11,350
Non-compete agreements		9,525		6,911		2,614		9,525		8,561		964
Customer relationships		6,582		230		6,352		7,425		748		6,677
Other		10,417		3,400		7,017		10,417		3,954		6,463

Total	$	44,601	$	15,900	$	28,701	$	45,444	$	19,990	$	25,454

October 31, 2003:
October 31, 2004:
Trademarks and patents	$	18,077	$	4,675	$	13,402	$	18,077	$	6,043	$	12,034
Non-compete agreements		9,525		5,985		3,540		9,525		7,731		1,794
Customer relationships		6,582		47		6,535		7,425		458		6,967
Other		10,417		3,240		7,177		10,417		3,688		6,729

Total	$	44,601	$	13,947	$	30,654	$	45,444	$	17,920	$	27,524

During the first six months of ~~2004,~~2005, there were no ~~significant~~ acquisitions of other intangible assets. Amortization expense for the six months ended April 30, 2005 and 2004 was $2.1 million and ~~2003 was~~ $2.0 ~~million.~~million, respectively. Amortization expense for the next five years is expected to be ~~$4.0 million in 2004, $3.6~~$3.7 million in 2005, ~~$2.9~~$3.0 million in 2006, $2.5 million in 2007, $2.5 million in 2008 and $2.4 million in ~~2008.~~

In accordance with the transition provisions of SFAS No. 141, “Business Combinations,” the Company recorded a $4.8 million gain as a cumulative effect of change in accounting principle for its remaining unamortized negative goodwill upon the adoption of SFAS No. 142 in the first quarter of 2003.2009.

NOTE ~~6 —~~7 – INVESTMENT IN AFFILIATES

The Company has ~~investments~~an investment in ~~Socer-Embalagens, Lda. (25%) and~~ Balmer Lawrie-Van Leer (40%) that ~~are~~is accounted for under the equity method. During the third quarter of 2004, the Company’s investment in Socer-Embalagens, Lda. (25%), which was previously accounted for under the equity method, was sold. The Company’s share of earnings for these affiliates is included in income as earned.

The summarized unaudited financial information below represents the combined results of those entities accounted for by the equity method (Dollars in thousands):


	Three months ended April 30,				Six months ended April 30,				Three months ended April 30,				Six months ended April 30,
	2004		2003		2004		2003		2005		2004		2005		2004
Net sales	$	4,259	$	4,036	$	8,191	$	7,395	$	3,784	$	4,259	$	7,522	$	8,191
Gross profit	$	928	$	850	$	1,806	$	1,600	$	592	$	928	$	1,176	$	1,806
Net income	$	157	$	174	$	296	$	274	$	276	$	157	$	549	$	296

NOTE ~~7 —~~8 – RESTRUCTURING CHARGES

During 2003, the Company began its transformation initiatives, ~~initially referred to as the performance improvement plan,~~ which ~~are expected~~continue to enhance long-term organic sales growth, ~~and~~generate productivity improvements and achieve permanent cost reductions. As a result, the Company incurred restructuring charges of $60.7 million in 2003 and ~~incurred $27.5~~$54.1 million in 2004, and $14.0 million during the first six months of ~~2004. The~~2005 related to the transformation initiatives. As previously disclosed, the Company ~~anticipates incurring additional~~expects a total of $15 million to $20 million in restructuring charges in 2005 related to transformation activities already begun prior to October 31, 2004. However, the Company is continuing to evaluate future rationalization options based on the progress of ~~approximately $17.5 million to $22.5 million during~~ the ~~remainder of 2004.~~transformation initiatives to-date.

As part of the transformation initiatives, the Company closed two company-owned plants (Industrial Packaging & Services segment) during the first six months of 2005 and four company-owned plants (three in the Industrial Packaging & Services segment and one in the Paper, Packaging & Services segment) during the first six months ~~ended April 30,~~of 2004. All of the plants ~~are~~were located in North America. In addition, corporate and administrative staff reductions have ~~continued~~been made throughout the world. As a result of the transformation initiatives, during the first six months of 2005, the Company recorded restructuring charges of $14.0 million, consisting of $7.0 million in employee separation costs, $0.1 million in asset impairments, $2.3 in professional fees directly related to the transformation initiatives and $4.6 million in other restructuring costs. During the second quarter of 2005, the Company also recorded $3.8 million of restructuring charges related to the impairment of two facilities, which are currently held for sale, that were closed during previous restructuring programs. During the first six months of 2004, the Company ~~recognized pre-tax~~recorded restructuring charges of $27.5 million, consisting of $9.0 million in employee separation costs, $2.3 million in asset impairments, $12.1 million in professional fees directly related to the transformation initiatives and ~~$16.2~~$4.1 million in other ~~costs, which were primarily for consulting services in connection with the transformation initiatives.~~restructuring costs. The asset impairment charges, ~~which relate~~related to the write-down to fair value of buildings and equipment, ~~are~~were based on recent buy offers, market comparables and/or data obtained from the Company’s commercial real estate broker.

A total of approximately ~~922~~1,500 employees have been or will be terminated in connection with the transformation initiatives, ~~315~~1,445 of which ~~were~~have been terminated ~~during the six months ended~~as of April 30, ~~2004.~~ 2005.

For each ~~of the Company’s~~ business ~~segments, amounts~~segment, costs incurred in ~~the second quarter of 2004,~~2005, the cumulative amounts incurred from the start of the transformation initiatives through April 30, ~~2004~~2005 and ~~the~~

total ~~amounts~~costs expected to be incurred in connection with the transformation initiatives are as follows (Dollars in thousands):


	Amounts Incurred in the Current Period		Cumulative Amounts Incurred to Date		Total Amounts Expected to be Incurred		Amounts Incurred in the Current Period		Cumulative Amounts Incurred to Date		Total Amounts Expected to be Incurred
Industrial Packaging & Services:
Employee separation costs	$	1,511	$	36,684	$	45,084	$	6,630	$	51,173	$	51,173
Asset impairments		75		8,173		10,973		153		9,821		9,821
Other costs		7,955		24,630		31,230
Professional fees								1,684		24,021		25,654
Other restructuring costs								4,362		20,713		24,513

		9,541		69,487		87,287		12,829		105,728		111,161

Paper, Packaging & Services:
Employee separation costs		567		6,939		6,939		406		7,409		7,409
Asset impairments		—		4,262		4,262		—		5,340		5,340
Other costs		2,098		7,102		7,102
Professional fees								566		5,742		6,291
Other restructuring costs								235		4,121		4,121

		2,665		18,303		18,303		1,207		22,612		23,161

Timber:
Employee separation costs		—		147		147		6		160		160
Asset impairments		—		36		36		—		39		39
Other costs		72		307		307
Professional fees								19		224		242
Other restructuring costs								3		162		162

		72		490		490		28		585		603

Total	$	12,278	$	88,280	$	106,080	$	14,064	$	128,925	$	134,925

Following is a reconciliation of the beginning and ending restructuring reserve balances for the six-month period ended April 30, ~~2004~~2005 (Dollars in thousands):


	Balance at October 31, 2003		Costs Incurred and Charged to Expense		Costs Paid or Otherwise Settled		Balance at April 30, 2004		Balance at October 31, 2004		Costs Incurred and Charged to Expense		Costs Paid or Otherwise Settled		Balance at April 30, 2005
Cash charges:
Employee separation costs	$	13,289	$	9,033	$	10,619	$	11,703	$	15,230	$	6,316	$	8,928	$	12,618
Other costs		2,482		16,252		11,526		7,208
Other restructuring costs										2,053		7,595		8,014		1,634

		15,771		25,285		22,145		18,911		17,283		13,911		16,942		14,252
Non-cash charges:
Asset impairments		201		2,252		2,453		—		—		3,896		3,896		—

Total	$	15,972	$	27,537	$	24,598	$	18,911	$	17,283	$	17,807	$	20,838	$	14,252

NOTE ~~8 —~~9 – LONG-TERM DEBT

Long-term debt is summarized as follows (Dollars in thousands):

   April 30,
2004
   October 31,
2003

$550 million Amended and Restated Senior Secured Credit Agreement
   $ 299,565    $ 308,783
8⁷/8% Senior Subordinated Notes
   251,251    251,380
Trade accounts receivable credit facility
   72,972    85,406
Other long-term debt
   326    498


   624,114    646,067
Current portion
   —      (3,000 )


   $ 624,114    $ 643,067


	April 30, 2005		October 31, 2004
Credit Agreement	$	129,390	$	—
Senior Secured Credit Agreement		—		81,398
8⁷/8 percent Senior Subordinated Notes		249,867		253,960
Trade accounts receivable credit facility		86,958		103,857
Other long-term debt		—		18,200

	$	466,215	$	457,415

~~$550~~Credit Agreement

As of March 2, 2005, the Company and certain of its international subsidiaries, as borrowers, entered into a $350 million ~~Amended~~Credit Agreement (the “Credit Agreement”) with a syndicate of financial institutions, as lenders, Deutsche Bank AG, New York Branch, as administrative agent, Deutsche Bank Securities Inc., as joint lead arranger and ~~Restated~~ sole book-runner, KeyBank National Association, as joint lead arranger and syndication agent and National City Bank, Fleet National Bank and ING Capital LLC, as co-documentation agents. The Credit Agreement provides for a $350 million revolving multicurrency credit facility. The revolving multicurrency credit facility is available for ongoing working capital and general corporate purposes and to refinance amounts outstanding under the Senior Secured Credit Agreement, which is described in the next section. Interest is based on a Eurocurrency rate or an alternative base rate that resets periodically plus a calculated margin amount. As a result, a debt extinguishment charge of $2.8 million was recorded during the second quarter of 2005.

On March 3, 2005, $189.4 million was borrowed under the revolving multicurrency credit facility in order to prepay the obligations outstanding under the Senior Secured Credit Agreement and certain costs and expenses incurred in connection with the Credit Agreement. As of April 30, 2005, $129.4 million was outstanding under the revolving multicurrency credit facility.

Senior Secured Credit Agreement

On August 23, 2002, the Company and certain ~~of its non-United States~~international subsidiaries entered into a $550 million Amended and Restated Senior Secured Credit Agreement (the “Senior Secured Credit Agreement”) with a syndicate of ~~lenders.~~lenders, which was replaced on March 2, 2005, as described above. A portion of the proceeds from the Senior Secured Credit Agreement was used to refinance amounts outstanding under the Company’s then existing $900 million senior secured credit agreement. The ~~Amended and Restated~~ Senior Secured Credit Agreement originally provided for a $300 million term loan and a $250 million revolving multicurrency credit facility. The revolving multicurrency credit facility iswas available for working capital and general corporate ~~purposes, and has been permanently reduced to $240 million.~~purposes. On February 11, 2004, the Company amended its term loan

under the ~~Amended and Restated~~ Senior Secured Credit Agreement. As a result of the amendment, the term loan was increased from its balance then outstanding of $226 million to $250 million and the applicable margin was lowered by 50 basis points while maintaining the existing maturity schedule. The incremental borrowings under the term loan were used to reduce borrowings under the revolving multicurrency credit ~~facility. The term loan~~facility, which was permanently reduced to $230 million. Interest was based on either a London InterBank Offered Rate (“LIBOR”) or an alternative base rate that was reset periodically ~~reduces through its maturity date of August 23, 2009 and the revolving multicurrency credit facility matures on February 28, 2006.~~plus a calculated margin amount.

8⁷/8% Senior Subordinated Notes

On July 31, 2002, the Company issued Senior Subordinated Notes in the aggregate principal amount of $250 million, receiving net proceeds of approximately $248 million before expenses. At April 30, ~~2004,~~2005, the outstanding balance of ~~$251.3~~$249.9 million included gains on fair value hedges the Company ~~has~~had in place to hedge interest rate risk. Interest on the Senior Subordinated Notes is payable semi-annually at the annual rate of ~~8.875%.~~8.875 percent. The Senior Subordinated Notes do not have required principal payments prior to maturity on August 1, 2012. However, the Senior Subordinated Notes are redeemable at the option of the Company beginning August 1, 2007, at the redemption prices set forth below (expressed as percentages of principal amount), plus accrued interest, if any, to the redemption date:


Year	Redemption Price
2007	104.438	%
2008	102.958	%
2009	101.479	%
2010 and thereafter	100.000	%

In addition, prior to August 1, 2007, the Company may redeem the Senior Subordinated Notes by paying a specified “make-whole” premium.

A description of the guarantors of the Senior Subordinated Notes by the Company’s United States subsidiaries is included in Note ~~16.~~17.

Trade Accounts Receivable Credit Facility

On October 31, 2003, the Company entered into a five-year, up to ~~$120~~$120.0 million, credit facility with an affiliate of a bank in connection with the securitization of certain of the Company’s ~~U.S.~~United States trade accounts receivable. The credit facility is secured by certain of the Company’s ~~U.S.~~United States trade accounts receivable and bears interest at a variable rate based on ~~the London InterBank Offered Rate (“LIBOR”)~~LIBOR plus a margin or other agreed upon rate ~~(1.40%~~(2.85 percent interest rate as of April 30, ~~2004)~~2005). The Company also pays a commitment fee. The Company can terminate this facility at any time upon 60 days prior written notice. In connection with this transaction, the Company established Greif Receivables Funding LLC, which is included in the Company’s consolidated financial statements. This entity purchases and services the Company’s trade accounts receivable that are subject to this credit facility. As of April 30, 2005, there was a total of $87.0 million outstanding under the trade accounts receivable credit facility.

NOTE ~~9 —~~10 – FINANCIAL INSTRUMENTS

The Company had interest rate swap agreements with an aggregate notional amount of ~~$345~~$290 million at April 30, ~~2004,~~2005 with various maturities through 2012. Under certain of these agreements, the Company receives interest quarterly from the counterparties equal to ~~the~~ LIBOR ~~rate~~ and pays interest at a weighted average rate of ~~5.6%~~5.93 percent over the life of the contracts. The Company is also party to agreements in which the Company receives interest semi-annually from the counterparty equal to a fixed rate of ~~8.875%~~8.875 percent and pays interest based on ~~the~~ LIBOR ~~rate~~ plus a ~~spread. At~~

~~April 30, 2004, a~~margin. A net liability for the loss on interest rate swap contracts, which represented their fair values at that time, in the amount of ~~$12.3~~$4.4 million ($~~8.5~~2.9 million, net of tax) at April 30, 2005 was recorded.

At April 30, ~~2004,~~2005, the Company had outstanding foreign currency forward contracts in the notional amount of ~~$30.8~~$33.7 million. The fair value of these contracts at April 30, ~~2004~~2005 resulted in a loss of ~~$0.1~~$0.5 million recorded in the consolidated ~~statement~~statements of ~~operations.~~income. The purpose of these contracts is to hedge the Company’s short-term intercompany loan balances with ~~foreign~~its international businesses.

While the Company may be exposed to credit losses in the event of nonperformance by the counterparties to its derivative financial instrument contracts, its counterparties are established banks and financial institutions with high credit ratings. The Company has no reason to believe that such counterparties will not be able to fully satisfy their obligations under these contracts.

The fair values of all derivative financial instruments are estimated based on current settlement prices of comparable contracts obtained from dealer quotes. The values represent the estimated amounts the Company would pay or receive to terminate the agreements at the reporting date.

NOTE ~~10 —~~11 – CAPITAL STOCK

Class A Common Stock is entitled to cumulative dividends of 1 cent a share per year after which Class B Common Stock is entitled to non-cumulative dividends up to ½ cent per share per year. Further distribution in any year must be made in proportion of 1 cent a share for Class A Common Stock to 1 ½¹/2 cents a share for Class B Common Stock. The Class A Common Stock has no voting rights unless four quarterly cumulative dividends upon the Class A Common Stock are in arrears. The Class B Common Stock has full voting rights. There is no cumulative voting for the election of directors.

The following table summarizes the Company’s Class A and Class B common and treasury shares at the specified dates:


	Authorized Shares	Issued Shares	Outstanding Shares	Treasury Shares	Authorized Shares	Issued Shares	Outstanding Shares	Treasury Shares
April 30, 2004:
April 30, 2005:
Class A Common Stock	32,000,000	21,140,960	10,797,605	10,343,355	32,000,000	21,140,960	11,537,381	9,603,579
Class B Common Stock	17,280,000	17,280,000	11,661,189	5,618,811	17,280,000	17,280,000	11,561,189	5,718,811
October 31, 2003:

October 31, 2004:
Class A Common Stock	32,000,000	21,140,960	10,573,346	10,567,614	32,000,000	21,140,960	11,025,466	10,115,494
Class B Common Stock	17,280,000	17,280,000	11,662,003	5,617,997	17,280,000	17,280,000	11,661,189	5,618,811

NOTE ~~11 —~~12 – DIVIDENDS PER SHARE

The following dividends per share were paid during the periods indicated:


	Three months ended April 30,				Six months ended April 30,				Three months ended April 30,				Six months ended April 30,
	2004		2003		2004		2003		2005		2004		2005		2004
Class A Common Stock	$	0.14	$	0.14	$	0.28	$	0.28	$	0.16	$	0.14	$	0.32	$	0.28
Class B Common Stock	$	0.21	$	0.21	$	0.41	$	0.41	$	0.24	$	0.21	$	0.47	$	0.41

NOTE ~~12 —~~13 – CALCULATION OF EARNINGS ~~(LOSS)~~ PER SHARE

The Company has two classes of common stock and, as such, applies the “two-class method” of computing earnings ~~(loss)~~ per share as prescribed in SFAS No. 128, “Earnings Per Share.” In accordance with the Statement, earnings ~~(losses)~~ are allocated first to Class A and Class B Common Stock to the extent that dividends are actually paid and the remainder allocated assuming all of the earnings ~~(losses)~~ for the period have been distributed in the form of dividends.

The following is a reconciliation of the average shares used to calculate basic and diluted earnings ~~(loss)~~ per share:


	Three months ended April 30,		Six months ended April 30,		Three months ended April 30,		Six months ended April 30,
	2004	2003	2004	2003	2005	2004	2005	2004
Class A Common Stock:
Basic shares	10,783,122	10,570,846	10,701,627	10,566,743	11,377,891	10,783,122	11,248,592	10,701,627
Assumed conversion of stock options	238,269	—	234,908	—	435,858	238,269	387,701	234,908

Diluted shares	11,021,391	10,570,846	10,936,535	10,566,743	11,813,749	11,021,391	11,636,293	10,936,535

Class B Common Stock:
Basic and diluted shares	11,661,789	11,724,403	11,661,892	11,739,532	11,561,189	11,661,789	11,600,974	11,661,892

There were no stock options and 12,000 stock options that were antidilutive for the three-month and six-month periods ended April 30, 2005, respectively, and 20,000 stock options that were antidilutive for the three-month and six-month periods ended April 30, ~~2004 (18,000 and 8,000 for the three-month and six-month periods, respectively, ended April 30, 2003).~~2004.

1415

NOTE ~~13 —~~14 – COMPREHENSIVE INCOME

Comprehensive income is comprised of net income ~~(loss)~~ and other charges and credits to equity that are not the result of transactions with the Company’s owners. The components of comprehensive income, net of tax, are as follows (Dollars in thousands):


	Three months ended April 30,					Six months ended April 30,						Three months ended April 30,					Six months ended April 30,
	2004		2003			2004			2003			2005			2004		2005		2004
Net income (loss)	$	8,449	$	(4,413	)	$	5,083		$	518
Net income												$	16,767		$	8,449	$	31,903	$	5,083
Other comprehensive income (loss):
Foreign currency translation adjustment		6,541		7,264			4,765			5,019			(2,716	)		6,541		7,972		4,765
Change in market value of interest rate derivatives, net of tax		2,283		(964	)		2,668			(824	)		1,017			2,283		2,698		2,668
Minimum pension liability adjustment, net of tax		—		(1,224	)		(497	)		(1,224	)		—			—		—		(497	)

Comprehensive income	$	17,273	$	663		$	12,019		$	3,489		$	15,068		$	17,273	$	42,573	$	12,019

NOTE ~~14 —~~15 – RETIREMENT PLANS AND POSTRETIREMENT ~~HEALTH CARE~~HEALTHCARE AND LIFE INSURANCE BENEFITS

The components of net periodic pension cost include the following (Dollars in thousands):


	Three months ended April 30,						Six months ended April 30,						Three months ended April 30,						Six months ended April 30,
	2004			2003			2004			2003			2005			2004			2005			2004
Service cost	$	3,070		$	2,783		$	6,140		$	5,567		$	3,169		$	3,070		$	6,334		$	6,140
Interest cost		6,110			5,620			12,221			11,240			6,608			6,110			13,227			12,221
Expected return on plan assets		(7,069	)		(6,580	)		(14,138	)		(13,161	)		(7,383	)		(7,069	)		(14,770	)		(14,138	)
Amortization of prior service cost, initial net asset and net actuarial gain		749			228			1,498			456			1,161			749			2,324			1,498

	$	2,860		$	2,051		$	5,721		$	4,102		$	3,555		$	2,860		$	7,115		$	5,721

The Company made ~~$2.4~~$8.8 million in pension contributions in the first half of ~~2004.~~2005. Based on minimum funding requirements, $16.6 million of pension contributions are estimated for the entire ~~2004~~2005 fiscal ~~year are estimated at $11.2 million.~~year.

The components of net periodic cost for postretirement healthcare and life insurance benefits include the following (Dollars in thousands):

Three months
ended April 30,

Six months
ended April 30,

   2004
2003
2004
2003

Service cost
   $ 15 $ 34 $ 29 $ 68
Interest cost
   833 884 1,666 1,767
Amortization of net prior service cost and recognized actuarial loss
   (31 ) (12 ) (63 ) (25 )


   $ 817 $ 906 $ 1,632 $ 1,810

��

On December 8, 2003, the “Medicare Prescription Drug Improvement and Modernization Act of 2003” (the “Act”) was signed into law. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least “actuarially equivalent” to Medicare Part D.


	Three months ended April 30,						Six months ended April 30,
	2005			2004			2005			2004
Service cost	$	6		$	15		$	11		$	29
Interest cost		784			833			1,571			1,666
Amortization of net prior service cost and recognized actuarial loss		(57	)		(31	)		(116	)		(63	)

	$	733		$	817		$	1,466		$	1,632

1516

A proposed FASB Staff Position 106-b (“FSP 106-b”) was issued providing guidance on accounting for the effects of the Act for employers that sponsor postretirement health care plans providing prescription drug benefits. FSP 106-b supersedes FSP FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003.”

The guidance in FSP 106-b applies only to the sponsor of a single-employer defined benefit postretirement health plan for which the employer has concluded that prescription drug benefits available under the plan are actuarially equivalent and thus qualify for the subsidy under the Act and the expected subsidy will offset or reduce the employer’s share of the costs of postretirement prescription drug coverage provided by the plan. FSP 106-b is effective for the first interim or annual period beginning after June 15, 2004.

The Company has determined that its plan is actuarially equivalent and has compared the Medicare Part D plan to its retiree prescription drug coverage using actuarial equivalencies and reflecting the retiree premiums and cost sharing provisions of the various plans. This analysis shows the Company’s plans provide more valuable benefits to retirees than the Medicare Part D plan. As permitted in FSP FAS 106-1, the Company has elected to defer recognition of the expected subsidy from the Medicare Act. The adjustment will not have a material impact on the Company’s financial position or results of operations.

NOTE ~~15 —~~16 – BUSINESS SEGMENT INFORMATION

The Company operates in three business segments: Industrial Packaging & Services; Paper, Packaging & Services; and Timber.

Operations in the Industrial Packaging & Services segment involve the production and sale of industrial packaging and related services. These products are manufactured and sold in over 40 countries throughout the world.

Operations in the Paper, Packaging & Services segment involve the production and sale of containerboard, both semi-chemical and recycled, corrugated sheets, corrugated containers and multiwall bags and related services. These products are manufactured and sold in North America.

Operations in the Timber segment involve the management and sale of timber in the southeastern United States (approximately 281,000 acres of timberland were owned at April 30, 2005). The Company also owns approximately 35,000 acres of timberland in Canada, which are not actively managed at this time. In May 2005, the Company completed the first phase of the sale of 56,000 acres of timberland, timber and associated assets for approximately $90 million, subject to closing adjustments. In this first phase, 35,000 acres of the Company’s timberland holdings in Florida, Georgia and Alabama were sold for approximately $51 million in the third quarter of 2005. The second phase of this transaction is expected to occur in several installments during 2006. For further information, see Note 18 – Subsequent Event.

The Company’s reportable segments are strategic business units that offer different products. The accounting policies of the reportable segments are substantially the same as those described in the “Description of Business and Summary of Significant Accounting Policies” note (see Note 1) in the ~~2003~~2004 Form 10-K, except that the Company accounts for inventories on a first-in, first-out basis at the segment level compared to a last-in, first-out basis at the consolidated level for most locations in the United States.10-K.

1617

The following segment information is presented for the periods indicated (Dollars in thousands):


	Three months ended April 30,				Six months ended April 30,				Three months ended April 30,				Six months ended April 30,
	2004		2003		2004		2003		2005		2004		2005		2004
Net sales:
Industrial Packaging & Services	$	399,689	$	343,387	$	737,080	$	646,535	$	458,404	$	399,689	$	887,446	$	737,080
Paper, Packaging & Services		138,043		120,775		263,337		245,455		150,034		138,043		298,239		263,337
Timber		4,457		6,645		10,632		13,495		4,522		4,457		9,839		10,632

Total net sales	$	542,189	$	470,807	$	1,011,049	$	905,485	$	612,960	$	542,189	$	1,195,524	$	1,011,049

Operating profit:
Operating profit before restructuring charges and timberland gains:
Industrial Packaging & Services	$	27,760	$	13,942	$	36,611	$	17,457	$	29,411	$	27,760	$	47,090	$	36,611
Paper, Packaging & Services		2,435		4,821		7,788		12,712		10,372		2,435		19,963		7,788
Timber		3,079		4,846		7,475		9,683		2,868		3,079		6,875		7,475

Total operating profit before restructuring charges and timberland gains		33,274		23,609		51,874		39,852
Operating profit before restructuring charges and timberland gains										42,651		33,274		73,928		51,874

Restructuring charges:
Industrial Packaging & Services		9,541		13,562		21,563		14,727		8,809		9,540		15,607		21,563
Paper, Packaging & Services		2,665		3,791		5,834		4,165		1,764		2,665		2,141		5,834
Timber		72		96		140		96		48		73		59		140

Total restructuring charges		12,278		17,449		27,537		18,988		10,621		12,278		17,807		27,537

Timberland gains:							��
Timber		1,364		1,568		5,298		1,964		3,393		1,364		11,465		5,298

Total	$	22,360	$	7,728	$	29,635	$	22,828	$	35,423	$	22,360	$	67,586	$	29,635

Depreciation, depletion and amortization expense:
Industrial Packaging & Services	$	17,019	$	16,088	$	34,078	$	30,942	$	16,176	$	17,019	$	32,312	$	34,078
Paper, Packaging & Services		8,486		8,707		17,311		17,554		8,322		8,486		16,774		17,311
Timber		592		354		1,418		754		694		592		1,088		1,418

Total depreciation, depletion and amortization expense	$	26,097	$	25,149	$	52,807	$	49,250	$	25,192	$	26,097	$	50,174	$	52,807


	April 30, 2004		October 31, 2003		April 30, 2005		October 31, 2004
Assets:
Industrial Packaging & Services	$	1,147,867	$	1,153,939	$	1,223,950	$	1,201,689
Paper, Packaging & Services		295,739		341,305		291,556		303,245
Timber		128,636		123,582		142,741		130,688

Total segment		1,572,242		1,618,826		1,658,247		1,635,622
Corporate and other		230,157		212,385		160,114		177,616

Total assets	$	1,802,399	$	1,831,211	$	1,818,361	$	1,813,238

The following table presents net sales to external customers by geographic area (Dollars in thousands):


	Three months ended April 30,				Six months ended April 30,				Three months ended April 30,				Six months ended April 30,
	2004		2003		2004		2003		2005		2004		2005		2004
Net sales:
North America	$	305,470	$	283,980	$	573,494	$	559,037	$	332,515	$	305,470	$	649,691	$	573,494
Europe		159,001		129,407		291,947		236,728		191,316		159,001		367,486		291,947
Other		77,718		57,420		145,608		109,720		89,129		77,718		178,347		145,608

Total net sales	$	542,189	$	470,807	$	1,011,049	$	905,485	$	612,960	$	542,189	$	1,195,524	$	1,011,049

The following table presents total assets by geographic area (Dollars in thousands):


	April 30, 2004		October 31, 2003		April 30, 2005		October 31, 2004
Assets:
North America	$	1,194,695	$	1,253,983	$	1,151,074	$	1,136,781
Europe		414,486		389,171		436,918		469,094
Other		193,218		188,057		230,369		207,363

Total assets	$	1,802,399	$	1,831,211	$	1,818,361	$	1,813,238

NOTE ~~16 —~~17 – SUMMARIZED CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The Senior Subordinated Notes, more fully described in Note 8 – Long-Term Debt, are fully guaranteed, jointly and severally, by the Company’s United States subsidiaries (“Guarantor Subsidiaries”). The Company’s non-United States subsidiaries are not guaranteeing the Senior Subordinated Notes (“Non-Guarantor Subsidiaries”). Presented below are summarized condensed consolidating financial statements of Greif, Inc. (the “Parent”), which includes certain of the Company’s operating units, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and the Company on a consolidated basis.

On November 1, 2004, the Company restructured certain of its United States operations and subsidiaries. As a result, the condensed consolidating financial statements at April 30, 2005 and for the three-month and six-month periods ended April 30, 2005 reflect these changes.

Presented below are condensed consolidating financial statements of the Parent, the Guarantor Subsidiaries and the non-Guarantor Subsidiaries at April 30, 2005 and October 31, 2004, and for the three-month and six-month periods ended April 30, 2005 and 2004. These summarized condensed consolidating financial statements are prepared using the equity method. Separate financial statements for the Guarantor Subsidiaries are not presented based on management’s determination that they do not provide additional information that is material to investors.

1819

Condensed Consolidating Statement of Operations
Three months ended April 30, 2004

   Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated

Net sales
   $ 168,899 $ 152,821    $ 284,337 $ (63,868 ) $ 542,189
Cost of products sold
   144,371 132,585    239,840 (63,868 ) 452,928




Gross profit
   24,528 20,236    44,497 —   89,261
Selling, general and administrative expenses
   23,002 5,643    27,100 —   55,745
Restructuring charges
   1,841 9,583    854 —   12,278
Gain on sale of assets
   —   882    240 —   1,122




Operating profit (loss)
   (315 ) 5,892    16,783 —   22,360
Interest expense, net
   9,346 425    945 —   10,716
Other income (expense), net⁽¹⁾
   (10,153 ) 9,735    1,112 —   694




Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests
   (19,814 ) 15,202    16,950 —   12,338
Income tax expense (benefit)
   (6,102 ) 4,682    5,220 —   3,800
Equity in earnings of affiliates and minority interests
   22,161 —      (89 ) (22,161 ) (89 )




Net income (loss)
   $ 8,449 $ 10,520    $ 11,641 $ (22,161 ) $ 8,449

Condensed Consolidating ~~Statement~~Statements of ~~Operations~~Income

~~Six~~For the three months ended April 30, ~~2004~~2005

   Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated

Net sales
   $ 322,689 $ 283,979    $ 524,091 $ (119,710 ) $ 1,011,049
Cost of products sold
   280,059 245,141    446,848 (119,710 ) 852,338




Gross profit
   42,630 38,838    77,243 —   158,711
Selling, general and administrative expenses
   47,961 9,443    49,366 —   106,770
Restructuring charges
   5,049 18,991    3,497 —   27,537
Gain on sale of assets
   —   4,901    330 —   5,231




Operating profit (loss)
   (10,380 ) 15,305    24,710 —   29,635
Interest expense, net
   19,518 1,489    1,956 —   22,963
Other income (expense), net⁽¹⁾
   (19,042 ) 14,614    5,344 —   916




Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests
   (48,940 ) 28,430    28,098 —   7,588
Income tax expense (benefit)
   (15,073 ) 8,756    8,654 —   2,337
Equity in earnings of affiliates and minority interests
   38,950 —      (168 ) (38,950 ) (168 )




Net income (loss)
   $ 5,083 $ 19,674    $ 19,276 $ (38,950 ) $ 5,083


	Parent		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	1,326	$	328,866		$	311,844		$	(29,076	)	$	612,960
Cost of products sold		994		279,135			263,989			(29,076	)		515,042

Gross profit		332		49,731			47,855			—			97,918

Selling, general and administrative expenses		304		30,650			25,114			—			56,068
Restructuring charges		—		4,670			5,951			—			10,621
Gain on sale of assets		—		3,029			1,165			—			4,194

Operating profit		28		17,440			17,955			—			35,423

Interest expense, net		—		8,707			1,986			—			10,693
Debt extinguishment charge		—		2,828			—			—			2,828
Other income (expense), net (1)		4		(3,494	)		5,463			—			1,973

Income before income tax expense and equity in earnings of affiliates and minority interests		32		2,411			21,432			—			23,875

Income tax expense		9		754			6,238			—			7,001
Equity in earnings of affiliates and minority interests		16,744		—			(107	)		(16,744	)		(107	)

Net income (loss)	$	16,767	$	1,657		$	15,087		$	(16,744	)	$	16,767


For the six months ended April 30, 2005
	Parent		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	2,592	$	646,223		$	607,240		$	(60,531	)	$	1,195,524
Cost of products sold		1,929		551,509			515,973			(60,531	)		1,008,880

Gross profit		663		94,714			91,267			—			186,644

Selling, general and administrative expenses		605		60,733			54,451			—			115,789
Restructuring charges		—		9,155			8,652			—			17,807
Gain on sale of assets		—		13,453			1,085			—			14,538

Operating profit		58		38,279			29,249			—			67,586

Interest expense, net		—		17,682			3,104			—			20,786
Debt extinguishment charge		—		2,828			—			—			2,828
Other income (expense), net (1)		6		(6,542	)		7,743			—			1,207

Income before income tax expense and equity in earnings of affiliates and minority interests		64		11,227			33,888			—			45,179

Income tax expense		18		3,222			9,726			—			12,966
Equity in earnings of affiliates and minority interests		31,857		—			(310	)		(31,857	)		(310	)

Net income (loss)	$	31,903	$	8,005		$	23,852		$	(31,857	)	$	31,903

⁽¹⁾	~~Parent column other expense amount and a related amount of other income in the Guarantor Subsidiaries column primarily~~Includes amounts that relate to an intercompany royalty ~~arrangement.~~

~~Condensed Consolidating Statement of Operations~~

~~Three months ended April 30, 2003~~

   Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Consolidated

Net sales
   $ 173,569 $ 129,209 $ 227,367 $ (59,338 ) $ 470,807
Cost of products sold
   149,645 107,893 190,364 (59,338 ) 388,564


Gross profit
   23,924 21,316 37,003 —   82,243
Selling, general and administrative expenses
   28,138 5,231 25,631 —   59,000
Restructuring charges
   2,411 10,058 4,980 —   17,449
Gain on sale of assets
   22 1,243 669 —   1,934


Operating profit (loss)
   (6,603 ) 7,270 7,061 —   7,728
Interest expense (income), net
   12,312 (24 ) 1,635 —   13,923
Other income (expense), net⁽¹⁾
   (10,254 ) 11,481 911 —   2,138


Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests
   (29,169 ) 18,775 6,337 —   (4,057 )
Income tax expense (benefit)
   (8,462 ) 5,304 1,860 —   (1,298 )
Equity in earnings of affiliates and minority interests
   16,294 (4,254 ) (191 ) (13,503 ) (1,654 )


Net income (loss)
   $ (4,413 ) $ 9,217 $ 4,286 $ (13,503 ) $ (4,413 )

~~Condensed Consolidating Statement of Operations~~

~~Six months ended April 30, 2003~~

   Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Consolidated

Net sales
   $ 342,195 $ 253,362 $ 422,181 $ (112,253 ) $ 905,485
Cost of products sold
   293,280 212,188 354,298 (112,253 ) 747,513


Gross profit
   48,915 41,174 67,883 —   157,972


Selling, general and administrative expenses
   51,227 17,665 49,609 —   118,501
Restructuring charges
   3,534 10,058 5,396 —   18,988
Gain on sale of assets
   34 1,693 618 —   2,345


Operating profit (loss)
   (5,812 ) 15,144 13,496 —   22,828


Interest expense (income), net
   24,789 (372 ) 3,060 —   27,477
Other income (expense), net⁽¹⁾
   (20,345 ) 22,627 80 —   2,362


Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests
   (50,946 ) 38,143 10,516 —   (2,287 )
Income tax expense (benefit)
   (16,303 ) 12,206 3,365 —   (732 )
Equity in earnings of affiliates and minority interests
   30,339 (7,973 ) (201 ) (24,914 ) (2,749 )


Income (loss) before cumulative effect of change in accounting principle
   (4,304 ) 17,964 6,950 (24,914 ) (4,304 )
Cumulative effect of change in accounting principle
   4,822 —   —   —   4,822


Net income (loss)
   $ 518 $ 17,964 $ 6,950 $ (24,914 ) $ 518

⁽¹⁾	~~Parent column other expense amount and a related amount of other income in the Guarantor Subsidiaries column primarily relate to an intercompany royalty arrangement.~~arrangements.

Condensed Consolidating ~~Balance Sheet~~Statement of Income

For the Three months ended April 30, 2004

   Parent
   Guarantor
Subsidiaries
   Non-Guarantor
Subsidiaries
   Eliminations
Consolidated
ASSETS

Current assets

Cash and cash equivalents
   $ —      $ 4,515    $ 25,077    $ —   $ 29,592
Trade accounts receivable
   73,458    55,755    177,249    —   306,462
Inventories
   13,501    43,843    103,063    —   160,407
Other current assets
   38,059    8,599    36,963    —   83,621





   125,018    112,712    342,352    —   580,082





Long-term assets

Goodwill and other intangible assets
   113,438    39,626    118,344    —   271,408
Other long-term assets
   933,003    523,125    30,725    (1,417,196 ) 69,657





   1,046,441    562,751    149,069    (1,417,196 ) 341,065





Properties, plants and equipment, net
   231,723    373,459    276,070    —   881,252





   $ 1,403,182    $ 1,048,922    $ 767,491    $ (1,417,196 ) $ 1,802,399





LIABILITIES & SHAREHOLDERS’ EQUITY

Current liabilities

Accounts payable
   $ 18,792    $ 29,660    $ 110,454    $ —   $ 158,906
Short-term borrowings
   —      —      20,200    —   20,200
Other current liabilities
   17,939    33,982    68,301    —   120,222





   36,731    63,642    198,955    —   299,328





Long-term liabilities

Long-term debt
   616,991    —      7,123    —   624,114
Other long-term liabilities
   166,426    56,738    71,227    —   294,391





   783,417    56,738    78,350    —   918,505





Minority interest
   —      —      1,532    —   1,532





Shareholders’ equity
   583,034    928,542    488,654    (1,417,196 ) 583,034





   $ 1,403,182    $ 1,048,922    $ 767,491    $ (1,417,196 ) $ 1,802,399

~~Condensed Consolidating Balance Sheet~~

~~October 31, 2003~~

   Parent
   Guarantor
Subsidiaries
   Non-Guarantor
Subsidiaries
   Eliminations
Consolidated
ASSETS

Current assets

Cash and cash equivalents
   $ —      $ 26,421    $ 23,346    $ —   $ 49,767
Trade accounts receivable
   84,282    49,517    161,158    —   294,957
Inventories
   16,896    46,696    103,565    —   167,157
Other current assets
   30,938    8,348    32,290    —   71,576





   132,116    130,982    320,359    —   583,457





Long-term assets

Goodwill and other intangible assets
   113,117    38,847    130,999    —   282,963
Other long-term assets
   952,972    524,372    10,651    (1,435,579 ) 52,416





   1,066,089    563,219    141,650    (1,435,579 ) 335,379





Properties, plants and equipment, net
   243,007    383,205    286,163    —   912,375





   $ 1,441,212    $ 1,077,406    $ 748,172    $ (1,435,579 ) $ 1,831,211





LIABILITIES & SHAREHOLDERS’ EQUITY

Current liabilities

Accounts payable
   $ 26,776    $ 39,392    $ 92,165    $ —   $ 158,333
Short-term borrowings
   —      —      15,605    —   15,605
Current portion of long-term debt
   3,000    —      —      —   3,000
Other current liabilities
   20,353    22,146    92,881    —   135,380





   50,129    61,538    200,651    —   312,318





Long-term liabilities

Long-term debt
   637,034    —      6,033    —   643,067
Other long-term liabilities
   181,485    56,645    63,246    —   301,376





   818,519    56,645    69,279    —   944,443





Minority interest
   —      —      1,886    —   1,886





Shareholders’ equity
   572,564    959,223    476,356    (1,435,579 ) 572,564





   $ 1,441,212    $ 1,077,406    $ 748,172    $ (1,435,579 ) $ 1,831,211


	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	168,899		$	152,821	$	284,337		$	(63,868	)	$	542,189
Cost of products sold		144,371			132,585		239,840			(63,868	)		452,928

Gross profit		24,528			20,236		44,497			—			89,261

Selling, general and administrative expenses		23,002			5,643		27,100			—			55,745
Restructuring charges		1,841			9,583		854			—			12,278
Gain on sale of assets		—			882		240			—			1,122

Operating profit (loss)		(315	)		5,892		16,783			—			22,360

Interest expense, net		9,346			425		945			—			10,716
Other income (expense), net (1)		(10,153	)		9,735		1,112			—			694

Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests		(19,814	)		15,202		16,950			—			12,338

Income tax expense (benefit)		(6,102	)		4,682		5,220			—			3,800
Equity in earnings of affiliates and minority interests		22,161			—		(89	)		(22,161	)		(89	)

Net income (loss)	$	8,449		$	10,520	$	11,641		$	(22,161	)	$	8,449


For the Six months ended April 30, 2004

	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	322,689		$	283,979	$	524,091		$	(119,710	)	$	1,011,049
Cost of products sold		280,059			245,141		446,848			(119,710	)		852,338

Gross profit		42,630			38,838		77,243			—			158,711

Selling, general and administrative expenses		47,961			9,443		49,366			—			106,770
Restructuring charges		5,049			18,991		3,497			—			27,537
Gain on sale of assets		—			4,901		330			—			5,231

Operating profit (loss)		(10,380	)		15,305		24,710			—			29,635

Interest expense, net		19,518			1,489		1,956			—			22,963
Other income (expense), net (1)		(19,042	)		14,614		5,344			—			916

Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests		(48,940	)		28,430		28,098			—			7,588

Income tax expense (benefit)		(15,073	)		8,756		8,654			—			2,337
Equity in earnings of affiliates and minority interests		38,950			—		(168	)		(38,950	)		(168	)

Net income (loss)	$	5,083		$	19,674	$	19,276		$	(38,950	)	$	5,083

(1)	Includes amounts that relate to intercompany royalty arrangements.

Condensed Consolidating ~~Statement~~Balance Sheets

April 30, 2005


	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	—	$	25,440	$	26,589	$	—		$	52,029
Trade accounts receivable		805		138,190		143,569		—			282,564
Inventories		282		65,655		156,212		—			222,149
Other current assets		1,826		16,878		68,231		—			86,935

		2,913		246,163		394,601		—			643,677

Long-term assets
Goodwill and other intangible assets		—		141,526		119,781		—			261,307
Other long-term assets		1,101,769		614,353		13,768		(1,673,527	)		56,363

		1,101,769		755,879		133,549		(1,673,527	)		317,670

Properties, plants and equipment, net		2,009		575,760		279,245		—			857,014

	$	1,106,691	$	1,577,802	$	807,395	$	(1,673,527	)	$	1,818,361

LIABILITIES & SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	92	$	101,335	$	140,503	$	—		$	241,930
Short-term borrowings		—		—		23,506		—			23,506
Other current liabilities		4,663		21,106		107,765		—			133,534

		4,755		122,441		271,774		—			398,970

Long-term liabilities
Long-term debt		429,527		—		36,688		—			466,215
Other long-term liabilities		104		199,955		79,522		—			279,581

		429,631		199,955		116,210		—			745,796

Minority interest		—		35		1,255		—			1,290

Shareholders’ equity		672,305		1,255,371		418,156		(1,673,527	)		672,305

	$	1,106,691	$	1,577,802	$	807,395	$	(1,673,527	)	$	1,818,361

October 31, 2004


	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	—	$	13,784	$	24,325	$	—		$	38,109
Trade accounts receivable		87,737		62,196		157,817		—			307,750
Inventories		11,626		49,328		130,503		—			191,457
Other current assets		16,320		8,913		50,133		—			75,366

		115,683		134,221		362,778		—			612,682

Long-term assets
Goodwill and other intangible assets		113,291		28,556		123,480		—			265,327
Other long-term assets		808,519		399,106		26,687		(1,179,765	)		54,547

		921,810		427,662		150,167		(1,179,765	)		319,874

Properties, plants and equipment, net		231,337		360,376		288,969		—			880,682

	$	1,268,830	$	922,259	$	801,914	$	(1,179,765	)	$	1,813,238

LIABILITIES & SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	26,990	$	86,895	$	167,380	$	—		$	281,265
Short-term borrowings		—		—		11,621		—			11,621
Other current liabilities		4,477		51,339		88,516		—			144,332

		31,467		138,234		267,517		—			437,218

Long-term liabilities
Long-term debt		437,863		—		19,552		—			457,415
Other long-term liabilities		170,406		38,378		79,002		—			287,786

		608,269		38,378		98,554		—			745,201

Minority interest		—		—		1,725		—			1,725

Shareholders’ equity		629,094		745,647		434,118		(1,179,765	)		629,094

	$	1,268,830	$	922,259	$	801,914	$	(1,179,765	)	$	1,813,238

Condensed Consolidating Statements of Cash Flows

For the six months ended April 30, 2005


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	(11,644	)	$	3,893		$	4,475		$	—	$	(3,276	)

Cash flows from investing activities:
Purchases of properties, plants and equipment		—			(8,857	)		(17,343	)		—		(26,200	)
Proceeds on disposals of properties, plants and equipment		—			16,620			1,067			—		17,687

Net cash provided by (used in) investing activities		—			7,763			(16,276	)		—		(8,513	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt		11,217			—			—			—		11,217
Proceeds on short-term borrowings		—			—			12,880			—		12,880
Other, net		427			—			—			—		427

Net cash provided by financing activities		11,644			—			12,880			—		24,524

Effects of exchange rates on cash		—			—			1,185			—		1,185

Net increase in cash and cash equivalents		—			11,656			2,264			—		13,920
Cash and cash equivalents at beginning of period		—			13,784			24,325			—		38,109

Cash and cash equivalents at end of period	$	—		$	25,440		$	26,589		$	—	$	52,029

For the six months ended April 30, 2004

   Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
   Consolidated

Cash flows from operating activities:

Net cash provided by (used in) operating activities
   $ 30,450 $ (14,719 ) $ 5,786 $ —      $ 21,517



Cash flows from investing activities:

Purchases of properties, plants and equipment
   (6,861 ) (12,853 ) (8,382 ) —      (28,096 )
Proceeds on disposals of properties, plants and equipment
   —   5,666 —   —      5,666



Net cash used in investing activities
   (6,861 ) (7,187 ) (8,382 ) —      (22,430 )



Cash flows from financing activities:

Payments on long-term debt
   (21,952 ) —   —   —      (21,952 )
Proceeds from short-term borrowings
   —   —   4,252 —      4,252
Other, net
   (1,637 ) —   —   —      (1,637 )



Net cash (used in) provided by financing activities
   (23,589 ) —   4,252 —      (19,337 )



Effects of exchange rates on cash
   —   —   75 —      75



Net increase (decrease) in cash and cash equivalents
   —   (21,906 ) 1,731 —      (20,175 )
Cash and cash equivalents at beginning of period
   —   26,421 23,346 —      49,767



Cash and cash equivalents at end of period
   $ —   $ 4,515 $ 25,077 $ —      $ 29,592

~~Condensed Consolidating Statement of Cash Flows~~

~~For the six months ended April 30, 2003~~


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	24,526		$	5,694		$	(1,414	)	$	—	$	28,806		$	30,450		$	(14,719	)	$	5,786		$	—	$	21,517

Cash flows from investing activities:
Purchase of properties, plants and equipment		(4,146	)		(8,383	)		(10,459	)		—		(22,988	)
Purchases of properties, plants and equipment																(6,861	)		(12,853	)		(8,382	)		—		(28,096	)
Proceeds on disposals of properties, plants and equipment		2,109			2,717			—			—		4,826			—			5,666			—			—		5,666

Net cash used in investing activities		(2,037	)		(5,666	)		(10,459	)		—		(18,162	)		(6,861	)		(7,187	)		(8,382	)		—		(22,430	)

Cash flows from financing activities:
Payments on (proceeds from) long-term debt		(15,014	)		—			6,794			—		(8,220	)
Payments on long-term debt																(21,952	)		—			—			—		(21,952	)
Proceeds from short-term borrowings		—			—			7,877			—		7,877			—			—			4,252			—		4,252
Dividends paid		(7,770	)		—			—			—		(7,770	)
Other, net		(1,031	)		—			—			—		(1,031	)		(1,637	)		—			—			—		(1,637	)

Net cash (used in) provided by financing activities		(23,815	)		—			14,671			—		(9,144	)
Net cash provided by (used in) financing activities																(23,589	)		—			4,252			—		(19,337	)

Effects of exchange rates on cash		—			—			(6,704	)		—		(6,704	)		—			—			75			—		75

Net increase (decrease) in cash and cash equivalents		(1,326	)		28			(3,906	)		—		(5,204	)		—			(21,906	)		1,731			—		(20,175	)
Cash and cash equivalents at beginning of period		1,326			2,218			21,852			—		25,396			—			26,421			23,346			—		49,767

Cash and cash equivalents at end of period	$	—		$	2,246		$	17,946		$	—	$	20,192		$	—		$	4,515		$	25,077		$	—	$	29,592

2223

NOTE 18 – SUBSEQUENT EVENT

On March 28, 2005, Soterra LLC (a wholly owned subsidiary of the Company) entered into two Real Estate Purchase and Sale Agreements with Plum Creek Timberlands, L.P. (“Plum Creek”) to sell approximately 56,000 acres of timberland and related assets located primarily in Florida for an aggregate purchase price of approximately $90 million, subject to closing adjustments. In connection with the closing of one of these agreements, on May 23, 2005, Soterra LLC sold approximately 35,000 acres of timberland and associated assets in Florida, Georgia and Alabama and the purchase price of approximately $51 million was paid in the form of cash and a purchase note (the “Purchase Note”). The remaining acres will be sold in several installments during 2006. The Company will recognize significant timberland gains in its consolidated statements of income in the periods that these transactions occur.

On May 31, 2005, STA Timber LLC (“STA Timber”), one of the Company’s indirect wholly-owned subsidiaries, issued $43 million 5.20 percent Senior Secured Notes due August 5, 2020 (the “Monetization Notes”). In connection with the sale thereof, STA Timber entered into Note Purchase Agreements with the purchasers of the Monetization Notes (the “Note Purchase Agreements”) and related documentation. The Monetization Notes are secured by a pledge of the Purchase Note in the principal amount of $50.9 million dated May 31, 2005, issued by Timberlands SPE, L.L.C. (the “Payor”) payable to the order of Soterra LLC and contributed and assigned to STA Timber. The Payor is an indirect subsidiary of Plum Creek. The proceeds from the sale of the Monetization Notes will be used for general corporate purposes, including the repayment of indebtedness.

The Monetization Notes (as well as the Purchase Note) are also secured by the Deed of Guarantee issued by Bank of America, N.A., London Branch, in an amount not to exceed $52.3 million as a guarantee of the due and punctual payment of principal and interest on the Purchase Note.

Neither Greif, Inc. nor any of its other consolidated subsidiaries have extended any form of guaranty of the principal or interest on the Monetization Notes. Accordingly, neither Greif, Inc. nor any of its other consolidated subsidiaries will become directly or contingently liable for the payment of the Monetization Notes at any time.

~~ITEM 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

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

GENERAL

The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations. This analysis should be read in conjunction with the consolidated financial statements, which appear elsewhere in this Form 10-Q. The terms “Greif,” “our company,” “we,” “us” and “our” as used in this discussion refer to Greif, Inc. and its subsidiaries. Our fiscal year begins on November 1 and ends on October 31 of the following year. Any references in this Form 10-Q to the years ~~2004~~2005 or ~~2003,~~2004, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ending in that year.

~~OVERVIEW~~BUSINESS SEGMENTS

We operate in three business segments: Industrial Packaging & Services; Paper, Packaging & Services; and Timber.

We are a leading global provider of industrial packaging products such as steel, fibre and plastic drums, intermediate bulk containers, closure systems for industrial ~~shipping containers~~packaging products and polycarbonate water bottles. We seek to provide complete packaging solutions to our customers by offering a comprehensive range of products and services on a global basis. We sell our products to customers in industries such as chemicals, paints and pigments, food and beverage, petroleum, industrial coatings, agricultural, pharmaceutical and mineral, among others.

We sell our containerboard, corrugated sheets and other corrugated products and multiwall bags to customers in North ~~America.~~America in industries such as packaging, automotive, food and building products. Our corrugated container products are used to ship such diverse products as home appliances, small machinery, grocery products, building products, automotive components, books and furniture, as well as numerous other applications. Our full line of ~~industrial and consumer~~ multiwall bag products is used to ship a wide range of industrial and consumer products, such as fertilizers, chemicals, concrete, flour, sugar, feed, seed, pet foods, popcorn, charcoal and ~~salt. Our products are~~salt, primarily ~~sold to~~for the agricultural, ~~automotive,~~ chemical, building products ~~food~~ and ~~packaging~~food industries.

As of April 30, ~~2004,~~2005, we owned approximately ~~278,000~~281,000 acres of timberland in the southeastern United States, which is actively managed, and approximately ~~40,000~~35,000 acres of timberland in Canada. Our timber management ~~in the United States~~ is focused on the active harvesting and regeneration of our timber properties to achieve sustainable long-term yields on our timberland. While timber sales are subject to fluctuations, we seek to maintain a consistent cutting schedule, within the limits of market and weather conditions. ~~Our Canadian~~During May 2005, after the end of the second quarter, 35,000 acres of our timberland ~~is not actively managed at this time.~~holdings in Florida, Georgia and Alabama were sold for approximately $51 million as part of a $90 million transaction. For further information, see Liquidity and Capital Resources — Real Estate Transactions; Monetization Notes.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements, in accordance with ~~GAAP requires~~these principles, require us to make estimates and assumptions that affect the reported

amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements.

A summary of our significant accounting policies is included in Note 1 to the Notes to Consolidated Financial Statements included in our ~~2003~~2004 Form 10-K. We believe that the consistent application of these policies enables us to provide readers of the consolidated financial statements with useful and reliable information about our ~~operating~~ results of operations and financial condition. The following are the accounting policies that we believe are most important to the portrayal of our ~~financial condition and~~ results of operations and financial condition and require our most difficult, subjective or complex judgments.

Allowance for Accounts ~~Receivable —~~Receivable. We evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, we record a specific allowance for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. In addition, we recognize allowances for bad debts based on the length of time receivables are past due with allowance percentages, based on our historical experiences, applied on a graduated scale relative to the age of the receivable amounts. If circumstances change ~~(i.e.~~(e.g., higher than expected bad debt experience or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to us), our estimates of the recoverability of amounts due to us could ~~be reduced~~change by a material amount.

Inventory ~~Reserves —~~Reserves. Reserves for slow moving and obsolete inventories are provided based on historical experience and product demand. We continuously evaluate the adequacy of these reserves and make adjustments to these reserves as required.

Net Assets Held for ~~Sale —~~Sale. Net assets held for sale represent land, buildings and land improvements less accumulated depreciation for locations that have been closed. We record net assets held for sale in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” at the lower of carrying value or fair value less cost to sell. Fair value is based on the estimated proceeds from the sale of the facility utilizing recent buy offers, market comparables and/or data obtained from our commercial real estate broker. Our estimate as to fair value is regularly reviewed and subject to changes in the commercial real estate markets and our continuing evaluation as to the facility’s acceptable sale price.

Properties, Plants and ~~Equipment —~~Equipment. Depreciation on properties, plants and equipment is provided on the straight-line method over the estimated useful lives of our assets.

We own timber properties in the southeastern United States and in Canada. With respect to our United States timber properties, which ~~are being actively managed,~~consisted of 281,000 acres at April 30, 2005, depletion expense is computed on the basis of cost and the estimated recoverable timber acquired. Our land costs are maintained by tract. Merchantable timber costs are maintained by five product classes, pine sawtimber, pine chip-n-saw, pine pulpwood, hardwood sawtimber and hardwood

pulpwood, within a “depletion block,” with each depletion block based upon a geographic district or subdistrict. Currently, we have ~~twelve~~12 depletion blocks. These same depletion blocks are used for pre-merchantable timber costs. Each year, we estimate the volume of our merchantable timber for the five product classes by each depletion block. These estimates are based on the current state in the growth cycle and not on quantities to be available in future years. Our estimates do not include costs to be incurred in the future. We then project these volumes to the end of the year. Upon acquisition of a new timberland tract, we record separate amounts for land, merchantable timber and pre-merchantable timber allocated as a percentage of the values being purchased. These acquisition volumes and costs acquired during the year are added to the totals for each product class within the appropriate depletion block(s). The total of the beginning, one-year growth and acquisition volumes are divided by the total undepleted historical cost to arrive at a depletion rate, which is then used for the current year. As timber is sold, we multiply the volumes sold by the depletion rate for the current year to arrive at the depletion cost. Our Canadian timberlands, which consisted of approximately 35,000 acres at April 30, 2005, did not have any depletion expense since they are not actively managed at this time.

We believe that the lives and methods of determining depreciation and depletion are reasonable; however, using other lives and methods could provide materially different results.

Restructuring ~~Charges —~~Reserves. Restructuring ~~charges~~reserves are determined in accordance with appropriate accounting guidance, including SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” and Staff Accounting Bulletin No. 100, “Restructuring and Impairment Charges,” depending upon the facts and circumstances surrounding the situation. Restructuring ~~charges recorded in connection with existing and acquired companies~~reserves are further discussed in Note 76 to the Notes to Consolidated Financial Statements included in ~~this~~our 2004 Form ~~10-Q.~~

10-K.

Pension and Postretirement ~~Benefits —~~Benefits. Pension and postretirement benefit expenses are determined by our actuaries using assumptions about the discount rate, expected return on plan assets, rate of compensation increase and health care cost trend rates. Further discussion of our pension and postretirement benefit plans and related assumptions is ~~included~~contained in ~~Note 14 to the Notes to Consolidated Financial Statements in this Form 10-Q and~~ Notes 12 and 13 to the Notes to Consolidated Financial Statements included in our ~~2003~~2004 Form 10-K. The ~~actual~~ results would be different using other assumptions.

Income ~~Taxes —~~Taxes. Our effective tax rate, taxes payable and the tax bases of our assets and liabilities reflect current tax rates in our domestic and foreign tax jurisdictions and our best estimate of the ultimate outcome of ongoing and potential future tax audits. Valuation allowances are established where expected future taxable income does not support the realization of the deferred tax assets.

Environmental Cleanup ~~Costs —~~Costs. We expense environmental expenditures related to existing conditions caused by past or current operations and from which no current or future benefit is discernable. Expenditures that extend the life of the related property, or mitigate or prevent future environmental contamination, are capitalized.

Our reserves for environmental liabilities at April 30, ~~2004~~2005 amounted to $9.0 million, which included a reserve of $4.9 million related to our facility in Lier, Belgium and $4.1 million for asserted and unasserted environmental litigation, claims and/or assessments at several manufacturing sites orand other locations where we believe the outcome of such matters will be unfavorable to us. The environmental exposures for those sites included in the $4.1 million reserve were not individually significant. The reserve for the Lier, Belgium site is based on environmental studies that have been conducted at this location. The Lier, Belgium site is being monitored by the Public Flemish Waste Company (“PFWC”), which is the Belgian body for waste control. ~~The~~ PFWC must approve all remediation efforts that are undertaken by us at this site.

We anticipate that cash expenditures in future periods for remediation costs at identified sites will be made over an extended period of time. Given the inherent uncertainties in evaluating environmental exposures, actual costs may vary from those estimated at April 30, ~~2004.~~2005. Our exposure to adverse developments with respect to any individual site is not expected to be material. Although environmental remediation could have a material effect on results of operations if a series of adverse developments occur in a particular quarter or fiscal year, we believe that the chance of ~~such~~a series of adverse developments occurring in the same quarter or fiscal year is remote. Future information and developments will require us to continually reassess the expected impact of these environmental matters.

~~Contingencies —~~

Contingencies. Various lawsuits, claims and proceedings have been or may be instituted or asserted against us, including those pertaining to environmental, product liability, and safety and health matters. We are continually consulting legal counsel and evaluating requirements to reserve for contingencies in accordance with SFAS No. 5, “Accounting for Contingencies.” While the amounts claimed may be substantial, the ultimate liability cannot currently be determined because of the considerable uncertainties that exist. Based on the facts currently available, we believe the disposition of matters that are pending will not have a material effect on the consolidated financial statements.

Goodwill, Other Intangible Assets and Other Long-Lived ~~Assets —Goodwill~~Assets. Goodwill and indefinite-lived intangible assets are no longer amortized, but instead are periodically reviewed for impairment as required by SFAS No. 142, “Goodwill and Other Intangible Assets.” The costs of acquired intangible assets determined to have definite lives are amortized on a straight-line basis over their estimated economic lives of two to 20 years. Our policy is to periodically review other intangible assets subject to amortization and other long-lived assets based upon the evaluation of such factors as the occurrence of a significant adverse event or change in the environment in which the business operates, or if the expected future net cash flows (undiscounted and without interest) would become less than the carrying amount of the asset. An impairment loss would be recorded in the period such determination is made based on the fair value of the related assets.

Other Items.Other items that could have a significant impact on the ~~consolidated~~ financial statements include the risks and uncertainties listed in this Form 10-Q under ~~the~~ “Forward-Looking Statements; Certain Factors Affecting Future Results” below. Actual

results could differ materially using different estimates and assumptions, or if conditions are significantly different in the future.

RESULTS OF OPERATIONS

The following comparative information is presented for the three-month and six-month periods ended April 30, ~~2004~~2005 and ~~2003.~~2004. Historically, revenues or earnings may or may not be representative of future operating results due to various economic and other factors.

The non-GAAP financial measure of operating profit, before restructuring charges and timberland gains, is used throughout the following discussion of our results of operations (except with respect to the segment discussions for Industrial Packaging & Services and Paper, Packaging & Services, where timberland gains are not applicable). Operating profit, before restructuring charges and timberland gains, is equal to the GAAP operating profit plus restructuring charges less timberland gains. We use operating profit, before restructuring charges and timberland gains, because we believe that this measure provides a better indication of our operational performance than the corresponding GAAP measure because it excludes restructuring charges, which are not representative of ongoing operations, and timberland gains, which are volatile from period to period, and it provides a more stable platform on which to compare our historical performance.

Second Quarter Results

Overview

Net sales rose ~~15%~~13 percent (10 percent excluding the impact of foreign currency translation) to ~~$542.2~~$613.0 million for the second quarter of ~~2004~~2005 from ~~$470.8~~$542.2 million ~~during~~for the same quarter ~~last year. On a consolidated basis,~~of 2004. The net sales ~~increased approximately 9% after excluding the impact of foreign currency translation. Higher selling prices and volumes in~~improvement was attributable to the Industrial Packaging & Services segment ($58.7 million increase) and ~~higher volumes in~~ the Paper, Packaging & Services ~~segments contributed~~segment ($12.0 million increase). Higher selling prices, primarily in response to increased costs of steel and resin, drove this ~~increase.~~

~~GAAP operating profit was $22.4 million for the second quarter of 2004 compared with GAAP operating profit of $7.7 million for the same period last year.~~improvement.

Operating profit before restructuring charges and timberland gains increased ~~41%~~28 percent to $42.7 million for the second quarter of 2005 compared with $33.3 million for the second quarter of ~~2004 compared with $23.6~~2004. This was primarily attributable to the Paper, Packaging & Services segment ($7.9 million ~~for~~increase) and the ~~same period last year.~~Industrial Packaging & Services segment ($1.7 million increase), partially offset by the Timber segment ($0.2 million decrease). There were ~~$12.3~~$10.6 million and ~~$17.4~~$12.3 million of restructuring charges and ~~$1.4~~$3.4 million and ~~$1.6~~$1.4 million of timberland gains during the second quarter of 2005 and 2004, ~~and 2003,~~ respectively. GAAP operating profit was $35.4 million for the second quarter of 2005 compared with $22.4 million for the same period last year.

2729

The following table sets forth the net sales and operating profit for each of our business segments (Dollars in thousands):


For the three months ended April 30,	2004		2003		2005		2004
Net sales:
Net Sales
Industrial Packaging & Services	$	399,689	$	343,387	$	458,404	$	399,689
Paper, Packaging & Services		138,043		120,775		150,034		138,043
Timber		4,457		6,645		4,522		4,457

Total net sales	$	542,189	$	470,807	$	612,960	$	542,189

Operating profit:
Operating Profit
Operating profit, before restructuring charges and timberland gains:
Industrial Packaging & Services	$	27,760	$	13,942	$	29,411	$	27,760
Paper, Packaging & Services		2,435		4,821		10,372		2,435
Timber		3,079		4,846		2,868		3,079

Total operating profit before restructuring charges and timberland gains		33,274		23,609		42,651		33,274

Restructuring charges:
Industrial Packaging & Services		9,541		13,562		8,809		9,541
Paper, Packaging & Services		2,665		3,791		1,764		2,665
Timber		72		96		48		72

Total restructuring charges		12,278		17,449		10,621		12,278

Timberland gains:
Timber		1,364		1,568		3,393		1,364

Total operating profit	$	22,360	$	7,728	$	35,423	$	22,360

Segment Review

Industrial Packaging & Services

~~Net~~In the Industrial Packaging & Services segment, we offer a comprehensive line of industrial packaging products, such as steel, fibre and plastic drums, intermediate bulk containers, closure systems for industrial packaging products and polycarbonate water bottles throughout the world. The key factors influencing profitability in the second quarter of 2005 compared to the second quarter of 2004 in the Industrial Packaging & Services segment were:

Higher selling prices;

Generally lower sales volumes for steel and fibre drums;

Benefits from transformation initiatives;

Higher raw material costs, especially steel and resin;

Lower restructuring charges; and

Impact of foreign currency translation.

In this segment, net sales rose ~~16%~~15 percent (11 percent excluding the impact of foreign currency translation) to ~~$399.7~~$458.4 million for the second quarter of ~~2004~~2005 from ~~$343.4~~$399.7 million for the same period last year. ~~Net sales increased 8% after excluding the impact of foreign currency translation.~~ Selling prices rose primarily in response to higher average raw material costs, especially steel and ~~contributed~~resin, compared to the ~~increase in net sales for the second~~same quarter ~~of 2004. Additionally,~~last year. However, sales volumes were ~~higher~~generally lower for steel and ~~plastic~~fibre drums.

~~GAAP operating profit was $18.2 million for the second quarter of 2004 compared with $0.4 million for the second quarter of 2003.~~

Operating profit before restructuring charges rose to ~~$27.8~~$29.4 million for the second quarter of ~~2004~~2005 from ~~$13.9~~$27.8 million for the same period a year ago. Restructuring

charges were ~~$9.5~~$8.8 million for the second quarter of ~~2004~~2005 compared with ~~$13.6~~$9.5 million a year ago. The Industrial Packaging & Services segment’s gross profit margin ~~benefited from~~was 15.6 percent versus 17.8 percent in the second quarter of 2005 and 2004, respectively, due to generally lower sales volumes and higher raw material costs, partially offset by improved selling prices and labor and other manufacturing efficiencies ~~partially offset by higher raw material costs, as a percentage of net sales. Selling, general and administrative (“SG&A”) expenses for this segment reflect a portion of the savings resulting from~~related to the transformation initiatives. GAAP operating profit was $20.6 million for the second quarter of 2005 compared with $18.2 million for the second quarter of 2004.

Paper, Packaging & Services

~~Net~~In the Paper, Packaging & Services segment, we sell containerboard, corrugated sheets and other corrugated products and multiwall bags in North America. The key factors influencing profitability in the second quarter of 2005 compared to the second quarter of 2004 in the Paper, Packaging & Services segment were:

Higher selling prices;

Generally lower sales volumes for containerboard, corrugated sheets and corrugated containers; and

Lower restructuring charges.

In this segment, net sales rose ~~14%~~9 percent to ~~$138.0~~$150.0 million for the second quarter of ~~2004~~2005 from ~~$120.8~~$138.0 million for the same period last ~~year. Improved~~year due to improved selling prices for this segment’s products. Sales volumes for ~~most of this segment’s~~

~~products~~containerboard, corrugated sheets and corrugated containers were ~~partially offset by lower average selling prices in the containerboard operations.~~

~~GAAP operating loss was $0.2 million for the second quarter of 2004 compared with GAAP operating profit of $1.0 million for the second quarter of 2003.~~down on a quarter-over-quarter comparison.

Operating profit before restructuring charges was ~~$2.4~~$10.4 million for the second quarter of ~~2004~~2005 compared with ~~$4.8~~$2.4 million the prior year. Restructuring charges were ~~$2.7~~$1.8 million for the second quarter of ~~2004~~2005 versus ~~$3.8~~$2.7 million a year ago. The ~~decrease~~increase in operating profit before restructuring charges was primarily due to ~~a decline in gross profit margin resulting from reduced pricing levels~~improved selling prices, partially offset by generally lower sales volumes and higher ~~raw material~~transportation and energy costs ~~particularly for old corrugated containers,~~ in the containerboard operations. ~~In absolute dollars~~GAAP operating profit was $8.6 million for the second quarter of 2005 compared with a loss of $0.2 million for the second quarter of 2004.

Timber

As of April 30, 2005, we owned approximately 281,000 acres of timber properties in southeastern United States, which were actively harvested and ~~as a percentage of net sales, labor~~regenerated, and ~~energy costs were higher on a quarter-over-quarter comparison. Lower SG&A expenses~~approximately 35,000 acres in Canada. The key factors influencing profitability in the second quarter of 2005 compared to the second quarter of 2004 ~~compared with~~in the ~~same quarter last year partially offset this reduction.~~Timber segment were:

Consistent level of timber sales; and

~~Timber~~

Higher gain on sale of timberland.

Timber net sales were $4.5 million for the second quarter of ~~2004 compared with $6.6 million for the same period last year. These net sales were consistent with planned levels for both periods.~~

~~GAAP operating profit was $4.4 million for the second quarter of 2004 compared with $6.3 million for the second quarter of 2003.~~

~~As a result of the lower sales volume, operating~~2005 and 2004. Operating profit before restructuring charges and timberland gains was ~~$3.1~~$2.9 million for the second quarter of ~~2004~~2005 compared to ~~$4.8~~$3.1 million a year ago. Restructuring charges were ~~$0.1~~insignificant for the second quarter in both years. Timberland gains were $3.4 million for the second quarter of ~~2004~~2005 and ~~2003. Timberland gains were~~ $1.4 million for the same quarter last year. GAAP operating profit was $6.2 million for the second quarter of ~~2004 and $1.6~~2005 compared with $4.4 million for the ~~same period last~~second quarter of 2004.

As previously discussed in May 2005, we completed the first phase of the sale of 56,000 acres of timberland, timber and associated assets for $90 million. In this first phase, 35,000 acres of our timberland holdings in Florida, Georgia and Alabama were sold for approximately $51 million in the third quarter of 2005. The second phase of this transaction is expected to occur in several installments during our 2006 fiscal year. We will recognize significant timberland gains in our consolidated statements of income in the periods that these transactions occur. For further information, see Liquidity and Capital Resources — Real Estate Transactions; Monetization Notes.

Other Income Statement Changes

Cost of Products Sold

The cost of products sold, as a percentage of net sales, increased to ~~83.5%~~84.0 percent for the second quarter of ~~2004~~2005 from ~~82.5%~~83.5 percent for the second quarter of ~~2003.~~2004. The principal factors impacting ~~the 1.0 point~~this increase were generally lower sales volumes and higher raw material costs, ~~particularly steel~~partially offset by improved selling prices and ~~old corrugated containers, lower planned timber sales and higher energy costs. Reductions in~~ labor and other manufacturing ~~costs partially offset these impacts.~~efficiencies from the ongoing transformation initiatives.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A&A”) expenses ~~declined to $55.7~~were $56.1 million, or ~~10.3%~~9.1 percent of net sales, for the second quarter of ~~2004 from $59.0~~2005 compared to $55.7 million, or ~~12.5%~~10.3 percent of net sales, for the same period a year ago. ~~The decline in~~While certain SG&A expenses, ~~was~~such as employee benefits and professional fees, primarily ~~attributable~~related to ~~realization~~compliance matters regarding Section 404 of ~~additional savings from our transformation initiatives. The dollar reduction in~~the Sarbanes-Oxley Act of 2002, were higher on a quarter-over-quarter comparison, certain other SG&A expenses ~~was partially offset by~~were reduced compared to the ~~impact~~second quarter of ~~foreign currency translation (approximately $3 million).~~2004.

Restructuring Charges

Our transformation initiatives, which began in 2003, continue to enhance long-term organic sales growth, generate productivity improvements and achieve permanent cost reductions. We incurred restructuring charges of $60.7 million in 2003, $54.1 million in 2004, and $14.0 million during the first half of 2005. We are pleased with the progress of the transformation initiatives to-date and are continuing to evaluate future rationalization options based on that progress.

As part of the transformation initiatives, ~~initially referred to as the performance improvement plan,~~ we closed one company-owned plant in the Industrial Packaging & Services segment during the second quarter of 2005 and one company-owned plant in the Industrial Packaging & Services segment during the second quarter of 2004. ~~The plant is~~Both of the plants were located in North America. In addition, corporate and administrative staff reductions have been made throughout the world. As a result of the transformation initiatives, during the second quarter of 2005, we recorded restructuring charges of $6.8 million, consisting of $3.8 million in employee

separation costs, $1.2 million in professional fees directly related to the transformation initiatives and $1.8 million in other restructuring costs. In the second quarter of 2005, we also recorded $3.8 million of restructuring charges related to the impairment of two facilities, currently held for sale, that were closed during previous restructuring programs. During the second quarter of 2004, we ~~recognized~~recorded restructuring charges of $12.3 million, consisting of $2.1 million in employee separation costs, $0.1 million in asset impairments, $7.5 million in professional fees directly related to the transformation initiatives and ~~$10.1~~$2.6 million in other ~~costs, which were primarily for consulting services~~restructuring costs. The asset impairment charges related to the write-down to fair value of buildings and equipment based on recent buy offers, market comparables and/or data obtained from our commercial real estate broker.

A total of approximately 1,500 employees have been or will be terminated in connection with the transformation ~~initiatives. See~~initiatives, 1,445 of which have been terminated as of April 30, 2005.

Upon completion of the transformation initiatives, we believe that annual contributions to earnings from these actions will be approximately $115 million.

For further information, see Note ~~7 to~~8 – Restructuring Charges in the Notes to Consolidated Financial Statements included in this Form ~~10-Q for additional disclosures regarding our restructuring activities.~~

~~For further information, see the “Transformation Initiatives” section below.~~10-Q.

Gain on Sale of Assets

Gain on sale of assets ~~decreased~~increased to $4.2 million in the second quarter of 2005 as compared to $1.1 million in the second quarter of 2004 ~~as compared~~primarily due to ~~$1.9~~$2.0 million ~~in the second quarter of 2003, including $0.2 million less from the~~higher gains on sale of timber properties.

Interest Expense, Net

Interest expense, net ~~declined to~~was $10.7 million for the second quarter of 2005 and 2004. Lower average debt outstanding was offset by higher interest rates during the second quarter of 2005 compared to the second quarter of 2004.

Debt Extinguishment Charge

During the second quarter of 2005, we entered into a new revolving credit facility to improve pricing and financial flexibility. As a result, we recorded a $2.8 million debt extinguishment charge.

Other Income, Net

Other income, net increased $1.3 million in the second quarter of 2005 as compared to the second quarter of 2004 primarily due to higher rental income and foreign exchange costs.

Income Tax Expense

The effective tax rate was 29.3% and 30.8% in the second quarter of 2005 and 2004, respectively. The lower effective tax rate resulted from ~~$13.9~~a change in the mix of income outside the United States.

Equity in Earnings of Affiliates and Minority Interests

Equity in earnings of affiliates and minority interests was a negative $0.1 million for the second quarter of 2005 and 2004.

Net Income

Based on the foregoing, we recorded net income of $16.8 million for the second quarter of 2005 compared to a net income of $8.4 million in the same period last year.

Year-to-Date Results

Overview

Net sales rose 18 percent (15 percent excluding the impact of foreign currency translation) to $1.2 billion for the first half of 2005 from $1.0 billion for the same period of 2004. The net sales improvement was attributable to the Industrial Packaging & Services segment ($150.4 million increase) and the Paper, Packaging & Services segment ($34.9 million increase), partially offset by the Timber segment ($0.8 million decrease). Higher selling prices, primarily in response to increased costs of steel and resin, drove this improvement.

Operating profit before restructuring charges and timberland gains increased 43 percent to $73.9 million for the first half of 2005 compared with $51.9 million for the first half of 2004. This was primarily attributable to the Paper, Packaging & Services segment ($12.2 million increase) and the Industrial Packaging & Services segment ($10.5 million increase), partially offset by the Timber segment ($0.6 million decrease). There were $17.8 million and $27.5 million of restructuring charges and $11.5 million and $5.3 million of timberland gains during the first half of 2005 and 2004, respectively. GAAP operating profit was $67.6 million for the first half of 2005 compared with $29.6 million for the same period last year. ~~This reduction~~

The following table sets forth the net sales and operating profit for each of our business segments (Dollars in thousands):


For the six months ended April 30,	2005		2004
Net Sales
Industrial Packaging & Services	$	887,446	$	737,080
Paper, Packaging & Services		298,239		263,337
Timber		9,839		10,632

Total net sales	$	1,195,524	$	1,011,049

Operating Profit
Operating profit, before restructuring charges and timberland gains:
Industrial Packaging & Services	$	47,090	$	36,611
Paper, Packaging & Services		19,963		7,788
Timber		6,875		7,475

Total operating profit before restructuring charges and timberland gains		73,928		51,874

Restructuring charges:
Industrial Packaging & Services		15,607		21,563
Paper, Packaging & Services		2,141		5,834
Timber		59		140

Total restructuring charges		17,807		27,537

Timberland gains:
Timber		11,465		5,298

Total operating profit	$	67,586	$	29,635

Segment Review

Industrial Packaging & Services

In the Industrial Packaging & Services segment, we offer a comprehensive line of industrial packaging products, such as steel, fibre and plastic drums, intermediate bulk containers, closure systems for industrial packaging products and polycarbonate water bottles throughout the world. The key factors influencing profitability in the first half of 2005 compared to the first half of 2004 in the Industrial Packaging & Services segment were:

Higher selling prices;

Generally lower sales volumes for steel and fibre drums;

Benefits from transformation initiatives;

Higher raw material costs, especially steel and resin;

Lower restructuring charges; and

Impact of foreign currency translation.

In this segment, net sales rose 20 percent (16 percent excluding the impact of foreign currency translation) to $887.4 million for the first half of 2005 from $737.1 million for the same period last year. Selling prices rose primarily in response to higher average raw material costs, especially steel and resin, compared to the same quarter last year. However, sales volumes were generally lower for steel and fibre drums.

Operating profit before restructuring charges rose to $47.1 million for the first half of 2005 from $36.6 million for the same period a year ago. Restructuring charges were $15.6 million for the first half of 2005 compared with $21.6 million a year ago. The Industrial Packaging & Services segment’s gross profit was 15.0 percent versus 16.3

percent in the first half of 2005 and 2004, respectively, due to generally lower sales volumes and higher raw material costs, partially offset by improved average selling prices and labor and other manufacturing efficiencies related to the transformation initiatives. GAAP operating profit was $31.5 million for the first half of 2005 compared with $15.0 million for the first half of 2004.

Paper, Packaging & Services

In the Paper, Packaging & Services segment, we sell containerboard, corrugated sheets and other corrugated products and multiwall bags in North America. The key factors influencing profitability in the first half of 2005 compared to the first half of 2004 in the Paper, Packaging & Services segment were:

Higher selling prices;

Generally lower sales volumes for containerboard, corrugated sheets and corrugated containers; and

Lower restructuring charges.

In this segment, net sales rose 13 percent to $298.2 million for the first half of 2005 from $263.3 million for the same period last year due to improved selling prices for this segment’s products. Sales volumes for containerboard, corrugated sheets and corrugated containers were down versus the same period last year.

Operating profit before restructuring charges was $20.0 million for the first half of 2005 compared with $7.8 million the prior year. Restructuring charges were $2.1 million for the first half of 2005 versus $5.8 million a year ago. The increase in operating profit before restructuring charges was primarily due to improved selling prices, partially offset by generally lower ~~average interest rates~~sales volumes and higher transportation and energy costs in the containerboard operations. GAAP operating profit was $17.8 million for the first half of 2005 compared with $2.0 million for the first half of 2004.

Timber

As of April 30, 2005, we owned approximately 281,000 acres of timber properties in southeastern United States, which were actively harvested and regenerated, and approximately 35,000 acres in Canada. The key factors influencing profitability in the first half of 2005 compared to the first half of 2004 in the Timber segment were:

Consistent level of timber sales; and

Higher gain on ~~our debt. A $25~~sale of timberland.

Timber net sales were $9.8 million ~~reduction~~for the first half of 2005 compared to $10.6 million for the first half of 2004. Operating profit before restructuring charges and timberland gains was $6.9 million for the first half of 2005 compared to $7.5 million a year ago. Restructuring charges were insignificant for the first half in ~~average debt outstanding~~both years. Timberland gains were $11.5 million for the first half of 2005 and $5.3 million for the same period last year. GAAP operating profit was $18.3 million for the first half of 2005 compared with $12.6 million for the first half of 2004.

Other Income Statement Changes

Cost of Products Sold

The cost of products sold, as a percentage of net sales, increased to 84.4 percent for the first half of 2005 from 84.3 percent for the first half of 2004. The principal factors impacting this increase were generally lower sales volumes and higher raw material costs, partially offset by improved selling prices and labor and other manufacturing efficiencies the ongoing transformation initiatives.

Selling, General and Administrative Expenses

SG&A expenses were $115.8 million, or 9.7 percent of net sales, for the first half of 2005 compared to $106.8 million, or 10.6 percent of net sales, for the same period a year ago. While certain SG&A expenses, such as employee benefits and professional fees, primarily related to compliance matters regarding Section 404 of the Sarbanes-Oxley Act of 2002, were higher versus the same period last year, certain other SG&A expenses were reduced compared to the first six months of 2004.

Restructuring Charges

As part of the transformation initiatives, we closed two company-owned plants in the Industrial Packaging & Services segment during the first half of 2005, and four company-owned plants (three in the Industrial Packaging & Services segment and one in the Paper, Packaging & Services segment) during the first half of 2004. All of the plants are located in North America. In addition, corporate and administrative staff reductions have been made throughout the world. As a result of the transformation initiatives, during the first half of 2005, we recorded restructuring charges of $14.0 million, consisting of $7.0 million in employee separation costs, $0.1 million in asset impairments, $2.3 million in professional fees directly related to the transformation initiatives and $4.6 million in other restructuring costs. In the second quarter of 2005, we also recorded $3.8 million of restructuring charges related to the impairment of two facilities, currently held for sale, that were closed during previous restructuring programs. During the first half of 2004, we recorded restructuring charges of $27.5 million, consisting of $9.0 million of in employee separation costs, $2.3 million in asset impairments, $12.1 million in professional fees directly related to the transformation initiatives and $4.1 million in other restructuring costs. The asset impairment charges related to the write-down to fair value of buildings and equipment based on recent buy offers, market comparables and/or data obtained from our commercial real estate broker. For further information, see Second Quarter Results – Other Income Statement Changes – Restructuring Charges above and Note 8 – Restructuring Charges in the Notes to Consolidated Financial Statements in this Form 10-Q.

Gain on Sale of Assets

Gain on sale of assets increased to $14.5 million in the first half of 2005 as compared to $5.2 million in the first half of 2004, primarily due to $6.2 million higher gains from the sale of timber properties and the gain on a facility sale that was included in net assets held for sale at October 31, 2004.

Interest Expense, Net

Interest expense, net declined to $20.8 million for the first half of 2005 from $23.0 million for the same period last year. Lower average debt outstanding was partially offset by higher interest rates during the first half of 2005 compared to the same period last year.

Debt Extinguishment Charge

During the second quarter of ~~2003 also contributed~~2005, we entered into a new revolving credit facility to ~~this decrease.~~improve pricing and financial flexibility. As a result, we recorded a $2.8 million debt extinguishment charge.

Other Income, Net

Other income, net was ~~$0.7~~$1.2 million in the ~~second quarter~~first half of ~~2004~~2005 versus ~~$2.1~~$0.9 million in the ~~second quarter~~first half of ~~2003.~~2004.

Income Tax Expense ~~(Benefit)~~

The effective tax rate was ~~30.8%~~28.7% and ~~32.0%~~30.8% in the ~~second quarter~~first half of ~~2004~~2005 and ~~2003,~~2004, respectively, resulting in an income tax expense of ~~$3.8~~$13.0 million for the ~~second quarter~~first half of ~~2004~~2005 and an income tax ~~benefit~~expense of ~~$1.3~~$2.3 million for the ~~second quarter~~first half of ~~2003.~~2004. The lower effective tax rate resulted from a change in the mix of income outside the United States.

Equity in Earnings of Affiliates and Minority Interests

Equity in earnings of affiliates and minority interests was a ~~charge of $0.1~~negative $0.3 million for the ~~second quarter~~first half of ~~2004~~2005 as compared to a ~~charge of $1.7~~negative $0.2 million in the same period of 2003. During the second quarter of 2003, we deducted 37% of CorrChoice’s net income related to its minority shareholders. Effective September 30, 2003, our ownership increased to 100% resulting from CorrChoice’s redemption of its minority

~~shareholders’ outstanding shares. Therefore, no such deduction was made in the second quarter of~~ 2004.

~~Net Income (Loss)~~

~~Based on the foregoing, we recorded net income of $8.4 million for the second quarter of 2004 compared to net loss of $4.4 million in the same period last year.~~

~~Year-to-Date Results~~

~~Overview~~

Net sales rose 12% to $1,011.0 million for the first half of 2004 from $905.5 million during the same period last year. On a consolidated basis, net sales increased approximately 5% after excluding the impact of foreign currency translation. Higher sales in both the Industrial Packaging & Services and Paper, Packaging & Services segments contributed to this increase.

The GAAP operating profit was $29.6 million for the first half of 2004 compared with $22.8 million a year ago. Our operating profit for the first half of 2004 was negatively impacted by a higher level of restructuring charges and positively impacted by a higher level of timberland gains versus the first half of 2003.

Operating profit, before restructuring charges of $27.5 million and timberland gains of $5.3 million, increased 30% to $51.9 million for the first half of 2004 compared with operating profit, before restructuring charges of $19.0 million and timberland gains of $2.0 million, of $39.9 million for the same period last year.

~~The following table sets forth the net sales and operating profit for each of our business segments (Dollars in thousands):~~

For the six months ended April 30,
   2004
   2003
Net sales:

Industrial Packaging & Services
   $ 737,080    $ 646,535
Paper, Packaging & Services
   263,337    245,455
Timber
   10,632    13,495


Total net sales
   $ 1,011,049    $ 905,485


Operating profit:

Operating profit, before restructuring charges and timberland gains:

Industrial Packaging & Services
   $ 36,611    $ 17,457
Paper, Packaging & Services
   7,788    12,712
Timber
   7,475    9,683


Total operating profit before restructuring charges and timberland gains
   51,874    39,852


Restructuring charges:

Industrial Packaging & Services
   21,563    14,727
Paper, Packaging & Services
   5,834    4,165
Timber
   140    96


Total restructuring charges
   27,537    18,988


Timberland gains:

Timber
   5,298    1,964


Total operating profit
   $ 29,635    $ 22,828

~~Segment Review~~

~~Industrial Packaging & Services~~

Net sales rose 14% to $737.1 million for the first half of 2004 from $646.5 million for the same period last year. After excluding the impact of foreign currency translation, net sales for this segment increased 5%. Increased selling prices for this segment’s products in response to higher raw material costs, especially steel, contributed to the increase in net sales. Additionally, sales volumes were higher for steel and fibre drums.

The GAAP operating profit was $15.0 million for the first half of 2004 compared with $2.7 million for the first half of 2003. This segment’s first half of 2004 results were negatively impacted by a higher level of restructuring charges versus the same period last year.

Operating profit, before restructuring charges of $21.6 million, rose to $36.6 million for the first half of 2004 from operating profit, before restructuring charges of $14.7 million, of $17.5 million a year ago. The Industrial Packaging & Services segment’s gross profit margin benefited from labor and other manufacturing efficiencies, partially offset by higher raw material costs, as a percentage of net sales. SG&A expenses for this segment reflect a portion of the savings resulting from the transformation initiatives.

~~Paper, Packaging & Services~~

Net sales rose 7% to $263.3 million for the first half of 2004 from $245.5 million for the same period last year. Improved volumes for most of this segment’s products were partially offset by lower average sales prices in the containerboard operations.

~~The GAAP operating profit was $2.0 million for the first half of 2004 compared with $8.5 million for the first half of 2003.~~

Operating profit, before restructuring charges of $5.8 million, was $7.8 million for the first half of 2004 compared with operating profit, before restructuring charges of $4.2 million, of $12.7 million a year ago. This decrease was primarily due to a decline in gross profit margin resulting from reduced pricing levels and higher raw material costs, particularly for old corrugated containers, and energy costs in the containerboard operations. Lower SG&A expenses in the first half of 2004 compared with the same period last year partially offset this reduction.

~~Timber~~

~~Timber sales were $10.6 million for the first half of 2004 compared with $13.5 million for the same period last year. These sales were consistent with budgeted levels for both periods.~~

The GAAP operating profit was $12.6 million for the first half of 2004 compared with $11.6 million for the first half of 2003. This segment’s first half of 2004 results were positively impacted by a higher level of timberland gains versus the same period last year.

As a result of the lower sales volume, operating profit, before restructuring charges of $0.1 million and timberland gains of $5.3 million, was $7.5 million for the first half of 2004, compared to operating profit, before restructuring charges of $0.1 million and timberland gains of $2.0 million, of $9.7 million a year ago.

~~Other Income Statement Changes~~

~~Cost of Products Sold~~

The cost of products sold, as a percentage of net sales, increased to 84.3% for the first half of 2004 from 82.6% for the first half of 2003. The principal factors impacting the 1.7 point increase were higher raw material costs, particularly steel and old corrugated containers, lower planned timber sales and higher energy costs. Improved efficiencies in labor and other manufacturing costs partially offset these impacts.

~~Selling, General and Administrative Expenses~~

SG&A expenses declined to $106.8 million, or 10.6% of net sales, for the first half of 2004 from $118.5 million, or 13.1% of net sales, for the same period a year ago. The decline in SG&A expenses was primarily attributable to realization of additional savings from our transformation initiatives. The dollar reduction in SG&A expenses was partially offset by the impact of foreign currency translation (approximately $6 million).

~~Restructuring Charges~~

As part of the transformation initiatives, initially referred to as the performance improvement plan, we closed four company-owned plants (three in the Industrial Packaging & Services segment and one in the Paper, Packaging & Services segment) during the first half of 2004. These plants are located in North America. In addition, administrative staff reductions continue to be made throughout the world. As a result of the transformation initiatives, during the first half of 2004, we recognized restructuring charges of $27.5 million, consisting of $9.0 million in employee separation costs, $2.3 million in asset impairments and $16.2 million in other costs, which were primarily for consulting services in connection with the transformation initiatives. See Note 7 to the Notes to Consolidated Financial Statements in this Form 10-Q for additional disclosures regarding our restructuring activities.

~~For further information, see the “Transformation Initiatives” section below.~~

~~Gain on Sale of Assets~~

~~Gain on sale of assets increased to $5.2 million in the first half of 2004 as compared to $2.3 million in the first half of 2003, including $3.3 million more from the sale of timber properties.~~

~~Interest Expense, Net~~

Interest expense, net declined to $23.0 million for the first half of 2004 from $27.5 million for the same period last year. This reduction was primarily due to lower average interest rates on our debt. An $8 million reduction in average debt outstanding during the first half of 2004 compared to the first half of 2003 also contributed to this decrease.

~~Other Income, Net~~

~~Other income, net was $0.9 million in the first half of 2004 versus $2.4 million in the first half of 2003.~~

~~Income Tax Expense (Benefit)~~

The effective tax rate was 30.8% and 32.0% in the first half of 2004 and 2003, respectively, resulting in an income tax expense of $2.3 million for the first half of 2004 and an income tax benefit of $0.7 million for the first half of 2003. The lower effective tax rate resulted from a change in the mix of income outside the United States.

~~Equity in Earnings of Affiliates and Minority Interests~~

Equity in earnings of affiliates and minority interests was a charge of $0.2 million for the first half of 2004 as compared to a charge of $2.7 million in the same period of 2003. During the first half of 2003, we deducted 37% of CorrChoice’s net income

related to its minority shareholders. Effective September 30, 2003, our ownership increased to 100% resulting from CorrChoice’s redemption of its minority shareholders’ outstanding shares. Therefore, no such deduction was made in the first half of 2004.

~~Cumulative Effect of Change in Accounting Principle~~

During the first quarter of 2003, we recorded a $4.8 million gain as a cumulative effect of change in accounting principle resulting from the adjustment of our unamortized negative goodwill in accordance with the transition provisions of SFAS No. 141, “Business Combinations,” upon the adoption of SFAS No. 142.

Net Income

Based on the foregoing, we recorded net income of ~~$5.1~~$31.9 million for the first half of ~~2004~~2005 compared to net income of ~~$0.5~~$5.1 million in the same period last year.

~~Transformation Initiatives (Performance Improvement Plan)~~38

As previously announced, our transformation initiatives are expected to enhance long-term organic sales growth and productivity and achieve permanent cost reductions. Our focus during fiscal 2003 had been primarily SG&A optimization, which is expected to result in annual cost savings of $60 million realized in fiscal 2004. The focus during fiscal 2004 is to become an even leaner, more market-focused/performance-driven company. This next and final phase of the transformation is expected to deliver additional annualized benefits of approximately $50 million, with about $15 million of those savings to be realized in fiscal 2004 and the remainder in fiscal 2005. The opportunities identified include, but are not limited to, improved labor productivity, material yield and other manufacturing efficiencies, coupled with further network consolidation. The related one-time costs for this phase will be approximately $45 million to $50 million, which will be incurred in fiscal 2004. In addition, we launched a strategic sourcing initiative to more effectively leverage our global spending and lay the foundation for a world-class sourcing and supply chain capability.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are operating cash flows, the proceeds from our Senior Subordinated Notes, ~~and~~ trade accounts receivable credit facility, sale of our European accounts receivable and borrowings under our ~~Amended and Restated Senior Secured~~ Credit Agreement, further discussed below. We have used these sources to fund our working capital needs, capital expenditures, cash dividends, common stock repurchases and acquisitions. We anticipate continuing to fund these items in a like manner. We currently expect that operating cash flows, the proceeds from our Senior Subordinated Notes, ~~and~~ trade accounts receivable credit facility and borrowings under our ~~Amended and Restated Senior Secured~~ Credit Agreement will be sufficient to fund our working capital, capital expenditures, debt repayment and other liquidity needs for the foreseeable future.

Capital Expenditures

During the first half of ~~2004,~~2005, we invested ~~$28.1~~$24.9 million in capital expenditures, ~~which included~~excluding timberland purchases of $1.3 compared with capital expenditures of $23.5 million, excluding timberland purchases of $4.6 million, ~~for~~during the ~~purchase of timber properties.~~same period last year.

We expect capital expenditures to be approximately $75 million ~~to $80 million~~ in ~~2004,~~2005, which would be ~~$20 million to~~approximately $25 million below our anticipated depreciation ~~expense.~~expense of approximately $100 million.

Balance Sheet Changes

The ~~increase~~$25.1 million reduction in trade accounts receivable was primarily due to ~~higher~~lower net sales in the second quarter of ~~2004 as~~2005 compared ~~with~~to the fourth quarter of ~~2003.~~2004, the sale of certain European accounts receivable and improved collection efforts, partially offset by the impact of foreign currency translation.

~~Net assets held for sale has increased~~The $30.7 million increase in inventories was primarily due to ~~our transformation initiatives. We now have 16 properties classified as held for sale versus eight properties at October 31, 2003.~~higher raw material costs coupled with the impact of foreign currency translation.

~~Goodwill has~~Properties, plants and equipment, net decreased ~~as a result~~$9.5 million primarily due to depreciation expense ($47.2 million) and depletion expense ($0.9 million) partially offset by the impact of ~~an adjustment~~foreign currency translation and the second half of 2005 capital expenditures.

The $39.3 million decrease in accounts payable was mostly due to ~~recognize the cash surrender value~~lower cost of ~~reinsurance contracts that are used to fund pension payments in Europe. The adjustment, which relates to the Van Leer Industrial Packaging acquisition, was recorded~~products sold in the second quarter of ~~2004.~~

~~Other long-term assets increased mostly as a result~~2005 compared to the fourth quarter of 2004 and the ~~cash surrender value~~timing of ~~reinsurance contracts as discussed above.~~payments made to our suppliers, partially offset by higher raw material costs.

Accrued payroll and employee benefits were lower by $7.7 million primarily due to the timing of the annual bonus ~~payments,~~and long-term incentive accruals, which were ~~fully~~ accrued at October 31, ~~2003.~~

~~Long-term debt has decreased due to payments made~~2004 and paid during the first ~~half~~quarter of ~~2004. We expect to continue repaying debt throughout the second half~~2005, and timing of ~~2004 from cash generated by our operating activities.~~other employee-related accruals.

Long-term debt increased $6.9 million due to weak operating cash flows for the six months ended April 30, 2005.

Borrowing Arrangements

~~$550 million Amended and Restated Senior Secured~~ Credit Agreement

~~On August 23, 2002,~~As of March 2, 2005, we and certain of our ~~non-United States~~international subsidiaries, as borrowers, entered into a ~~$550~~$350 million ~~Amended and Restated Senior Secured~~ Credit Agreement (the “Credit Agreement”) with a syndicate of ~~lenders.~~financial institutions, as lenders, Deutsche Bank AG, New York Branch, as administrative agent, Deutsche Bank Securities Inc., as joint lead arranger and sole book-runner, KeyBank National Association, as joint lead arranger and syndication agent and National City Bank, Fleet National Bank and ING Capital LLC, as co-documentation agents. The ~~Amended and Restated Senior Secured~~ Credit Agreement ~~originally provided~~provides for a ~~$300 million term loan and a $250~~$350 million revolving multicurrency credit facility. The revolving multicurrency credit facility is available for ongoing working capital and general corporate purposes and ~~has been permanently reduced~~ to ~~$240 million. On February 11, 2004, we amended our term loan~~refinance amounts outstanding under the ~~Amended and Restated~~ Senior Secured Credit Agreement. As a result of the amendment, the term loan was increased from its balance then outstanding of $226 million to $250 million, and the applicable margin was lowered by 50 basis points while maintaining the existing maturity schedule. The incremental borrowings under the term loan were used to reduce borrowings under the revolving multicurrency credit facility. Interest is based on ~~either~~ a ~~London InterBank Offered Rate (“LIBOR”)~~Eurocurrency rate or an alternative base rate that resets periodically plus a calculated margin amount. On March 3, 2005, $189.4 million was borrowed under the revolving multicurrency credit facility in order to prepay the obligations outstanding under the Senior Secured Credit Agreement and certain costs and expenses incurred in connection with the Credit Agreement. As of April 30, ~~2004, there~~2005, $129.4 million was ~~a total of $300 million~~ outstanding under the ~~Amended and Restated Senior Secured Credit Agreement.~~revolving multicurrency credit facility.

The ~~Amended and Restated Senior Secured~~ Credit Agreement contains certain covenants, which include financial covenants that require us to maintain a certain leverage ratio and a minimum coverage of interest expense. The leverage ratio generally requires that at the end of any fiscal quarter we will not permit the ratio of (a) our total consolidated indebtedness less cash and cash equivalents plus aggregate cash proceeds received from an unrelated third party from a permitted receivables transaction to (b) our consolidated net income plus depreciation, depletion and amortization, interest expense (including capitalized interest), income taxes, and ~~fixed charges,~~minus certain extraordinary gains and ~~a minimum net worth. At~~non-recurring gains (or plus certain extraordinary losses and non-recurring losses) for the preceding twelve months (“EBITDA”) to be greater than 3.5 to 1. The interest coverage ratio generally requires that at the end of any fiscal quarter we will not permit the ratio of (a) our EBITDA to (b) our interest expense (including capitalized interest) for the preceding twelve months to be less than 3 to 1. On April 30, ~~2004,~~2005, we were in compliance with these covenants. The terms of the ~~Amended and Restated Senior Secured~~ Credit Agreement ~~also~~ limit our ability to make “restricted payments,” which include dividends and purchases, redemptions and acquisitions of our equity interests. The repayment of this facility is secured by a ~~first lien on~~pledge of the capital stock of substantially all of ~~the personal property and certain of the real property of Greif and its~~our United States subsidiaries and, in part, by the capital stock of the ~~non-United States borrowers and any intercompany notes payable to them.~~international borrowers. However, in the event that we receive an investment grade rating from either Moody’s Investors Service, Inc. or Standard & Poor’s Corporation, we may request that such collateral be released.

8⁷/8% percent Senior Subordinated Notes

On July 31, 2002, we issued Senior Subordinated Notes in the aggregate principal amount of $250 million, receiving net proceeds of approximately $248 million before expenses. Interest on the Senior Subordinated Notes is payable semi-annually at the annual rate of ~~8.875%.~~8.875 percent. The Senior Subordinated Notes do not have required principal payments prior to maturity on August 1, 2012. As of April 30, ~~2004,~~2005, there was a total of ~~$251.3~~$249.9 million outstanding under the Senior Subordinated Notes. The increase in the balance as compared to the proceeds originally received was primarily due to the recording of gains on fair value hedges we have in place to hedge interest rate risk.

The Indenture pursuant to which the Senior Subordinated Notes were issued contains certain covenants. At April 30, ~~2004,~~2005, we were in compliance with these covenants. The terms of the Senior Subordinated Notes also limit our ability to make “restricted payments,” which include dividends and purchases, redemptions and acquisitions of equity interests.

Trade Accounts Receivable Credit Facility

On October 31, 2003, we entered into a five-year, up to ~~$120~~$120.0 million, credit facility with an affiliate of a bank in connection with the securitization of certain of our ~~U.S.~~United States trade accounts receivable. The facility is secured by certain of our ~~U.S.~~United States trade accounts receivable and bears interest at a variable rate based on LIBOR plus a margin or other agreed upon rate. We also pay a commitment fee. We can terminate ~~the~~this facility at any time upon 60 days prior written notice. In connection with this transaction, we established Greif Receivables Funding LLC, which is included in our consolidated financial statements. This entity purchases and services our trade accounts receivable that are subject to this credit facility. As of April 30, ~~2004,~~2005, there was a total of ~~$73.0~~$87.0 million outstanding under the trade accounts receivable credit facility.

The trade accounts receivable credit facility provides that in the event we breach any of our financial covenants under the ~~Amended and Restated Senior Secured~~ Credit Agreement, and the majority of the lenders thereunder consent to a waiver thereof, but the provider of the trade accounts receivable credit facility does not consent to any such waiver, then we must within 90 days of providing notice of the breach, pay all amounts outstanding under the trade accounts receivable credit facility.

37Sale of European Accounts Receivable

To further reduce borrowing costs, we entered into an arrangement to sell on a regular basis up to €55 million ($70.8 million at April 30, 2005) of certain European accounts receivable of our European subsidiaries to a major international bank. At April 30, 2005, €42.9 million ($55.2 million) of accounts receivable were sold under this arrangement. We will continue to service these accounts receivable, although no interest therein has been retained. The acquiring international bank has full title and interest to the accounts receivable, will be free to further dispose of the accounts receivable sold to it and will be fully entitled to receive and retain for its own account the total collections of such accounts receivable. These accounts receivable have been removed from the balance sheet since they meet the applicable criteria of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

Real Estate Transactions; Monetization Notes

On March 28, 2005, we entered into two real estate purchase and sale agreements with Plum Creek Timberlands, L.P. (“Plum Creek”) to sell approximately 56,000 acres of timberland and related assets located primarily in Florida for an aggregate purchase price of approximately $90 million, subject to closing adjustments. In connection with the closing of one of these agreements, on May 23, 2005, we sold approximately 35,000 acres of timberland and associated assets in Florida, Georgia and Alabama for a purchase price of approximately $51 million. The purchase price was paid in the form of cash and a $50.9 million purchase note payable by an indirect subsidiary of Plum Creek (the “Purchase Note”). The Purchase Note is secured by a Deed of Guarantee issued by Bank of America, N.A., London Branch, in an amount not to exceed $52.3 million (the “Deed of Guarantee”), as a guarantee of the due and punctual payment of principal an interest on the Purchase Note. The remaining acres will be sold in several installments during 2006. We will recognize significant timberland gains in its consolidated statements of income in the periods that these transactions occur.

On May 31, 2005, STA Timber LLC (“STA Timber”), one of our indirect wholly-owned subsidiaries, issued in a private placement $43 million 5.20 percent Senior Secured Notes due August 5, 2020 (the “Monetization Notes”). In connection with the sale of the Monetization Notes, STA Timber entered into note purchase agreements with the purchasers of the Monetization Notes (the “Note Purchase Agreements”) and related documentation. The Monetization Notes are secured by a pledge of the Purchase Note and the Deed of Guarantee. The Monetization Notes may be accelerated in the event of a default in payment or a breach of the other obligations set forth therein or in the Note Purchase Agreements or related documents, subject in certain cases to any applicable grace periods, or upon the occurrence of certain insolvency or bankruptcy related events. The Monetization Notes are subject to a mechanism that may cause them, subject to certain conditions, to be extended to November 5, 2020. The proceeds from the sale of the Monetization Notes will be used for general corporate purposes, including the repayment of indebtedness. Neither Greif, Inc. nor any of its other consolidated subsidiaries have extended any form of guaranty of the principal or interest on the Monetization Notes. Accordingly, neither Greif, Inc. nor any of its other consolidated subsidiaries will become directly or contingently liable for the payment of the Monetization Notes at any time.

Contractual Obligations

As of April 30, ~~2004,~~2005, we had the following contractual obligations (Dollars in millions):


	Payments Due by Period												Payments Due By Period
	Total		Less than 1 year		1-3 years		3-5 years		After 5 years		Total		Less than 1 year		1-3 years		3-5 years		After 5 years
Long-term debt	$	624	$	—	$	37	$	73	$	514	$	466	$	—	$	—	$	216	$	250
Short-term borrowings		20		20		—		—		—		24		24		—		—		—
Non-cancelable operating leases		57		8		23		13		13		61		9		24		13		15

Total contractual cash obligations	$	701	$	28	$	60	$	86	$	527	$	551	$	33	$	24	$	229	$	265

Stock Repurchase Program

~~In February 1999, our~~Our Board of Directors has authorized ~~a one million-share stock repurchase program.~~us to purchase up to two million shares of Class A Common Stock or Class B Common Stock or any combination of the foregoing (the “Common Stock”). During the first ~~half~~six months of ~~2004,~~2005, we repurchased ~~814~~100,000 shares of Class B Common Stock. As of April 30, ~~2004,~~2005, we had repurchased ~~713,680~~864,680 shares, including ~~435,476~~486,476 shares of Class A Common Stock and ~~278,204~~378,204 shares of Class B Common ~~Stock.~~Stock, under this program. The total cost of the shares repurchased ~~during~~from 1999 through April 30, ~~2004~~2005 was ~~$20.5~~$28 million.

Recent Accounting Standards

In December ~~2003,~~2004, the Financial Accounting Standards Board ~~(“FASB”)~~ issued a revision to SFAS No. ~~132, “Employers Disclosures about Pensions and Other Postretirement Benefits.” The~~123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”). This revision ~~relates~~will require us to ~~employers’ disclosures about pension plans and other postretirement benefit plans. It does not alter~~measure the ~~measurement or recognition provisions~~cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the ~~original~~award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. SFAS No. ~~132. It requires additional disclosures regarding assets, obligations, cash flows~~123R was effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. However, based on a new rule by the Securities and ~~net periodic benefit costs~~Exchange Commission, companies are allowed to implement SFAS No. 123R at the beginning of ~~pension plans~~their next fiscal year instead of the next reporting period that begins after June 15, 2005 (November 1, 2005 for us). SFAS No. 123R will apply to all awards granted after the required effective date and ~~other defined benefit postretirement plans. Excluding certain disclosure requirements,~~to awards modified, repurchased or canceled after that date. As of the ~~revised Statement~~required effective date, we will apply SFAS No. 123R using a modified version of prospective application. Under this transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123R for either recognition or pro forma disclosures. For periods before the required effective date, we have elected not to apply a modified version of retrospective application under which financial statements ~~with fiscal years ended after December 15, 2003. Interim period disclosures~~for prior periods are ~~effective for interim periods beginning after December 15, 2003 and have been included in Note 14 to the Notes to Consolidated Financial Statements in this Form 10-Q.~~

~~In December 2003, the FASB issued a revision to Interpretation~~adjusted by SFAS No. 46, “Consolidation of Variable Interest Entities.” This Interpretation defines when a business enterprise must consolidate a variable interest entity. The Interpretation provisions are effective for variable interest entities commonly referred to as special-purpose entities for periods ending after March 15, 2004. We do not have any material unconsolidated variable interest entities as of April 30, 2004 that would require consolidation.123R. Adoption of SFAS No. 123R is expected to result in compensation cost of approximately $1.0 million in the ~~subsequent provisions~~consolidated statements of ~~the Interpretation did not have a material impact on our financial position~~income in 2006, assuming no additional stock options are granted during 2005 or ~~results of operations.~~2006.

Forward-Looking Statements; Certain Factors Affecting Future Results

All statements other than statements of historical facts included in this Form 10-Q, including, without limitation, statements regarding our future financial position,

business strategy, budgets, projected costs, goals and plans and objectives of management for future operations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “project,” ~~“believe”~~“believe,” “continue” or ~~“continue”~~“target” or the negative thereof or variations thereon or similar terminology. All forward-looking statements made in this Form 10-Q are based on information presently available to our management. Although we believe that the expectations reflected in forward-looking statements have a reasonable basis, we can give no assurance that these expectations will prove to be correct. Forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Such risks and uncertainties that could cause a difference include, but are not limited to: general economic and business conditions, including a prolonged or substantial economic downturn; changing trends and demands in the industries in which we compete, including industry over-capacity; industry competition; the continuing consolidation of our customer base for industrial packaging, containerboard and corrugated products; political instability in

those foreign countries where we manufacture and sell our products; foreign currency fluctuations and devaluations; availability and costs of raw materials for the manufacture of our products, particularly steel, resins, pulpwood, old corrugated containers for recycling and ~~resin,~~containerboard, and price fluctuations in energy costs; costs associated with litigation or claims against us pertaining to environmental, safety and health, product liability and other matters; work stoppages and other labor relations matters; property loss resulting from wars, acts of terrorism, or natural disasters; the frequency and volume of sales of our timber and timberland; and the deviation of actual results from the estimates and/or assumptions used by us in the application of our significant accounting policies. These and other risks and uncertainties that could materially affect our consolidated financial results are further discussed in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended October 31, ~~2003.~~2004. We assume no obligation to update any forward-looking statements.

~~ITEM 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There has not been a significant change in the quantitative and qualitative disclosures about the Company’s market risk from the disclosures contained in the ~~2003~~Company’s Form ~~10-K.~~10-K for the year ended October 31, 2004.

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision of the Chief Executive Officer and Chief Financial Officer, the Company’s management conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined under Rule 15d–15(e) promulgated under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective in timely making known to them material information required to be included in the Company’s periodic filings with the Securities and Exchange Commission.

There has been no change in the Company’s internal controls over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

~~ITEM 2.~~

~~CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES~~

~~Issuer Purchases of Class B Common Stock~~

Period

Total Number
of Shares
Purchased
   Average Price
Paid Per
Share
   Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs⁽¹⁾
   Maximum
Number
of Shares that
May Yet Be
Purchased
under the
Plans or
Programs⁽¹⁾
02/01/04 thru 02/29/04
   —      —      —      287,020
03/01/04 thru 03/31/04
   —      —      —      287,020
04/01/04 thru 04/30/04
   750    $ 36.00    750    286,320




Total
   750    $ 36.00    750    286,320

⁽¹⁾

In February 1999, the Company’s Board of Directors authorized a stock repurchase program which permits the Company to purchase up to 1.0 million shares of the Company’s Class A Common Stock or Class B Common Stock, or any combination thereof. The maximum number of shares that may yet be purchased is 286,320, which may be any combination of Class A Common Stock or Class B Common Stock.

40ITEM 6. EXHIBITS

~~ITEM 6.~~

~~EXHIBITS AND REPORTS ON FORM 8-K~~

(a.)

Exhibits


Exhibit No.		Description of Exhibit

~~3.E~~10.1		~~Amendments to Amended~~Real Estate Purchase and ~~Restated By-Laws of Greif Bros. Corporation~~Sale Agreement ($51,046,945) dated March 28, 2005 between Soterra LLC (seller) and Plum Creek Timberlands, L.P. (purchaser).

~~10.O~~10.2		~~Amendment No. 1 to the Amended~~Real Estate Purchase and ~~Restated Senior Secured Credit~~Sale Agreement ($38,953,055) dated March 28, 2005 between Soterra LLC (seller) and Plum Creek Timberlands, L.P. (purchaser).

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a - 14(a) of the Securities Exchange Act of ~~1934~~1934.

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a - 14(a) of the Securities Exchange Act of ~~1934~~1934.

32.1		Certification of Chief Executive Officer required by Rule 13a - 14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States ~~Code~~Code.

32.2		Certification of Chief Financial Officer required by Rule 13a - 14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States ~~Code~~

~~(b.)~~

~~Reports on Form 8-K.~~Code.

~~No events occurred requiring a Form 8-K to be filed during the second quarter of 2004.~~

4145

SIGNATURES

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


		Greif, Inc.
				~~Greif, Inc.~~
				(Registrant)

Date: June ~~7, 2004~~	8, 2005		/s/ Donald S. Huml
				Donald S. Huml, Chief Financial ~~Officer~~ ~~(Duly~~Officer (Duly Authorized Signatory)

4246

GREIF, INC.

Form 10-Q

For Quarterly Period Ended April 30, ~~2004~~2005

EXHIBIT INDEX


Exhibit No.		Description of Exhibit

~~3.E~~10.1		~~Amendments to Amended~~Real Estate Purchase and ~~Restated By-Laws of Greif Bros. Corporation~~Sale Agreement ($51,046,945) dated March 28, 2005 between Soterra LLC (seller) and Plum Creek Timberlands, L.P. (purchaser).

~~10.O~~10.2		~~Amendment No. 1 to the Amended~~Real Estate Purchase and ~~Restated Senior Secured Credit~~Sale Agreement ($38,953,055) dated March 28, 2005 between Soterra LLC (seller) and Plum Creek Timberlands, L.P. (purchaser).

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a - 14(a) of the Securities Exchange Act of ~~1934~~1934.

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a - 14(a) of the Securities Exchange Act of ~~1934~~1934.

32.1		Certification of Chief Executive Officer required by Rule 13a - 14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States ~~Code~~Code.

32.2		Certification of Chief Financial Officer required by Rule 13a - 14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States ~~Code~~Code.

4347


	April 30, 2004		October 31, 2003
$550 million Amended and Restated Senior Secured Credit Agreement	$	299,565	$	308,783
8⁷/8% Senior Subordinated Notes		251,251		251,380
Trade accounts receivable credit facility		72,972		85,406
Other long-term debt		326		498

		624,114		646,067
Current portion		—		(3,000	)

	$	624,114	$	643,067


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾	Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs⁽¹⁾
02/01/04 thru 02/29/04	—		—	—	287,020
03/01/04 thru 03/31/04	—		—	—	287,020
04/01/04 thru 04/30/04	750	$	36.00	750	286,320

Total	750	$	36.00	750	286,320