GREIF INC (Form: 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended October 31, 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: 001-00566

Greif, Inc.

(Exact name of Registrant as specified in its charter)


State of 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

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered
Class A Common Stock		New York Stock Exchange
Class B Common Stock		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Exchange Act of 1934. Yes x No ¨

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x

The aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter was as follows:

Non-voting common equity (Class A Common Stock) - $796,928,179

Voting common equity (Class B Common Stock) - $330,190,195

The number of shares outstanding of each of the Registrant’s classes of common stock, as of December 31, 2005 was as follows:

Class A Common Stock - 11,562,084

Class B Common Stock - 11,538,645

Listed hereunder are the documents, portions of which are incorporated by reference, and the parts of this Form 10-K into which such portions are incorporated:

1. The Registrant’s Definitive Proxy Statement for use in connection with the Annual Meeting of Stockholders to be held on February 27, 2006 (the “2006 Proxy Statement”), portions of which are incorporated by reference into Part III of this Form 10-K. The 2006 Proxy Statement will be filed within 120 days of October 31, 2005.

IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical facts, included in this Form 10-K of Greif, Inc. and subsidiaries (the “Company”) or incorporated herein, including, without limitation, statements regarding the Company’s 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,” “continue” or “target” or the negative thereof or variations thereon or similar terminology. Forward-looking statements speak only as the date the statements were made. Although the Company believes that the expectations reflected in forward-looking statements have a reasonable basis, it 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. For a discussion of the most significant risks and uncertainties that could cause the Company’s actual results to differ materially from those projected, see “Risk Factors” in Item 1A of this Form 10-K. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Index to Form 10-K Annual Report for the year ended October 31, 2005


Form 10-K Item		Description	Page
Part I	1.	Business	1
		(a) Genera Development of Business	1
		(b) Financial Information about Segments	1
		(c) Narrative Description of Business	2
		(d) Financial Information about Geographic Areas	3
		(e) Available Information	3
		(f) Other Matters	4
	1A.	Risk Factors	4
	1B.	Unresolved Staff Comments	6
	2.	Properties	7
	3.	Legal Proceedings	8
	4.	Submission of Matters to a Vote of Security Holders	9
		Executive Officers of the Company	9
Part II	5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11
	6.	Selected Financial Data	12
	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
	7A.	Quantitative and Qualitative Disclosures about Market Risk	27
	8.	Financial Statements and Supplementary Data	31
		Report of Independent Registered Public Accounting Firm	66
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	67
	9A.	Controls and Procedures	67
		Report of Independent Registered Public Accounting Firm	68
	9B.	Other Information	69
Part III	10.	Directors and Executive Officers of the Company	70
	11.	Executive Compensation	70
	12.	Security Ownership and Certain Beneficial Owners and Management and Related Stockholder Matters	70
	13.	Certain Relationships and Related Transactions	71
	14.	Principal Accountant Fees and Services	71
Part IV	15.	Exhibits and Financial Statement Schedules	72
		Signatures	73
Schedules		Schedule II	74

PART I

ITEM 1. BUSINESS

(a) General Development of Business

General

The Company is a leading global producer of industrial packaging products with manufacturing facilities located in over 40 countries. The Company offers 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, which are complemented with a variety of value-added services. The Company also produces containerboard and corrugated products for niche markets in North America. The Company sells timber to third parties from its timberland in the southeastern United States that it manages to maximize long-term value. The Company also owns timberland in Canada that it does not actively manage. The Company’s customers range from Fortune 500 companies to medium and small-sized companies in a cross section of industries.

The Company’s history goes back to 1877 when its predecessor manufactured wooden barrels, casks and kegs to transport post-Civil War goods nationally and internationally. The Company was incorporated as a Delaware corporation in 1926.

Significant Transactions Discussed in this Form 10-K

2005 Timberland Transactions

On March 28, 2005, Soterra LLC (a wholly owned subsidiary) entered into two real estate purchase and sale agreements with Plum Creek Timberlands, L.P. to sell approximately 56,000 acres of timberland and related assets located primarily in Florida for an aggregate sales price of approximately $90 million, subject to closing adjustments. In connection with the closing of one of these agreements, Soterra LLC sold approximately 35,000 acres of timberland and associated assets in Florida, Georgia and Alabama for $51.0 million, resulting in a gain of $42.1 million, in 2005. The remaining acres will be sold in two installments in 2006, and the Company will recognize additional timberland gains in its consolidated statements of income in the periods that these transactions occur. See Note 7 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

CorrChoice, Inc. Redemption of Minority Shareholders’ Outstanding Shares

On September 30, 2003, CorrChoice, Inc., which had been a joint venture of the Company, redeemed all of the outstanding shares of its minority shareholders. As a result of this transaction, the Company owned 100 percent of CorrChoice, Inc. compared to its 63.24 percent interest when the joint venture was formed on November 1, 1998.

Van Leer Industrial Packaging Acquisition

In March 2001, the Company acquired Royal Packaging Industries Van Leer N.V., a Dutch company, Huhtamaki Holdings do Brasil Ltda., a Brazilian company, Van Leer France Holding S.A.S., a French company, Van Leer Containers, Inc., a United States company, and American Flange & Manufacturing Co., Inc., a United States company, which are collectively referred to as “Van Leer Industrial Packaging.” As a result of this transaction, the Company acquired significant industrial packaging operations outside of North America.

2001 Timberland Transactions

In 2001, the Company sold 65,000 acres of hardwood timber properties situated in Arkansas, Mississippi and Louisiana for $74.4 million in two transactions. As a result of these transactions, the Company recognized gains totaling $70.7 million. Also in 2001, the Company purchased 63,000 acres of pine timber properties for $85.9 million in two transactions.

(b) Financial Information about Segments

The Company operates in three business segments: Industrial Packaging & Services; Paper, Packaging & Services; and Timber. Information related to each of these segments is included in Note 16 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K, which Note is incorporated herein by reference.

(c) Narrative Description of Business

Products and Services

In the Industrial Packaging & Services segment, the Company offers 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. The Company sells its industrial packaging products to customers in over 40 countries in industries such as chemicals, paints and pigments, food and beverage, petroleum, industrial coatings, agricultural, pharmaceutical and mineral, among others.

In the Paper, Packaging & Services segment, the Company sells containerboard, corrugated sheets and other corrugated products and multiwall bags to customers in North America in industries such as packaging, automotive, food and building products. The Company’s 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. The Company’s 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, primarily for the agricultural, chemical, building products and food industries.

In the Timber segment, the Company is focused on the active harvesting and regeneration of its United States timber properties to achieve sustainable long-term yields. While timber sales are subject to fluctuations, the Company seeks to maintain a consistent cutting schedule, within the limits of market and weather conditions. As of October 31, 2005, the Company owned approximately 250,000 acres of timberland in the southeastern United States and approximately 37,000 acres of timberland in Canada.

Customers

Due to the variety of its products, the Company has many customers buying different types of its products and, due to the scope of the Company’s sales, no one customer is considered principal in the total operation of the Company.

Backlog

The business of the Company is not seasonal to any significant extent. Because the Company supplies a cross section of industries, such as chemicals, food products, petroleum products, pharmaceuticals and metal products, and must make spot deliveries on a day-to-day basis as its products are required by its customers, the Company does not operate on a backlog to any significant extent and maintains only limited levels of finished goods. Many customers place their orders weekly for delivery during the week.

Competition

The markets in which the Company sells its products are highly competitive and comprised of many participants. Although no single company dominates, the Company faces significant competitors in each of its businesses. The Company’s competitors include large vertically integrated companies as well as numerous smaller companies. The industries in which the Company competes are particularly sensitive to price fluctuations caused by shifts in industry capacity and other cyclical industry conditions. Other competitive factors include design, quality and service, with varying emphasis depending on product line.

In the industrial packaging industry, the Company competes by offering a comprehensive line of products on a global basis. In the paper and paper packaging industry, the Company competes by concentrating on providing value-added, higher-margin corrugated products to niche markets. In addition, over the past several years the Company has closed higher cost facilities and otherwise restructured its operations, which it believes has significantly improved its cost competitiveness.

Environmental Matters; Governmental Regulations

The Company’s operations are subject to extensive federal, state, local and international laws, regulations, rules and ordinances relating to pollution, the protection of the environment, the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials and numerous other environmental laws and regulations. In the ordinary course of business, the Company is subject to periodic environmental inspections and monitoring by governmental enforcement authorities.

In addition, certain of the Company’s production facilities require environmental permits that are subject to revocation, modification and renewal.

Based on current information, the Company believes that the probable costs of the remediation of company-owned property will not have a material adverse effect on its financial condition or results of operations. The Company believes that its liability for these matters was adequately reserved as of October 31, 2005.

The Company does not believe that compliance with federal, state, local and international provisions, which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has had or will have a material effect upon the capital expenditures, earnings or competitive position of the Company. The Company does not anticipate any material capital expenditures related to environmental control in 2006.

See also Item 7 of this Form 10-K and Note 15 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information concerning environmental expenses and cash expenditures for 2005, 2004 and 2003, and the Company’s reserves for environmental liabilities at October 31, 2005.

Raw Materials

Steel, resin and containerboard are the principal raw materials for the Industrial Packaging & Services segment, and pulpwood, old corrugated containers for recycling and containerboard are the principal raw materials for the Paper, Packaging & Services segment. The Company satisfies most of its needs for these raw materials through purchases on the open market or under short-term supply agreements. All of these raw materials are purchased in highly competitive, price-sensitive markets, which have historically exhibited price and demand cyclicality. From time to time, some of these raw materials have been in short supply, but to date these shortages have not had a significant effect on the Company’s operations.

Research and Development

While research and development projects are important to the Company’s continued growth, the amount ex pended in any year is not material in relation to the results of operations of the Company.

The Company’s business is not materially dependent upon patents, trademarks, licenses or franchises.

Employees

As of October 31, 2005, the Company had approximately 9,100 employees. A significant number of the Company’s employees are represented by unions. The Company believes that its employee relations are generally good.

(d) Financial Information about Geographic Areas

The Company’s operations are located in North America, Europe and various other regions throughout the world. Information related to each of these areas is included in Note 16 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K, which Note is incorporated herein by reference. Quantitative and Qualitative Disclosures about Market Risk, included in Item 7A of this Form 10-K, is incorporated herein by reference.

(e) Available Information

The Company maintains an Internet Web site at www.greif.com. The Company files reports with the Securities and Exchange Commission (the “SEC”) and makes available, free of charge, on or through this Internet Web site, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably possible after the Company electronically files such material with, or furnishes it to, the SEC.

Any of the materials the Company files with the SEC may also be read and/or copied at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Information on the operation of the SEC’s Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet Web site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

(f) Other Matters

The Company’s common equity securities are listed on the New York Stock Exchange (“NYSE”) under the symbols GEF and GEF.B. Michael J. Gasser, the Company’s Chief Executive Officer, has timely certified to the NYSE that, at the date of the certification, he was unaware of any violation by the Company of the NYSE’s corporate governance listing standards. In addition, Mr. Gasser and Donald S. Huml, the Company’s Executive Vice President and Chief Financial Officer, have provided certain certifications in this Form 10-K regarding the quality of the Company’s public disclosures. See Exhibits 31.1 and 31.2 to this Form 10-K.

ITEM 1A. RISK FACTORS

Statements contained in this Form 10-K may be “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause the Company’s operating results to differ materially from those projected. The following factors, among others, in some cases have affected, and in the future could affect, the Company’s actual financial performance. The terms “Greif,” “our company,” “we,” “us” and “our” as used in this discussion refer to Greif, Inc. and subsidiaries.

Our business is sensitive to changes in general economic or business conditions.

Our customers generally consist of other manufacturers and suppliers who purchase industrial packaging products and containerboard and related corrugated products for their own containment and shipping purposes. Because we supply a cross section of industries, such as chemicals, food products, petroleum products, pharmaceuticals and metal products, and have operations in many countries, demand for our industrial packaging products and containerboard and related corrugated products has historically corresponded to changes in general economic and business conditions of the industries and countries in which we operate. Accordingly, our financial performance is substantially dependent upon the general economic conditions existing in these industries and countries, and any prolonged or substantial economic downturn could have a material ad verse affect on our business, results of operations or financial condition.

Our foreign operations are subject to currency exchange and political risks that could adversely affect our results of operations.

We have operations in over 40 countries. As a result of our international operations, we are subject to certain risks which could disrupt our operations or force us to incur unanticipated costs.

Our operating performance is affected by devaluations and fluctuations in foreign currency exchange rates by:

•

translations into United States dollars for financial reporting purposes of the assets and liabilities of our international operations conducted in local currencies; and

•

gains or losses from international operations conducted in currencies other than the operation’s functional currency.

We are subject to various other risks associated with operating in international countries, such as the following:

•

political, social and economic instability;

•

war, civil disturbance or acts of terrorism;

•

taking of property by nationalization or expropriation without fair compensation;

•

changes in government policies and regulations;

•

imposition of limitations on conversions of foreign currencies into United States dollars or remittance of dividends and other payments by international subsidiaries;

•

imposition or increase of withholding and other taxes on remittances and other payments by international subsidiaries;

•

hyperinflation in certain countries; and

•

impositions or increase of investment and other restrictions or requirements by non-United States governments.

We operate in highly competitive industries.

Each of our business segments operates in highly competitive industries. The most important competitive fac -

tors we face are price, quality and service. To the extent that one or more of our competitors become more successful with respect to any of these key competitive factors, we could lose customers and our sales could decline. In addition, due to the tendency of certain customers to diversify their suppliers, we could be unable to increase or maintain sales volumes with particular customers. Certain of our competitors are substantially larger and have significantly greater financial resources.

Our business is sensitive to changes in industry demands.

Industry demand for containerboard in the United States has declined in recent years causing competitive pricing pressures in the containerboard market, which has negatively impacted our financial performance. We compete in industries that are capital intensive, which generally leads to continued production as long as prices are sufficient to cover marginal costs. As a result, changes in industry demands, including industry over-capacity, may cause substantial price competition and, in turn, negatively impact our financial performance.

The continuing consolidation of our customer base for industrial packaging, containerboard and corrugated products may intensify pricing pressures and may negatively impact our financial performance.

Over the last few years, many of our large industrial packaging, containerboard and corrugated products customers have acquired, or been acquired by, companies with similar or complementary product lines. This consolidation has increased the concentration of our largest customers, and resulted in increased pricing pressures from our customers. The continuing consolidation of our customer base may negatively impact our financial performance.

Raw material and energy price fluctuations and shortages could adversely affect our ability to obtain the materials needed to manufacture our products and could adversely affect our manufacturing costs.

The principal raw materials used in the manufacture of our products are steel, resin, pulpwood, old corrugated containers for recycling, and containerboard, which we purchase in highly competitive, price sensitive markets. These raw materials have historically exhibited price and demand cyclicality. Some of these materials have been, and in the future may be, in short supply. However, we have not recently experienced any significant difficulty in obtaining our principal raw materials. We do not have long-term supply contracts or hedging arrangements in place for obtaining our principal raw materials.

The cost of producing our products is also sensitive to the price of energy. We have, from time to time, entered into short-term contracts to hedge certain of our energy costs. Energy prices, in particular oil and natural gas, have increased in recent years, with a corresponding effect on our production costs.

Environmental and health and safety matters and product liability claims could negatively impact our operations and financial performance.

We must comply with extensive rules and regulations regarding federal, state, local and international environmental matters, such as air and water quality and waste disposal. We must also comply with extensive rules and regulations regarding safety and health matters. The failure to materially comply with such rules and regulations could adversely affect our operations and financial performance. Furthermore, litigation or claims against us with respect to such matters could adversely affect our financial performance. We may also become subject to product liability claims which could adversely affect our operations and financial performance.

Our business may be adversely impacted by work stoppages and other labor relations matters.

We are subject to risk of work stoppages and other labor relations matters because a significant number of our employees are represented by unions. We have experienced work stoppages and strikes in the past, and there may be work stoppages and strikes in the future. Any prolonged work stoppage or strike at any one of our principal manufacturing facilities could have a negative impact on our business, results of operations or financial condition.

We may encounter difficulties arising from acquisitions.

During recent years, we have invested a substantial amount of capital in acquisitions. Acquisitions involve numerous risks, including the failure to retain key customers, employees and contracts, and the inability to integrate businesses without material disruption. In addition, other companies in our industries have similar acquisition strategies. There can be no assurance that any future acquisitions will be successfully integrated into our operations, that competition for acquisitions will not intensify or that we will be able to complete such acquisitions on acceptable terms and conditions. In addition, the costs of unsuccessful acquisition efforts may adversely affect our financial performance.

We may be subject to losses that might not be covered in whole or in part by existing insurance reserves or insurance coverage. These uninsured losses could adversely affect our financial performance.

We are self-insured for certain of the claims made under our employee medical and dental insurance programs and for certain of our workers’ compensation claims. We establish reserves for estimated costs related to pending claims, administrative fees and claims incurred but not reported. Because establishing reserves is an inherently uncertain process involving estimates, currently established reserves may not be adequate to cover the actual liability for claims made under our employee medical and dental insurance programs and for certain of our workers’ compensation claims. If we conclude that our estimates are incorrect and our reserves are inadequate for these claims, we will need to increase our reserves, which could adversely affect our financial performance.

We carry comprehensive liability, fire and extended coverage insurance on most of our facilities, with policy specifications and insured limits customarily carried for similar properties. However, there are certain types of losses, such as losses resulting from wars, acts of terrorism, or natural disasters, that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in that property, as well as the anticipated future revenues derived from the manufacturing activities conducted at that property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any such loss would adversely impact our business, financial condition and results of operations.

Insurance policies covering product liability generally being offered by insurance carriers are becoming more restrictive in terms of self-insured retentions, available policy limits, coverage exclusions and other terms. There can be no assurance that a successful product or professional liability claim would be adequately covered by our applicable insurance policies or by any applicable contractual indemnity.

The frequency and volume of our timber and timberland sales will impact our financial performance.

We have a significant inventory of standing timber and timberland. The frequency and volume of sales of timber and timberland will have an effect on our financial performance.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The following are the Company’s principal operating locations and the products manufactured at such facilities or the use of such facilities. The Company considers its operating properties to be in satisfactory condition and adequate to meet its present needs. However, the Company expects to make further additions, improvements and consolidations of its properties as the Company’s business continues to expand.


Location	Products or Use	Owned	Leased
INDUSTRIAL PACKAGING & SERVICES:
Argentina	Steel and plastic drums and distribution center	3	—
Australia	Steel and plastic drums, closures, distribution centers and general office	4	2
Belgium	Steel and plastic drums, water bottles and coordination center	1	1
Brazil	Steel and plastic drums, water bottles, closures and general office	5	1
Canada	Fibre, steel and plastic drums and wooden pallets	9	—
Chile	Steel drums, water bottles and distribution center	—	1
China	Steel drums	1	1
Colombia	Steel and plastic drums and water bottles	1	1
Costa Rica	Steel drums	—	1
Czech Republic	Steel drums	1	—
Denmark	Fibre drums	1	—
Egypt	Steel drums	1	1
France	Fibre, steel and plastic drums, intermediate bulk containers, closures and distribution center	2	4
Germany	Fibre, steel and plastic drums and distribution center	3	2
Greece	Steel drums and water bottles	1	1
Guatemala	Steel drums	1	—
Hungary	Steel drums	1	—


Location	Products or Use	Owned	Leased
India	Plastic drums and closures	1	1
Italy	Steel and plastic drums and distribution center	1	2
Jamaica	Distribution center	—	1
Kenya	Steel and plastic drums	—	1
Malaysia	Steel and plastic drums	1	1
Mexico	Fibre, steel and plastic drums and distribution center	2	2
Morocco	Steel and plastic drums and plastic bottles	—	1
Mozambique	Steel drums and plastic bottles	—	1
Netherlands	Fibre and steel drums, closures, research center and general office	3	2
New Zealand	Intermediate bulk containers	—	2
Nigeria	Steel and plastic drums	2	1
Philippines	Steel drums and water bottles	—	1
Poland	Steel drums and water bottles	1	—
Portugal	Steel drums	1	—
Russia	Steel drums and water bottles	5	1
Singapore	Steel drums and distribution center	—	2
South Africa	Steel and plastic drums and distribution center	3	2
Spain	Steel drums and distribution center	1	—
Sweden	Fibre and steel drums and distribution center	2	2
Turkey	Steel drums and waterbottles	1	1
Ukraine	Distribution center	—	1
United Kingdom	Fibre, steel and plastic drums, water bottles and distribution center	5	2
United States	Fibre, steel and plastic drums, intermediate bulk containers, closures, steel parts, water bottles and distribution centers	24	20


Location	Products or Use	Owned	Leased
Uruguay	Steel drums	—	1
Venezuela	Steel and plastic drums and water bottles	2	—
Zimbabwe	Steel and plastic drums	1	—
PAPER, PACKAGING & SERVICES:
United States	Corrugated sheets, containers and other products, containerboard, multiwall bags and distribution center	25	12
TIMBER:
United States	General offices	3	—
CORPORATE:
United States	Principal and general office	2	—

The Company also owns a substantial number of scattered timber tracts comprising approximately 250,000 acres in the states of Alabama, Arkansas, Florida, Louisiana and Mississippi and approximately 37,000 acres in the provinces of Ontario and Quebec in Canada as of October 31, 2005.

ITEM 3. LEGAL PROCEEDINGS

The Company has no pending material legal proceedings.

From time to time, various legal proceedings arise at the country, state or local levels involving environmental sites to which the Company has shipped, directly or indirectly, small amounts of toxic waste, such as paint solvents, etc. The Company, to date, has been classified as a “de minimis” participant and, as such, has not been subject, in any instance, to sanctions of $100,000 or more.

In addition, from time to time, but less frequently, the Company has been cited for violations of environmental regulations. None of these violations involve or are expected to involve sanctions of $100,000 or more, except for a notice of violation received by the Company from the U.S. Environmental Protection Agency for alleged clean-air violations at its steel drum facility in Alsip, Illinois. The alleged violations relate to two industrial process cooling towers at the facility that have been monitored by a third party for many years and involve the chemicals supplied and used by that third party in connection with treating the cooling system. The sanctions for such alleged violations could exceed $100,000, but are not expected to be material to the Company.

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

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Form 10-K.

Executive Officers of the Company

The following information relates to executive officers of the Company (elected annually):


Name	Age	Positions and offices	Year first became executive officer
Michael J. Gasser	54	Chairman of the Board of Directors and Chief Executive Officer	1988
William B. Sparks, Jr.	64	Director, President and Chief Operating Officer	1995
Donald S. Huml	59	Executive Vice President and Chief Financial Officer	2002
Ronald L. Brown	58	Senior Vice President, Global Sourcing and Supply Chain	2004
David B. Fischer	43	Senior Vice President and Divisional President, Industrial Packaging & Services - Americas	2004
Gary R. Martz	47	Senior Vice President, General Counsel and Secretary, and President, Soterra LLC (subsidiary company)	2002
Michael C. Patton	44	Senior Vice President, Paper, Packaging & Services and Transformation Worldwide	2004
Michael L. Roane	50	Senior Vice President, Human Resources and Communications	1998
Ivan Signorelli	53	Senior Vice President, Industrial Packaging & Services – Europe	2005
Kenneth B. André, III	40	Vice President, Corporate Controller and Chief Information Officer	2006
John K. Dieker	42	Vice President and Treasurer	1996
Robert A. Young	51	Vice President, Taxes	2002
Robert S. Zimmerman	34	Vice President, Corporate Business Development	2001
Sharon R. Maxwell	56	Assistant Secretary	1997

Except as indicated below, each person has served in his or her present capacity for at least five years.

Donald S. Huml was elected Executive Vice President in 2006. Since 2002, Mr. Huml has also been Chief Financial Officer. Prior to that time, and for more than five years, he served as Senior Vice President, Finance, and Chief Financial Officer of Snap-On Incorporated, a global developer, manufacturer and marketer of tools and equipment.

Ronald L. Brown was elected Senior Vice President, Global Sourcing and Supply Chain in 2004. From 2001 to 2004, Mr. Brown served as Vice President, Industrial Packaging & Services—North America. Prior to that time and since 1997, he served as Vice President, Sales and Marketing for the Industrial Packaging & Services segment.

David B. Fischer was elected Senior Vice President and Divisional President, Industrial Packaging & Services—Americas in 2004. Prior to that time, and for more than five years, Mr. Fischer worked for The Dow Chemical Company, a global science and technology-based company, most recently serving as Business Vice President for the polyurethane business.

Gary R. Martz was elected Senior Vice President, General Counsel and Secretary in 2002. In 2005, Mr. Martz also became President of Soterra LLC (subsidiary company). Prior to 2002, and for more than five years, he served as a partner in the law firm of Baker & Hostetler LLP.

Michael C. Patton was elected Senior Vice President, Paper, Packaging & Services in 2005. Since 2004, Mr. Patton was Senior Vice President, Transformation Worldwide, and continues in this capacity as well. Earlier in 2004, he had been appointed to Vice President and General Manager, Midwest (North America). From 2002 to 2004, He served as Vice President, Steel (North America) and from 2000 to 2002 he served as Vice President and General Manager, Multiwall.

Ivan Signorelli was elected Senior Vice President, Industrial Packaging & Services – Europe in 2005. From 1997 to 2005, Mr. Signorelli served as the Strategic Business Unit Manager of Latin America for Industrial Packaging & Services, adding Africa to his responsibilities in 2003.

Kenneth B. André, III was elected Corporate Controller in 2006. In this capacity, Mr. André will serve as chief accounting officer of the Company starting in 2006. Prior to that time, he served as Vice President and Chief Information Officer since 2003. He was Director of IT Applications for Industrial Packaging & Services—North America business from 2002 to 2003. From the Van Leer Industrial Packaging acquisition in 2001 through 2002, he served as the Company’s Director of International IT at the Greif Coordination Center in Belgium.

John K. Dieker was elected Vice President and Treasurer in 2006. Prior to that time, and for more than five years, he served as Vice President and Corporate Controller, and in that capacity, was chief accounting officer of the Company through 2005.

Robert A. Young was elected Vice President, Taxes, in 2002. From 1999 to 2001, Mr. Young served as the Director of Taxes.

Robert S. Zimmerman was elected Vice President, Corporate Business Development, in 2006. From 2003 to 2005, Mr. Zimmerman was Vice President and Treasurer. From 2001 to 2003, he served as the Company’s Assistant Treasurer. Prior to that time and since 1999, he served as Treasury Manager of Mettler-Toledo International, Inc., a global provider of precision instruments and services for professional use.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Shares of the Company’s Class A and Class B Common Stock are listed on the New York Stock Exchange under the symbols GEF and GEF.B, respectively.

Financial information regarding the Company’s two classes of common stock, as well as the number of holders of each class and the high, low and closing sales prices for each class for each quarterly period for the two most recent fiscal years, is included in Note 17 to the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K, which Note is incorporated herein by reference.

The Company pays quarterly dividends of varying amounts computed on the basis described in Note 10 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K, which Note is incorporated herein by reference. The annual dividends paid for the last two fiscal years are as follows:

2005 fiscal year dividends per share – Class A $0.80; Class B $1.19

2004 fiscal year dividends per share – Class A $0.60; Class B $0.89

The terms of both the Company’s Credit Agreement and the Indenture for the Company’s Senior Subordinated Notes limit the ability of the Company to make “restricted payments,” which include dividends and purchases, redemptions and acquisitions of equity interests of the Company. The payment of dividends and other restricted payments are subject to the condition that certain defaults not exist under the terms of those agreements and are limited in amount by a formula based on the consolidated net income of the Company. See “Borrowing Arrangements” in Item 7 of this Form 10-K.

The following tables set forth the Company’s purchases of its Class A and Class B Common Stock during 2005:

Issuer Purchases of Class A 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 (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs(1)
November 2004	—		—	—	1,235,320
December 2004	—		—	—	1,235,320
January 2005	—		—	—	1,135,320
February 2005	—		—	—	1,135,320
March 2005	—		—	—	1,135,320
April 2005	—		—	—	1,135,320
May 2005	—		—	—	1,135,320
June 2005	40,000	$	63.04	40,000	1,090,320
July 2005	—		—	—	1,090,320
August 2005	—		—	—	1,090,320
September 2005	—		—	—	1,072,776
October 2005	50,000	$	58.35	50,000	1,022,776

Total	90,000			90,000

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 (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs(1)
November 2004	—		—	—	1,235,320
December 2004	—		—	—	1,235,320
January 2005	100,000	$	52.70	100,000	1,135,320
February 2005	—		—	—	1,135,320
March 2005	—		—	—	1,135,320
April 2005	—		—	—	1,135,320
May 2005	—		—	—	1,135,320
June 2005	5,000	$	59.01	5,000	1,090,320
July 2005	—		—	—	1,090,320
August 2005	—		—	—	1,090,320
September 2005	17,544	$	57.00	17,544	1,072,776
October 2005	—		—	—	1,022,776

Total	122,544			122,544

(1)

The Company’s Board of Directors has authorized a stock repurchase program which permits the Company to purchase up to 2.0 million shares of the Company’s Class A or Class B Common Stock, or any combination thereof. As of October 31, 2005, the maximum number of shares that may yet be purchased is 1,022,776, which may be any combination of Class A or Class B Common Stock.

ITEM 6. SELECTED FINANCIAL DATA

The five-year selected financial data is as follows (Dollars in thousands, except per share amounts):


As of and for the years ended October 31,	2005		2004		2003		2002		2001
Net sales	$	2,424,297	$	2,209,282	$	1,916,441	$	1,632,767	$	1,456,000
Net income	$	104,656	$	47,769	$	9,496	$	30,979	$	88,774
Total assets	$	1,883,323	$	1,813,238	$	1,816,259	$	1,758,295	$	1,771,188
Long-term debt, including current portion of long-term debt	$	430,400	$	457,415	$	646,067	$	632,982	$	697,514
Basic earnings per share:
Class A Common Stock	$	3.64	$	1.69	$	0.34	$	1.10	$	3.14
Class B Common Stock	$	5.45	$	2.53	$	0.50	$	1.64	$	4.70
Diluted earnings per share:
Class A Common Stock	$	3.56	$	1.66	$	0.34	$	1.10	$	3.14
Class B Common Stock	$	5.45	$	2.53	$	0.50	$	1.64	$	4.70
Dividends per share:
Class A Common Stock	$	0.80	$	0.60	$	0.56	$	0.56	$	0.54
Class B Common Stock	$	1.19	$	0.89	$	0.83	$	0.83	$	0.80

CorrChoice, Inc., which had been a joint venture of the Company, redeemed all of the outstanding shares of its minority shareholders on September 30, 2003. As a result of this transaction, the results of CorrChoice, Inc. and its subsidiaries were fully consolidated, net of intercompany eliminations, in the Company’s Consolidated Statements of Income for 2005, 2004 and 2003. In 2003, the Company recorded a minority interest deduction through September 30, 2003. In 2002 and 2001, the Company recorded a 63.24 percent equity interest in the net income of CorrChoice, Inc.

Van Leer Industrial Packaging was acquired on March 2, 2001. Accordingly, the Van Leer Industrial Packaging operating results and assets have been included since that date.

The results of operations include the effects of pretax restructuring charges of $35.7 million, $54.1 million, $60.7 million and $2.8 million for 2005, 2004, 2003 and 2002, respectively, a $2.8 million and $10.3 million pretax debt extinguishment charge for 2005 and 2002, respectively, and large timberland gains of $56.3 million and $70.7 million in 2005 and 2001, respectively.

In 2003, the Company recorded income of $4.8 million related to a cumulative effect of change in accounting principle resulting from the adjustment of its unamortized negative goodwill in accordance with the transition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” upon the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.”

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 and notes, which appear elsewhere in this Form 10-K. The terms “Greif,” “our company,” “we,” “us,” and “our” as used in this discussion refer to Greif, Inc. and subsidiaries. Our fiscal year begins on November 1 and ends on October 31 of the following year. Any references in this Form 10-K to the years 2005, 2004 or 2003, or to any quarter of those years, relate to the fiscal year ending in that year.

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 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 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 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, primarily for the agricultural, chemical, building products and food industries.

As of October 31, 2005, we owned approximately 250,000 acres of timberland in the southeastern United States, which is actively managed, and approximately 37,000 acres of timberland in Canada. Our timber management 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.

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 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 Item 8 of this 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 results of operations and financial condition. The following are the accounting policies that we believe are most important to the portrayal of our results of operations and financial condition and require our most difficult, subjective or complex judgments.

Allowance for Accounts 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 (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 change by a material amount.

Inventory 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. 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 purchase 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. 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 consisted of approximately 250,000 acres at October 31, 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 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 timberland, which consisted of approximately 37,000 acres at October 31, 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 Reserves. Restructuring 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 reserves are further discussed in Note 6 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Pension and Postretirement 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 contained in Notes 13 and 14 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. The results would be different using other assumptions.

Income Taxes. Our effective tax rate is based on income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our effective tax rate and in evaluating its tax positions. We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and that we may not succeed. We adjust these reserves in light of changing facts and circumstances, such as the progress of a tax audit. Our effective tax rate includes the impact of reserve provisions and changes to reserves that we consider appropriate as well as related interest.

A number of years may elapse before a particular matter, for which we have established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our reserves reflect the probable outcome of known tax contingencies. Unfavorable settlement of any particular issue would require use of our cash. Favorable resolution would be recognized as a reduction to our effective tax rate in the period of resolution.

Valuation allowances are established where expected future taxable income does not support the realization of the deferred tax assets.

Environmental Cleanup 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.

Environmental expenses were insignificant in 2005, $0.6 million in 2004 and $0.3 million in 2003. Environmental cash expenditures were $2.0 million, $0.7 million and $0.6 million in 2005, 2004 and 2003, respectively. Our reserves for environmental liabilities at October 31, 2005 amounted to $8.1 million, which included a reserve of $3.9 million related to our facility in Lier, Belgium and $4.2 million for asserted and unasserted environmental litigation, claims and/or assessments at several manufacturing sites and other locations where we believe the outcome of such matters will be unfavorable to us. The environmental exposures for those sites included in the $4.2 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. 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 October 31, 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 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.

Self-Insurance . We are self-insured for certain of the claims made under our employee medical and dental insurance programs. We had recorded liabilities totaling $4.0 million and $3.9 million for estimated costs related to outstanding claims at October 31, 2005 and 2004, respectively. These costs include an estimate for expected settlements on pending claims, administrative fees and an estimate for claims incurred but not reported. These estimates are based on our assessment of outstanding claims, historical analysis and current payment trends. We record an estimate for the claims incurred but not reported using an estimated lag period based upon historical information. This lag period assumption has been consistently applied for the periods presented. If the lag period was hypothetically adjusted by a period equal to a half month, the impact on earnings would be approximately $1 million. However, we believe the liabilities recorded are adequate based upon current facts and circumstances.

We have certain deductibles applied to various insurance policies including general liability, product, auto and workers’ compensation. Deductible liabilities are insured through our captive insurance subsidiary, which had recorded liabilities totaling $12.5 million and $9.5 million for anticipated costs related to general liability, product, auto and workers’ compensation at October 31, 2005 and 2004, respectively. These costs include an estimate for expected settlements on pending claims, defense costs and an estimate for claims incurred but not reported. These estimates are based on our assessment of outstanding claims, historical analysis, actuarial information and current payment trends.

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 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 financial statements include the risks and uncertainties listed in Item 1A under “Risk Factors.” Actual results could differ materially using different estimates and assumptions, or if conditions are significantly different in the future.

RESULTS OF OPERATIONS

Historically, revenues and earnings may or may not be representative of future operating results due to various economic and other factors.

The following table sets forth the net sales and operating profit for each of our business segments for 2005, 2004 and 2003 (Dollars in thousands):


For the years ended October 31,	2005		2004		2003
Net Sales
Industrial Packaging & Services	$	1,804,169	$	1,620,790	$	1,384,243
Paper, Packaging & Services		607,818		568,136		503,731
Timber		12,310		20,356		28,467

Total net sales	$	2,424,297	$	2,209,282	$	1,916,441

Operating Profit
Operating profit, before the impact of restructuring charges and timberland gains:
Industrial Packaging & Services	$	122,818	$	111,949	$	69,817
Paper, Packaging & Services		40,611		29,473		30,411
Timber		7,972		13,888		20,294

Total operating profit before the impact of restructuring charges and timberland gains		171,401		155,310		120,522

Restructuring charges:
Industrial Packaging & Services		31,375		44,975		47,924
Paper, Packaging & Services		4,271		8,936		12,469
Timber		90		207		350

Total restructuring charges		35,736		54,118		60,743

Timberland gains:
Timber		56,268		7,514		5,577

Operating profit:
Industrial Packaging & Services		91,443		66,974		21,893
Paper, Packaging & Services		36,340		20,537		17,942
Timber		64,150		21,195		25,521

Total operating profit	$	191,933	$	108,706	$	65,356

Fiscal Year 2005 Compared to Fiscal Year 2004

Overview

Net sales rose 10 percent (8 percent excluding the impact of foreign currency translation) to a record $2.4 billion in 2005 from $2.2 billion in 2004. The net sales improvement was attributable to the Industrial Packaging & Services segment ($183.4 million increase) and the Paper, Packaging & Services segment ($39.7 million increase), partially offset by $8.1 million of lower planned sales in the Timber segment. Increased selling prices, primarily in response to higher year-over-year raw material costs, were partially offset by lower volumes for certain products, which reflected soft market conditions experienced by a number of our customers.

Operating profit was $191.9 million in 2005 compared with operating profit of $108.7 million in 2004. There were $35.7 million and $54.1 million of restructuring charges and $56.3 million and $7.5 million of timberland gains during 2005 and 2004, respectively. Operating profit before the impact of restructuring charges and timberland gains increased 10 percent to $171.4 million in 2005 compared with $155.3 million in 2004. This increase was primarily attributable to the Industrial Packaging & Services segment ($10.9 million increase) and the Paper, Packaging & Services segment ($11.1 million increase), partially offset by a $5.9 million decline in the Timber segment due to lower planned sales for the year.

Segment Review

Industrial Packaging & Services

The Industrial Packaging & Services segment offers 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 improved profitability in 2005 compared to 2004 in the Industrial Packaging & Services segment were:

•

Higher selling prices;

•

Lower sales volumes for certain products;

•

Benefits from the Greif Business System;

•

Higher raw material costs, especially steel and resin;

•

Lower restructuring charges; and

•

Impact of foreign currency translation.

In this segment, net sales rose 11 percent to $1.8 billion in 2005 from $1.6 billion in 2004. Net sales increased 9 percent excluding the impact of foreign currency translation. Net sales rose primarily as a result of higher selling prices in response to higher raw material costs during the year, especially steel and resin, compared to 2004. The improvement attributable to the higher selling prices was partially offset by slightly lower sales volumes for certain products, especially steel and fibre drums.

Operating profit was $91.4 million in 2005 compared with $67.0 million in 2004. Restructuring charges were $31.4 million in 2005 compared with $45.0 million a year ago. Operating profit before the impact of restructuring charges rose to $122.8 million in 2005 from $111.9 million in 2004. This increase was primarily due to improved net sales. However, the Industrial Packaging & Services segment’s gross profit margin declined to 16.3 percent in 2005 from 17.4 percent in 2004. This decline was due to higher raw material costs, which were partially offset by improved net sales coupled with labor and other manufacturing efficiencies resulting from the Greif Business System (see “Other Income Statement Changes —Restructuring Charges” below).

Paper, Packaging & Services

The Paper, Packaging & Services segment sells containerboard, corrugated sheets and other corrugated products and multiwall bags in North America. The key factors influencing improved profitability in 2005 compared to 2004 in the Paper, Packaging & Services segment were:

•

Higher selling prices;

•

Lower sales volumes for certain products;

•

Higher transportation and energy costs; and

•

Lower restructuring charges.

In this segment, net sales rose 7 percent to $607.8 million in 2005 from $568.1 million last year due to improved selling prices for this segment’s products, partially offset by lower sales volumes for certain products, especially corrugated sheets and containers.

Operating profit was $36.3 million in 2005 compared to $20.5 million in 2004. Restructuring charges were $4.3 million in 2005 versus $8.9 million a year ago. Operating profit before the impact of restructuring charges was $40.6 million in 2005 compared to $29.5 million in 2004. This increase was primarily due to improved net sales, partially offset by higher transportation and energy costs. The Paper, Packaging & Services segment’s gross profit margin increased to 15.3 percent in 2005 from 14.8 percent in 2004 due to improved net sales and labor efficiencies resulting from the Greif Business System (see “Other Income Statement Changes — Restructuring Charges” below).

Timber

The Timber segment owns approximately 250,000 acres of timber properties in southeastern United States, which are actively harvested and regenerated, and approximately 37,000 acres in Canada. The key factors influencing profitability in 2005 compared to 2004 in the Timber segment were:

•

Lower planned level of timber sales; and

•

Higher gain on sale of timberland.

Timber net sales were $12.3 million in 2005 compared to $20.4 million in 2004. While timber sales are subject to fluctuations, we seek to maintain a consistent cutting schedule, within the limits of market and weather conditions. Current year timber sales were in line with our expectations.

Operating profit was $64.2 million in 2005 compared to $21.2 million in 2004. Restructuring charges were not significant for either year and timberland gains were $56.3 million in 2005 and $7.5 million in 2004. Operating profit before the impact of restructuring charges and timberland gains was $8.0 million in 2005 compared to $13.9 million in 2004. The decrease in operating profit, before the impact of restructuring charges and timberland gains, was primarily a result of lower timber sales.

Other Income Statement Changes

Cost of Products Sold

Cost of products sold, as a percentage of net sales, increased to 83.9 percent in 2005 from 83.1 percent in 2004. Cost of products sold, as a percentage of net sales, primarily increased as a result of higher raw material costs, primarily steel and resin, that caused a 400 basis point increase over the prior year. Lower absorption of fixed costs and Timber segment sales, which have a lower cost than our other products, and higher energy costs also caused our cost of products sold, as a percentage of net sales, to increase. These negative factors to our cost of products sold were partially mitigated by improved selling prices and efficiencies in labor and other manufacturing costs related to the Greif Business System (see “Restructuring Charges” below).

Selling, General and Administrative (“SG&A”) Expenses

SG&A expenses were $224.7 million, or 9.3 percent of net sales, in 2005 compared to $218.8 million, or 9.9 percent of net sales, in 2004. SG&A expenses, as a percentage of net sales, declined primarily as a result of the Greif Business System and our continued focus on controllable costs. In 2005, professional fees related to compliance with §404 of the Sarbanes-Oxley Act of 2002 were approximately $3 million over the 2004 fees.

Restructuring Charges

Our transformation to the Greif Business System, which began in 2003, continues to generate productivity improvements and achieve permanent cost reductions. The focus since 2003 has been primarily on SG&A optimization, which has resulted in approximately $60 million of annualized cost savings.

In 2004 and 2005, we focused on becoming a leaner, more market-focused/performance-driven company. This final phase of the transformation to the Greif Business System has achieved additional annualized benefits of approximately $65 million. The opportunities included, but were not limited to, improved labor productivity, material yield and other manufacturing efficiencies, coupled with further plant consolidations. 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.

Based on the foregoing, we have achieved total annualized contributions to earnings from the transformation to the Greif Business System of approximately $125 million through 2005.

As part of the transformation to the Greif Business System, we closed four company owned plants and a distribution center in the Industrial Packaging & Services segment during 2005. Two of the plants and a distribution center were located in North America and two were located in the United Kingdom. In addition, corporate and administrative staff reductions continue to be made throughout the world. As a result of the transformation to the Greif Business System, during 2005, we recorded restructuring charges of $31.8 million, consisting of $15.7 million in employee separation costs, $2.5 million in asset impairments, $3.7 million in professional fees directly related to the transformation to the Greif Business System and $9.9 million in other costs which primarily represented moving and lease termination costs. During 2005, we also recorded $3.9 million of restructuring charges related to the impairment of two facilities that were closed during previous restructuring programs. The asset impairment charges that relate to the write-down to fair value of building and equipment were based on recent purchase offers, market comparables and/or data obtained from our commercial real estate broker.

A total of 1,574 employees have been terminated in connection with the transformation to the Greif Business System since 2003.

See Note 6 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional disclosures regarding our restructuring activities.

Gain on Sale of Timberland

The gain on sale of timberland increased $48.8 million to $56.3 million in 2005 as compared to $7.5 million in 2004. These gains are the result of sales of timberland and are volatile from period to period.

As previously reported, in May 2005, we completed the first phase of the $90 million sale of 56,000 acres of timberland, timber and associated assets. In this first phase, 35,000 acres of our timberland holdings in Florida, Georgia and Alabama were sold for $51.0 million, resulting in a gain of $42.1 million in the third quarter of 2005. The second phase of this transaction is expected to occur in two installments during 2006, and we will recognize additional timberland gains in our consolidated statements of income in the periods in which these transactions occur.

Interest Expense, Net

Interest expense, net was $40.9 million and $45.3 million in 2005 and 2004, respectively. Lower average debt outstanding was partially offset by higher interest rates during 2005 compared to 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 to $4.0 million in 2005 as compared to $0.3 million in 2004 due to certain infrequent non-operating items recorded in 2005, including a favorable adjustment of an amount owed to one of our financial institutions, and $1.1 million in net gains related to foreign currency translation in 2005 as compared to net losses of $1.5 million in 2004.

Income Tax Expense

During 2005, the effective tax rate was 30.9 percent as compared to 24.5 percent in 2004 resulting primarily from a change in the mix of income inside and outside the United States. In future years, the effective tax rate will continue to fluctuate based on the mix of income and other factors.

Equity in Earnings of Affiliates and Minority Interests

Equity in earnings of affiliates and minority interests was a negative $0.5 million for 2005 as compared to $0.4 million for 2004. We have majority holdings in various companies, and the minority interests of other persons in the respective net income of these companies have been recorded as an expense in comparable amounts in 2005 and 2004. These expenses were partially offset by equity in earnings of Socer-Embalagens, Lda. (sold during the third quarter of 2004) and Balmer Lawrie–Van Leer.

Net Income

Based on the foregoing, net income increased $56.9 million to $104.7 million for 2005 from $47.8 million in 2004.

Fiscal Year 2004 Compared to Fiscal Year 2003

Overview

Net sales rose 15 percent to $2.2 billion in 2004 from $1.9 billion in 2003. The $292.9 million increase in net sales was attributable to the Industrial Packaging & Services segment ($236.6 million increase) and the Paper, Packaging & Services segment ($64.7 million increase), and was partially offset by the Timber segment ($8.1 million decrease). The 2004 net sales for Industrial Packaging & Services benefited from the positive impact of foreign currency translation (approximately $103 million) compared to 2003.

Operating profit was $108.7 million and $65.4 million for 2004 and 2003, respectively. Operating profit, before the impact of restructuring charges of $54.1 million and timberland gains of $7.5 million, was $155.3 million for 2004 as compared to operating profit, before the impact of restructuring charges of $60.7 million and timberland gains of $5.6 million, of $120.5 million for 2003. The $34.8 million increase in operating profit, before the impact of restructuring charges and timberland gains, was attributable to the Industrial Packaging & Services segment ($42.1 million increase) and was partially offset by the Paper, Packaging & Services segment ($0.9 million decrease) and the Timber segment ($6.4 million decrease). The restructuring charges were attributable to the execution of our transformation to the Greif Business System that was initiated in March 2003.

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. In 2004, the key drivers of profitability in our Industrial Packaging & Services segment were:

•

Higher selling prices;

•

Higher volumes for steel and plastic drums;

•

Benefits from the Greif Business System;

•

Higher raw material costs, especially steel; and

•

Restructuring charges.

Net sales increased $236.6 million, or 17 percent, in 2004 as compared to 2003. This change was due to an increase of $125 million in net sales in Europe, $45 million in North America and the remainder in other parts of the world. Excluding the impact of foreign currency translation, net sales increased 10 percent over the prior year. Selling prices rose primarily in response to higher raw material costs, especially steel, and accounted for about 5 percent of this increase. The rest of the increase was primarily due to higher sales volumes for steel and plastic drums.

Operating profit was $67.0 million for 2004 compared with $21.9 million for 2003. Operating profit, before the impact of restructuring charges of $45.0 million, was $111.9 million for 2004 as compared to operating profit, before the impact of restructuring charges of $47.9 million, of $69.8 million for 2003. The primary reasons for this increase relate to an improvement in net sales, a slight increase in gross profit margin and lower SG&A expenses. The gross profit margin benefited from labor and other manufacturing efficiencies caused by the Greif Business System, partially offset by higher raw material costs than in the prior year. SG&A expenses were lower than the prior year primarily due to a full year of benefits realized from our transformation to the Greif Business System.

Paper, Packaging & Services

In the Paper, Packaging & Services segment, we sell containerboard, corrugated sheets and other corrugated products and multiwall bags in North America. In 2004, the key drivers of profitability in our Paper, Packaging & Services segment were:

•

Generally higher sales volumes;

•

Higher raw material costs, especially old corrugated containers (“OCC”);

•

Higher energy costs; and

•

Restructuring charges.

Net sales increased $64.4 million, or 13 percent, in 2004 as compared to 2003. This increase in net sales was primarily due to improved sales volumes for this segment’s products, partially offset by slightly lower average selling prices. Net sales for the fourth quarter of 2004, which were higher than both the third quarter of 2004 and the fourth quarter of 2003, primarily benefited from improved pricing levels for containerboard coupled with some volume improvements.

Operating profit was $20.5 million for 2004 compared with $17.9 million for 2003. Operating profit, before the impact of restructuring charges of $8.9 million, was $29.5 million for 2004 as compared to operating profit, before the impact of restructuring charges of $12.5 million, of $30.4 million for 2003. Operating profit, before the impact of restructuring charges, decreased due to a decline in gross profit margin resulting from higher raw material costs, particularly OCC, and higher energy costs in the containerboard operations, partially offset by improved sales volumes and lower SG&A expenses in 2004 as compared with 2003.

Timber

In the Timber segment, we owned approximately 280,000 acres of timber properties in the southeastern United States, which are actively harvested and regenerated, and approximately 38,000 acres in Canada. In 2004, the key drivers of profitability in our Timber segment were:

•

Lower planned timber sales; and

•

Higher gain on sale of timberland.

Net sales decreased $8.1 million, or 28 percent, for 2004 as compared to 2003. While timber sales are subject to fluctuations, we seek to maintain a consistent cutting schedule, within the limits of market and weather conditions. The 2004 timber sales were in line with our expectations.

Operating profit was $21.2 million for 2004 compared with $25.5 million for 2003. Operating profit, before the impact of restructuring charges of $0.2 million and timberland gains of $7.5 million, was $13.9 million for 2004 as compared to operating profit, before the impact of restructuring charges of $0.4 million and timberland gains of $5.6 million, of $20.3 million for 2003. The decrease in operating profit, before the impact of restructuring charges and timberland gains, was primarily the result of the lower timber sales. In addition, the Timber segment also benefited from lower commissions on timber sales, partially offset by higher depletion expense.

Other Income Statement Changes

Cost of Products Sold

Cost of products sold, as a percentage of net sales, increased to 83.1 percent in 2004 from 82.0 percent in 2003. Cost of products sold, as a percentage of net sales, primarily increased as a result of higher raw material (steel and OCC) costs that caused a 340 basis point increase over the prior year. Lower Timber segment sales, which have a lower cost than our other products, and higher energy costs also caused our cost of products sold, as a percentage of net sales, to increase. These negative factors to our cost of products sold were partially mitigated by improved selling prices and efficiencies in labor and other manufacturing costs related to the transformation to the Greif Business System.

Selling, General and Administrative Expenses

SG&A expenses decreased to $218.8 million (9.9 percent of net sales) in 2004 as compared to $228.1 million (11.9 percent of net sales) in 2003. The decline in SG&A expenses was primarily attributable to the implementation of the Greif Business System (approximately $30 million), partially offset by the negative impact of foreign currency translation ($9.4 million) and the rising cost of employee benefits.

Restructuring Charges

As part of the transformation to the Greif Business System, we sold or closed five company-owned plants (four in the Industrial Packaging & Services segment and one in the Paper, Packaging & Services segment) in 2004. All of the plants were located in North America. In addition, corporate and administrative staff reductions con tinue to be made throughout the world. As a result of the transformation initiatives, during 2004, we recorded restructuring charges of $54.1 million, consisting of $17.0 million in employee separation costs, $4.8 million in asset impairments, $19.7 million in professional fees directly related to the transformation to the Greif Business System and $12.6 million in other costs. See Note 6 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional disclosures regarding our restructuring activities.

Gain on Sale of Timberland

The gain on sale of timberland increased $1.9 million in 2004 as compared to 2003. These gains are the result of sales of timberland and are volatile from period to period.

Interest Expense, Net

Interest expense, net decreased to $45.3 million in 2004 as compared to $52.8 million during 2003. The decrease was due to lower average month-end debt outstanding of $631.7 million during 2004 as compared to $659.1 million during 2003 and lower interest rates, which were caused by a change in mix on our debt in 2004 versus 2003. A $1.2 million charge related to the termination of two interest rate swap agreements during the fourth quarter of 2004 partially offset this decrease.

Other Income, Net

Other income, net decreased to $0.3 million in 2004 as compared to $1.3 million in 2003 due to certain infrequent items recorded in 2003.

Income Tax Expense

During 2004, the effective tax rate was 24.5 percent as compared to 30.8 percent in 2003 resulting primarily from a change in the mix of income inside and outside the United States.

Equity in Earnings of Affiliates and Minority Interests

Equity in earnings of affiliates and minority interests was $0.4 million for 2004 as compared to $4.9 million for 2003. In 2003, the expense primarily related to the elimination of the minority interest of CorrChoice, Inc. (36.76 percent) through September 30, 2003, partially offset by equity in earnings of Socer-Embalagens, Lda. (sold during the third quarter of 2004) and Balmer

Lawrie-Van Leer. In addition, we have majority holdings in various companies, and the minority interests of other persons in the respective net income of these companies have been recorded as an expense in comparable amounts in 2004 and 2003.

Cumulative Effect of Change in Accounting Principle

During the first quarter of 2003, we recorded income of $4.8 million related to 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, “Goodwill and Other Intangible Assets.”

Net Income

Based on the foregoing, net income increased $38.3 million to $47.8 million for 2004 from $9.5 million in 2003.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are operating cash flows, the proceeds from our Senior Subordinated Notes, trade accounts receivable credit facility, sale of our European accounts receivable, and borrowings under our 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, trade accounts receivable credit facility, sale of our European accounts receivable, and borrowings under our Credit Agreement will be sufficient to fund our working capital needs, capital expenditures, debt repayment and other liquidity needs for the foreseeable future.

Capital Expenditures and Business Acquisitions

During 2005, 2004 and 2003, we invested $67.7 million, excluding $17.7 million for timberland properties, $53.0 million, excluding $9.8 million for timberland properties, and $61.1 million, excluding $4.2 million for timberland properties, in capital expenditures, respectively. In addition, we paid a total of $51.8 million in 2005 for three separate acquisitions of industrial packaging com panies and a total of $16.5 million in 2003 for acquisitions, which primarily related to CorrChoice, Inc.’s redemption of its minority shareholders’ outstanding shares. See Note 2 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional disclosures regarding our acquisitions.

We anticipate future capital expenditures of approximately $75 million through October 31, 2006. These expenditures are primarily to replace and improve equipment and to fund new plants in growth markets.

Balance Sheet Changes

The $84.3 million increase in cash and cash equivalents was primarily due to strong cash flows from operating activities and proceeds from the monetization of the significant nonstrategic timberland sale, partially offset by three separate acquisitions, debt repayments and dividends paid.

The $49.1 million decrease in trade accounts receivable was due to our improved collection efforts and the sale of certain European accounts receivable (see Note 2 to the Notes to Consolidate Financial Statements included in Item 8 of this Form 10-K).

The $20.9 million decrease in inventories was primarily due to our efforts to reduce inventory levels as part of the transformation to the Greif Business System.

Goodwill increased $25.9 million, primarily due to $38.6 million resulting from three separate acquisitions in 2005. The increase was primarily offset by $12.0 million due to a favorable decision of the Dutch courts relating to a deferred tax liability from prior to the acquisition of Van Leer Industrial Packaging in 2001.

In the second quarter, the timber note receivable of $50.9 million was received and timber note securitized of $43.3 million was issued (see Note 7 to the Notes to Consolidate Financial Statements included in Item 8 of this Form 10-K).

The $46.6 million decrease in accounts payable was primarily due to the timing of payments made to our suppliers.

Long-term debt has declined due to strong cash flows from operating activities, which benefited from the improvements in working capital from the transformation to the Greif Business System, and the monetization of the significant nonstrategic timberland sale partially offset by three separate acquisitions and the build-up of cash and cash equivalents.

Borrowing Arrangements

Credit Agreement

As of March 2, 2005, we and certain of our international subsidiaries, as borrowers, entered into a $350 million Credit Agreement (the “Credit Agreement”)(see Exhibit 10(o)) with a syndicate of financial institutions, as lenders. 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. Interest is based on a euro currency rate or an alternative base rate that resets periodically plus a calculated margin amount. On March 2, 2005, $189.4 million was borrowed under the Credit Agreement in order to prepay the obligations outstanding under the prior credit agreement and certain costs and expenses incurred in connection with the Credit Agreement. As of October 31, 2005, $85.7 million was outstanding under the Credit Agreement.

The 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 to (b) our consolidated net income plus depreciation, depletion and amortization, interest expense (including capitalized interest), income taxes, and minus certain extraordinary gains and 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 October 31, 2005, we were in compliance with these covenants. The terms of the Credit Agreement 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 pledge of the capital stock of substantially all of our United States subsidiaries and, in part, by the capital stock of the international borrowers.

Senior Subordinated Notes

On July 31, 2002, we issued Senior Subordinated Notes (see Exhibit 4(a)) 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 percent. The Senior Subordinated Notes do not have required principal payments prior to maturity on August 1, 2012. As of October 31, 2005, there was a total of $241.9 million outstanding under the Senior Subordinated Notes. The decrease was primarily due to a $2.0 million purchase of Senior Subordinated Notes at a premium ($0.2 million), which was charged to interest expense, during the third quarter of 2005. The remaining difference was due to the recording of losses 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 October 31, 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 $120.0 million, credit facility with an affiliate of a bank (see Exhibit 10(r)) in connection with the securitization of certain of our United States trade accounts receivable. The facility is secured by certain of our United States trade accounts receivable and bears interest at a variable rate based on the London InterBank Offered Rate (“LIBOR”) plus a margin or other agreed upon rate. We also pay a commitment fee. We can terminate this facility at any time upon 60 days prior written notice. In connection with this transaction, we established Greif Receivables Funding LLC (“GRF”), which is included in our consolidated financial statements. However, because GRF is a separate and distinct legal entity from us, the assets of GRF are not available to satisfy our liabilities and obligations and the liabilities of GRF are not our liabilities or obligations. This entity purchases and services our trade accounts receivable that are subject to this credit facility. As of October 31, 2005, there

was a total of $95.7 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 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.

Sale of European Accounts Receivable

To further reduce borrowing costs, we entered into an arrangement to sell on a regular basis up to €55 million ($66.0 million at October 31, 2005) of certain European accounts receivable of our European subsidiaries to a major international bank. During October 2005, we amended the arrangement to increase our aggregate accounts receivable limit from €55 million to €90 million ($108.0 million at October 31, 2005). As of October 31, 2005, €56.9 million ($68.3 million) of outstanding accounts receivable were sold under this arrangement. We 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.”

Significant Nonstrategic Timberland Transactions and Consolidation of Variable Interest Entities

On March 28, 2005, Soterra LLC (a wholly owned subsidiary) 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 sales price of approximately $90 million, subject to closing adjustments. In connection with the closing of one of these agreements, Soterra LLC sold approximately 35,000 acres of timberland and asso ciated assets in Florida, Georgia and Alabama for $51.0 million, resulting in a pretax gain of $42.1 million, on May 23, 2005. 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”). Soterra LLC contributed the Purchase Note to STA Timber LLC (“STA Timber”), one of the Company’s indirect wholly owned subsidiaries. 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 and interest on the Purchase Note. The remaining acres will be sold in two installments in 2006, and we will recognize additional timberland gains in its consolidated statements of income in the periods that these transactions occur.

On May 31, 2005, STA Timber issued in a private placement its 5.20 percent Senior Secured Notes due August 5, 2020 (the “Monetization Notes”) in the principal amount of $43.3 million. 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 cure 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 were primarily used for the repayment of indebtedness.

We have consolidated the assets and liabilities of STA Timber as of October 31, 2005, in accordance with FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities Interpretation.” Because STA Timber is a separate and distinct legal entity from us, the assets of STA Timber are not available to satisfy the liabilities and obligations of ours and the liabilities of STA Timber are not liabilities or obligations of ours. In

addition, we have not extended any form of guaranty of the principal or interest on the Monetization Notes. Accordingly, we will not become directly or contingently liable for the payment of the Monetization Notes at any time.

As of October 31, 2005, we also consolidated the assets and liabilities of the buyer-sponsored special purpose entity (the “Buyer SPE”) involved in these transactions as the result of an interpretation of Interpretation 46R. However, because the Buyer SPE is a separate and distinct legal entity from us, the assets of the Buyer SPE are not available to satisfy the liabilities and obligations of ours and the liabilities of the Buyer SPE are not liabilities or obligations of ours.

Assets of the Buyer SPE at October 31, 2005 consist of restricted bank financial instruments of $50.9 million. STA Timber had long-term debt of $43.3 million as of October 31, 2005. STA Timber is exposed to credit-related losses in the event of nonperformance by the issuer of the Deed of Guarantee, but we do not expect that issuer to fail to meet its obligations. The accompanying consolidated statement of earnings includes interest expense on STA Timber debt of $1.0 million and interest income on Buyer SPE investments of $1.1 million. No comparable activity is included in interest income or interest expense in the 2004 period.

Contractual Obligations

As of October 31, 2005, we had the following contractual obligations (Dollars in millions):


			Payments Due By Period
	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
Long-term debt	$	606	$	30	$	159	$	133	$	284
Short-term borrowings		18		18		—		—		—
Non-cancelable operating leases		50		14		20		10		6
Liabilities held by special purpose entities		43		—		—		—		43

Total contractual cash obligations	$	717	$	62	$	179	$	143	$	333

Stock Repurchase Program and Other Share Acquisitions

Our Board of Directors has authorized us to purchase up to two million shares of Class A Common Stock or Class B Common Stock or any combination of the foregoing. During 2005, we repurchased 90,000 shares of Class A Common Stock and 122,544 shares of Class B Common Stock (see Item 5 to this Form 10-K for these repurchases). As of October 31, 2005, we had repurchased 977,224 shares, including 576,476 shares of Class A Common Stock and 400,748 shares of Class B Common Stock, under this program. The total cost of the shares repurchased from 1999, when this program commenced, through October 31, 2005 was $34.7 million.

Prior to the redemption by CorrChoice, Inc. of the outstanding shares of its minority shareholders, CorrChoice held 62,400 shares of our Class B Common Stock in marketable securities. Due to the consolidation of CorrChoice in 2003, the shares are now included in treasury stock.

See Item 5 of this Form 10-K for further information.

Effects of Inflation

The effects of inflation did not have a material impact on our operations during 2005, 2004 or 2003.

Recent Accounting Standards

In December 2004, the Financial Accounting Standards Board issued a revision to SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”). This revision will require us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the 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. 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 Exchange Commission, companies are allowed to implement SFAS No. 123R at the beginning of 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 non-vested after the required effective date and to awards modified,

repurchased or canceled after that date. As of the 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 for prior periods are adjusted by SFAS No. 123R. Adoption of SFAS No. 123R is expected to result in compensation cost of $0.9 million in the consolidated statements of income in 2006, assuming no additional stock options are granted during 2006.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are subject to interest rate risk related to our financial instruments that include borrowings under our Credit Agreement, Senior Secured Credit Agreement, proceeds from our Senior Subordinated Notes and trade accounts receivable credit facility, and interest rate swap agreements with an aggregate notional amount of $280 million as of October 31, 2005 and $290 million as of October 31, 2004. We do not enter into financial instruments for trading or speculative purposes. The interest rate swap agreements have been entered into to manage our exposure to variability in interest rates and changes in the fair value of fixed rate debt.

The tables below provide information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For the Credit Agreement, Senior Secured Credit Agreement, Senior Subordinated Notes and trade accounts receivable credit facility, the tables present scheduled amortizations of principal and the weighted average interest rate by contractual maturity dates at October 31, 2005 and 2004. For interest rate swaps, the tables present annual amortizations of notional amounts and weighted average interest rates by contractual maturity dates. Under the cash flow swap agreements, we receive interest quarterly from the counterparties and pay interest quarterly to the counterparties. Under the fair value swap agreements, we receive interest semi-annually from the counterparties and pay interest semi-annually to the counterparties.

The fair values of the Credit Agreement, Senior Secured Credit Agreement, Senior Subordinated Notes and trade accounts receivable credit facility are based on rates available to us for debt of the same remaining maturity at October 31, 2005 and 2004. The fair value of the interest rate swap agreements has been determined based upon the market settlement prices of comparable contracts at October 31, 2005 and 2004.

FINANCIAL INSTRUMENTS

As of October 31, 2005

(Dollars in millions)


	Expected Maturity Date
	2006			2007			2008			2009			2010			After 2010			Total			Fair Value
Credit Agreement:
Scheduled amortizations	$	—		$	—		$	—		$	86		$	—		$	—		$	86		$	86
Average interest rate(1)		4.83	%		4.83	%		4.83	%		4.83	%		—			—			4.83	%
Senior Subordinated Notes:
Scheduled amortizations	$	—		$	—		$	—		$	—		$	—		$	242		$	242		$	261
Average interest rate		8.88	%		8.88	%		8.88	%		8.88	%		8.88	%		8.88	%		8.88	%
Trade accounts receivable credit facility:
Scheduled amortizations	$	—		$	—		$	96		$	—		$	—		$	—		$	96		$	96
Average interest rate(1)		4.59	%		4.59	%		4.59	%		—			—			—			4.59	%
Interest rate swaps:
Scheduled amortizations	$	80		$	—		$	50		$	—		$	—		$	150		$	280		$	(7	)
Average pay rate(2)		7.07	%		7.62	%		7.62	%		8.11	%		8.11	%		8.11	%		7.07	%
Average receive rate(3)		6.51	%		7.58	%		7.58	%		8.88	%		8.88	%		8.88	%		6.51	%

(1)	Variable rate specified is based on LIBOR or an alternative base rate plus a calculated margin at October 31, 2005. The rates presented are not intended to project our expectations for the future.

(2)	The average pay rate is based upon the fixed rates we were scheduled to pay at October 31, 2005, along with additional agreements where we pay LIBOR plus a margin. The rates presented are not intended to project our expectations for the future.

(3)	The average receive rate is based upon the LIBOR we were scheduled to receive at October 31, 2005, along with additional agreements where we receive a fixed rate of 8.875 percent. The rates presented are not intended to project our expectations for the future.

FINANCIAL INSTRUMENTS

As of October 31, 2004

(Dollars in millions)


	Expected Maturity Date																		`
	2005			2006			2007			2008			2009			After 2009			Total			Fair Value
Senior Secured Credit Agreement:
Scheduled amortizations	$	—		$	10		$	—		$	—		$	71		$	—		$	81		$	81
Average interest rate(1)		3.50	%		3.50	%		3.43	%		3.43	%		3.43	%		—			3.50	%
Senior Subordinated Notes:
Scheduled amortizations	$	—		$	—		$	—		$	—		$	—		$	254		$	254		$	278
Average interest rate		8.88	%		8.88	%		8.88	%		8.88	%		8.88	%		8.88	%		8.88	%
Trade accounts receivable credit facility:
Scheduled amortizations	$	—		$	—		$	—		$	104		$	—		$	—		$	104		$	104
Average interest rate(1)		1.80	%		1.80	%		1.80	%		1.80	%		—			—			1.80	%
Interest rate swaps:
Scheduled amortizations	$	—		$	80		$	—		$	60		$	—		$	150		$	290		$	(5	)
Average pay rate(2)		5.94	%		6.01	%		6.01	%		5.97	%		5.97	%		5.12	%		5.94	%
Average receive rate(3)		5.00	%		6.08	%		6.08	%.		7.51	%		7.51	%		1.68	%		5.00	%

(1)	Variable rate specified is based on LIBOR or an alternative base rate plus a calculated margin at October 31, 2004. The rates presented are not intended to project our expectations for the future.

(2)	The average pay rate is based upon the fixed rates we were scheduled to pay at October 31, 2004, along with additional agreements where we pay LIBOR plus a margin. The rates presented are not intended to project our expectations for the future.

(3)	The average receive rate is based upon the LIBOR we were scheduled to receive at October 31, 2004, along with additional agreements where we receive a fixed rate of 8.875 percent. The rates presented are not intended to project our expectations for the future.

Based on a sensitivity analysis performed by the counterparties at October 31, 2005, a 100 basis point increase in interest rates would decrease the fair value of the swap agreements by $6.0 million resulting in a liability of $12.6 million. Conversely, a 100 basis point decrease in interest rates would increase the fair value of the swap agreements by $6.8 million resulting in an asset of $0.2 million.

Foreign Currency Risk

As a result of our international operations, our operating results are subject to fluctuations in foreign currency exchange rates. The geographic presence of our operations mitigates this exposure to some degree. Additionally, our transaction exposure is somewhat limited because we produce and sell a majority of our products within each country in which we operate.

We have entered into foreign currency forward contracts to hedge certain short-term intercompany loan balances among our international businesses. At October 31, 2005 and 2004, we had contracts outstanding of $21.5 million and $34.0 million, respectively. The fair value of these contracts at October 31, 2005 and 2004 resulted in a loss of $0.2 million in both years. Each of these contracts hedges the exposure of the euro against the fluctuation of various other currencies. A sensitivity analysis to changes in the euro against these other cur rencies indicates that if the euro uniformly weakened by 10 percent against all of the hedged currency exposures, the fair value of these instruments would decrease by $2.2 million to a net loss of $2.4 million. Conversely, if the euro uniformly strengthened by 10 percent against all of the hedged currency exposures, the fair value of these instruments would increase by $1.9 million to a net gain of $1.7 million. Any resulting changes in fair value would be offset by changes in the underlying hedged balance sheet position. The sensitivity analysis assumes a parallel shift in currency exchange rates. The assumption that exchange rates change in parallel fashion may overstate the impact of changing exchange rates on assets and liabilities denominated in a foreign currency.

Commodity Price Risk

Our operating profit is potentially affected to a significant degree by fluctuations in the cost of our raw materials and energy (see “Risk Factors” included in Item 1A of this Form 10-K). We do not have long-term supply contracts or hedging arrangements in place for obtaining our principal raw materials. In general, we do not use derivative instruments to hedge against fluctuations in commodity prices. However, from time to time, we enter into short-term contracts to hedge certain of our energy costs.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)


For the years ended October 31,	2005			2004			2003
Net sales	$	2,424,297		$	2,209,282		$	1,916,441
Cost of products sold		2,033,510			1,836,432			1,570,891

Gross profit		390,787			372,850			345,550
Selling, general and administrative expenses		224,729			218,821			228,120
Restructuring charges		35,736			54,118			60,743
Gain on sale of assets, net		61,611			8,795			8,669

Operating profit		191,933			108,706			65,356
Interest expense, net		40,890			45,264			52,834
Debt extinguishment charge		2,828			—			—
Other income, net		4,040			328			1,293

Income before income tax expense and equity in earnings of affiliates and minority interests		152,255			63,770			13,815
Income tax expense		47,055			15,624			4,255
Equity in earnings of affiliates and minority interests		(544	)		(377	)		(4,886	)

Income before cumulative effect of change in accounting principle		104,656			47,769			4,674
Cumulative effect of change in accounting principle		—			—			4,822

Net income	$	104,656		$	47,769		$	9,496

Basic earnings per share:
Class A Common Stock (before cumulative effect)	$	3.64		$	1.69		$	0.17
Class A Common Stock (after cumulative effect)	$	3.64		$	1.69		$	0.34
Class B Common Stock (before cumulative effect)	$	5.45		$	2.53		$	0.24
Class B Common Stock (after cumulative effect)	$	5.45		$	2.53		$	0.50
Diluted earnings per share:
Class A Common Stock (before cumulative effect)	$	3.56		$	1.66		$	0.17
Class A Common Stock (after cumulative effect)	$	3.56		$	1.66		$	0.34
Class B Common Stock (before cumulative effect)	$	5.45		$	2.53		$	0.24
Class B Common Stock (after cumulative effect)	$	5.45		$	2.53		$	0.50

See accompanying Notes to Consolidated Financial Statements.

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


As of October 31,	2005			2004
ASSETS
Current assets
Cash and cash equivalents	$	122,411		$	38,109
Trade accounts receivable, less allowance of $8,475 in 2005 and $11,454 in 2004		258,636			307,750
Inventories		170,533			191,457
Deferred tax asset		10,088			6,636
Net assets held for sale		8,410			14,753
Prepaid expenses and other current assets		55,874			53,977

		625,952			612,682

Long-term assets
Goodwill, net of amortization		263,703			237,803
Other intangible assets, net of amortization		25,015			27,524
Assets held by special purpose entities (Note 7)		50,891			—
Other long-term assets		55,706			54,547

		395,315			319,874

Properties, plants and equipment
Timber properties, net of depletion		139,372			129,141
Land		75,464			68,349
Buildings		317,791			321,183
Machinery and equipment		852,926			851,800
Capital projects in progress		38,208			37,192

		1,423,761			1,407,665
Accumulated depreciation		(561,705	)		(526,983	)

		862,056			880,682

	$	1,883,323		$	1,813,238

See accompanying Notes to Consolidated Financial Statements.

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


As of October 31,	2005			2004
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	234,672		$	281,265
Accrued payroll and employee benefits		45,252			49,633
Restructuring reserves		10,402			17,283
Short-term borrowings		17,173			11,621
Other current liabilities		75,485			77,416

		382,984			437,218

Long-term liabilities
Long-term debt		430,400			457,415
Deferred tax liability		133,837			115,752
Pension liability		45,544			44,036
Postretirement benefit liability		47,827			48,667
Liabilities held by special purpose entities (Note 7)		43,250			—
Other long-term liabilities		66,897			79,331

		767,755			745,201

Minority interest		1,696			1,725

Shareholders’ equity
Common stock, without par value		49,251			27,382
Treasury stock, at cost		(75,956	)		(65,360	)
Retained earnings		793,669			711,919
Accumulated other comprehensive income (loss):
– foreign currency translation		9,117			5,655
– interest rate derivatives		(2,738	)		(7,097	)
– minimum pension liability		(42,455	)		(43,405	)

		730,888			629,094

	$	1,883,323		$	1,813,238

See accompanying Notes to Consolidated Financial Statements.

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)


For the years ended October 31,	2005			2004			2003
Cash flows from operating activities:
Net income	$	104,656		$	47,769		$	9,496
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		95,098			99,894			89,770
Asset impairments		6,408			4,828			10,219
Deferred income taxes		23,146			(12,106	)		6,574
Gain on disposals of properties, plants and equipment, net		(19,521	)		(8,795	)		(5,043	)
Gain on sale of significant nonstrategic timberland (Note 7)		(42,090	)		—			—
Equity in earnings of affiliates, net of dividends received, and minority interests		778			(398	)		(3,029	)
Cumulative effect of change in accounting principle		—			—			(4,822	)
Increase (decrease) in cash from changes in certain assets and liabilities, net of effects from acquisitions:
Trade accounts receivable