UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended January 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 1-566

GREIF, INC.

(Exact name of registrant as specified in its charter)


Delaware		31-4388903
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

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

Not Applicable

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

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

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

The number of shares outstanding of each of the issuer’s classes of common stock at the close of business on January 31, 2005 was as follows:


Class A Common Stock		11,248,336 shares
Class B Common Stock		11,561,189 shares

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(Dollars in thousands, except per share amounts)


	Three months ended January 31,
	2005			2004
Net sales	$	582,564		$	468,860
Cost of products sold		493,838			399,410

Gross profit		88,726			69,450

Selling, general and administrative expenses		59,721			51,025
Restructuring charges		7,186			15,259
Gain on sale of assets		10,344			4,109

Operating profit		32,163			7,275

Interest expense, net		10,093			12,247
Other income (expense), net		(766	)		222

Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests		21,304			(4,750	)

Income tax expense (benefit)		5,965			(1,463	)
Equity in earnings of affiliates and minority interests		(203	)		(79	)

Net income (loss)	$	15,136		$	(3,366	)

Basic earnings (loss) per share:
Class A Common Stock	$	0.53		$	(0.12	)
Class B Common Stock	$	0.79		$	(0.18	)

Diluted earnings (loss) per share:
Class A Common Stock	$	0.52		$	(0.12	)
Class B Common Stock	$	0.79		$	(0.18	)

See accompanying Notes to Consolidated Financial Statements

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

ASSETS


	January 31, 2005			October 31, 2004
	(Unaudited)
Current assets
Cash and cash equivalents	$	56,138		$	38,109
Trade accounts receivable – less allowance of $10,039 in 2005 and $11,454 in 2004		263,020			307,750
Inventories		212,503			191,457
Net assets held for sale		12,511			14,753
Deferred tax assets		5,489			6,636
Prepaid expenses and other		56,629			53,977

		606,290			612,682

Long-term assets
Goodwill – less accumulated amortization		237,211			237,803
Other intangible assets – less accumulated amortization		26,503			27,524
Other long-term assets		53,277			54,547

		316,991			319,874

Properties, plants and equipment
Timber properties – less depletion		128,968			129,141
Land		69,855			68,349
Buildings		325,224			321,183
Machinery and equipment		864,556			851,800
Capital projects in progress		40,653			37,192

		1,429,256			1,407,665
Accumulated depreciation		(554,124	)		(526,983	)

		875,132			880,682

	$	1,798,413		$	1,813,238

See accompanying Notes to Consolidated Financial Statements

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

LIABILITIES AND SHAREHOLDERS’ EQUITY


	January 31, 2005			October 31, 2004
	(Unaudited)
Current liabilities
Accounts payable	$	244,950		$	281,265
Accrued payrolls and employee benefits		35,704			49,633
Restructuring reserves		17,112			17,283
Short-term borrowings		9,036			11,621
Other current liabilities		77,207			77,416

		384,009			437,218

Long-term liabilities
Long-term debt		477,056			457,415
Deferred tax liability		149,897			148,639
Pension liability		50,288			44,036
Postretirement benefit liability		49,734			48,667
Other long-term liabilities		32,198			46,444

		759,173			745,201

Minority interest		1,988			1,725

Shareholders’ equity
Common stock, without par value		33,245			27,382
Treasury stock, at cost		(70,121	)		(65,360	)
Retained earnings		722,597			711,919
Accumulated other comprehensive loss:
- foreign currency translation		16,343			5,655
- interest rate derivatives		(5,416	)		(7,097	)
- minimum pension liability		(43,405	)		(43,405	)

		653,243			629,094

	$	1,798,413		$	1,813,238

See accompanying Notes to Consolidated Financial Statements

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Dollars in thousands)


For the three months ended January 31,	2005			2004
Cash flows from operating activities:
Net income (loss)	$	15,136		$	(3,366	)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, depletion and amortization		24,982			26,710
Asset impairments		57			2,177
Deferred income taxes		3,282			8,250
Gain on disposals of properties, plants and equipment		(10,344	)		(4,109	)
Equity in earnings of affiliates, net of dividends received, and minority interests		203			(1,413	)
Increase (decrease) in cash from changes in certain assets and liabilities:
Trade accounts receivable		48,713			28,456
Inventories		(17,081	)		(831	)
Prepaid expenses and other		(1,235	)		(4,851	)
Other long-term assets		1,836			(3,316	)
Accounts payable		(41,402	)		(34,851	)
Accrued payroll and employee benefits		(13,929	)		(12,366	)
Restructuring reserves		(171	)		3,412
Other current liabilities		(2,340	)		(1,541	)
Pension liability		6,252			5,565
Postretirement benefit liability		1,067			683
Other long-term liabilities		(17,272	)		(10,888	)

Net cash used in operating activities		(2,246	)		(2,279	)

Cash flows from investing activities:
Purchases of properties, plants and equipment		(8,685	)		(9,771	)
Proceeds on disposals of properties, plants and equipment		12,934			4,200

Net cash provided by (used in) investing activities		4,249			(5,571	)

Cash flows from financing activities:
Proceeds (payments) for long-term debt		21,535			(8,451	)
(Payments) proceeds for short-term borrowings		(3,731	)		2,854
Dividends paid		(4,458	)		(3,816	)
Acquisitions of treasury stock		(5,291	)		(2	)
Exercise of stock options		6,182			4,679

Net cash provided by (used in) financing activities		14,237			(4,736	)

Effects of exchange rates on cash		1,789			940

Net increase (decrease) in cash and cash equivalents		18,029			(11,646	)
Cash and cash equivalents at beginning of period		38,109			49,767

Cash and cash equivalents at end of period	$	56,138		$	38,121

See accompanying Notes to Consolidated Financial Statements

GREIF, INC. AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2005

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

Basis of Presentation

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

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

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

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

Stock-Based Compensation

At January 31, 2005, the Company had various stock-based compensation plans as described in Note 10 to the Notes to Consolidated Financial Statements in the 2004 Form 10-K. The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans. If compensation cost would have been determined based on fair values at the date of grant under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” pro forma net income (loss) and earnings (loss) per share would have been as follows (Dollars in thousands, except per share amounts):

Three months

ended January 31,

   2005

   2004

Net income (loss) as reported
   $ 15,136    $ (3,366 )

Deduct total stock option expense determined under fair value method, net of tax
   273    477





Pro forma net income (loss)
   $ 14,863    $ (3,843 )





Earnings per share:


Class A Common Stock:


Basic - as reported
   $ 0.53    $ (0.12 )

Basic - pro forma
   $ 0.52    $ (0.13 )

Diluted - as reported
   $ 0.52    $ (0.12 )

Diluted - pro forma
   $ 0.51    $ (0.13 )

Class B Common Stock:


Basic - as reported
   $ 0.79    $ (0.18 )

Basic - pro forma
   $ 0.78    $ (0.21 )

Diluted - as reported
   $ 0.79    $ (0.18 )

Diluted - pro forma
   $ 0.78    $ (0.21 )

NOTE 2 – RECENT ACCOUNTING STANDARDS

In December 2004, the Financial Accounting Standards Board issued a revision to SFAS No. 123, “Accounting for Stock-Based Compensation.” This revision will require the Company 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. This revised Statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 (August 1, 2005 for the Company). This revised Statement will apply to all awards granted after the required effective date and to awards modified, repurchased or canceled after that date. As of the required effective date, the Company will apply this revised Statement using a modified version of prospective application. Under that 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. 123 for either recognition or pro forma disclosures. For periods before the required effective date, the Company has elected not to apply a modified version of retrospective application under which financial statements for prior periods are adjusted by SFAS No. 123. Adoption of this Statement is expected to result in a $0.3 million compensation cost in the consolidated statements of operations for the fourth quarter of 2005.

NOTE 3 – SALE OF EUROPEAN ACCOUNTS RECEIVABLE

To further reduce borrowing costs, the Company entered into an arrangement to sell on a regular basis up to €55 million ($72 million at January 31, 2005) of certain outstanding accounts receivable of its European subsidiaries to a major international bank. As part of this arrangement, the Company received proceeds of $54.4 million

from the sale of such accounts receivable in the fourth quarter of 2004. The Company will continue to service these accounts receivable, although no interests have been retained. The acquiring international bank has full title and interest to the accounts receivable, will be free to further dispose of the accounts receivable sold to it and will be fully entitled to receive and retain for its own
account the total collections of such accounts receivable. These accounts receivable have been removed from the balance sheet since they meet the applicable criteria of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

NOTE 4 – INVENTORIES

Inventories are summarized as follows (Dollars in thousands):


	January 31, 2005			October 31, 2004
Finished goods	$	60,716		$	60,615
Raw materials and work-in-process		189,316			168,477

		250,032			229,092
Reduction to state inventories on last-in, first-out basis		(37,529	)		(37,635	)

	$	212,503		$	191,457

NOTE 5 – NET ASSETS HELD FOR SALE

Net assets held for sale represent land, buildings and land improvements less accumulated depreciation for locations that meet the classification requirements of net assets held for sale as defined in SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.” As of January 31, 2005, there were nine facilities held for sale. The net assets held for sale are being marketed for sale and it is the Company’s intention to complete the sales within the upcoming year.

NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS

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

Changes to the carrying amount of goodwill for the three-month period ended January 31, 2005 are as follows (Dollars in thousands):


	Industrial Packaging & Services			Paper, Packaging & Services		Total
Balance at October 31, 2004	$	204,975		$	32,828	$	237,803
Currency translation		(592	)		—		(592	)

Balance at January 31, 2005	$	204,383		$	32,828	$	237,211

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


	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets
January 31, 2005:
Trademarks and patents	$	18,077	$	6,385	$	11,692
Non-compete agreements		9,525		8,145		1,380
Customer relationships		7,425		615		6,810
Other		10,417		3,796		6,621

Total	$	45,444	$	18,941	$	26,503

October 31, 2004:
Trademarks and patents	$	18,077	$	6,043	$	12,034
Non-compete agreements		9,525		7,731		1,794
Customer relationships		7,425		458		6,967
Other		10,417		3,688		6,729

Total	$	45,444	$	17,920	$	27,524

During the first three months of 2005, there were no acquisitions of other intangible assets. Amortization expense for the three months ended January 31, 2005 and 2004 was $1.0 million and $0.8 million, respectively. Amortization expense for the next five years is expected to be $3.7 million in 2005, $3.0 million in 2006, $2.5 million in 2007, $2.5 million in 2008 and $2.4 million in 2009.

NOTE 7 – INVESTMENT IN AFFILIATES

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

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


	Three months ended January 31,
	2005		2004
Net sales	$	3,738	$	3,931
Gross profit	$	584	$	877
Net income	$	273	$	178

NOTE 8 – RESTRUCTURING CHARGES

During 2003, the Company began its transformation initiatives, which continue to enhance long-term organic sales growth, generate productivity improvements and achieve permanent cost reductions. As a result, the Company incurred restructuring

charges of $60.7 million in 2003, $54.1 million in 2004, and $7.2 million during the first quarter of 2005. As previously disclosed, the Company expects a total of $15 million to $20 million in restructuring charges in 2005 related to transformation activities already begun prior to October 31, 2004.

As part of the transformation initiatives, the Company closed one company-owned plant (Industrial Packaging & Services segment) during the first quarter of 2005 and three company-owned plants (two in the Industrial Packaging & Services segment and one in the Paper, Packaging & Services segment) during the first quarter of 2004. All of the plants were located in North America. In addition, corporate and administrative staff reductions have been made throughout the world. As a result of the transformation initiatives, during the first quarter of 2005, the Company recorded restructuring charges of $7.2 million, consisting of $3.2 million in employee separation costs, $0.1 million in asset impairments, $1.1 in professional fees directly related to the transformation initiatives and $2.8 million in other costs. During the first quarter of 2004, the Company recorded restructuring charges of $15.3 million, consisting of $7.0 million in employee separation costs, $2.2 million in asset impairments, $4.6 million in professional fees directly related to the transformation initiatives and $1.5 million in other costs. The asset impairment charges, related to the write-down to fair value of buildings and equipment, were based on recent buy offers, market comparables and/or data obtained from the Company’s commercial real estate broker.

A total of approximately 1,500 employees have been or will be terminated in connection with the transformation initiatives, 1,319 of which have been terminated as of January 31, 2005.

For each business segment, costs incurred in 2005, the cumulative amounts incurred from the start of the transformation initiatives through January 31, 2005 and total costs expected to be incurred in connection with the transformation initiatives are as follows (Dollars in thousands):

Amounts

Incurred in
the Current
Period


Cumulative
Amounts

Incurred to
Date

   Total
Amounts
Expected to
be Incurred

Industrial Packaging & Services:


Employee separation costs
   $ 3,208    $ 47,751    $ 53,552

Asset impairments
   57    9,725    11,035

Professional fees
   773    23,110    24,888

Other costs
   2,760    19,111    20,111







   6,798    99,697    109,586







Paper, Packaging & Services:


Employee separation costs
   2    7,005    7,005

Asset impairments
   —      5,340    5,620

Professional fees
   267    5,443    6,057

Other costs
   108    3,994    3,994







   377    21,782    22,676







Timber:


Employee separation costs
   —      154    154

Asset impairments
   —      39    49

Professional fees
   10    215    237

Other costs
   1    160    160







   11    568    600







Total
   $ 7,186    $ 122,047    $ 132,862

Following is a reconciliation of the beginning and ending restructuring reserve balances for the three-month period ended January 31, 2005 (Dollars in thousands):


	Balance at October 31, 2004		Costs Incurred and Charged to Expense		Costs Paid or Otherwise Settled			Balance at January 31, 2005
Cash charges:
Employee separation costs	$	15,230	$	3,210	$	(4,271	)	$	14,169
Other costs		2,053		3,919		(3,029	)		2,943

		17,283		7,129		(7,300	)		17,112

Non-cash charges:
Asset impairments		—		57		(57	)		—

Total	$	17,283	$	7,186	$	(7,357	)	$	17,112

NOTE 9 – LONG-TERM DEBT

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


	January 31, 2005		October 31, 2004
Senior Secured Credit Agreement	$	129,774	$	81,398
8 ⁷ / 8 percent Senior Subordinated Notes		252,751		253,960
Trade accounts receivable credit facility		83,465		103,857
Other long-term debt		11,066		18,200

	$	477,056	$	457,415

Senior Secured Credit Agreement

As of March 2, 2005, the Company and certain of its international subsidiaries entered into a $350 million Credit Agreement (the “Credit Agreement”) with a syndicate of lenders. Proceeds from the Credit Agreement were used to refinance amounts outstanding under the Senior Secured Credit Agreement, discussed in the next paragraph. A more detailed discussion of the Credit Agreement follows the discussion of the Senior Secured Credit Agreement.

On August 23, 2002, the Company and certain international subsidiaries entered into a $550 million Amended and Restated Senior Secured Credit Agreement (the “Senior Secured Credit Agreement”) with a syndicate of lenders. A portion of the proceeds from the Senior Secured Credit Agreement was used to refinance amounts outstanding under the Company’s then existing $900 million senior secured credit agreement. The Senior Secured Credit Agreement originally provided for a $300 million term loan and a $250 million revolving multicurrency credit facility. The revolving multicurrency credit facility was available for working capital and general corporate purposes. On February 11, 2004, the Company amended its term loan under the Senior Secured Credit Agreement. As a result of the amendment, the term loan was increased from its balance then outstanding of $226 million to $250 million and the applicable margin was lowered by 50 basis points while maintaining the existing maturity schedule. The incremental borrowings under the term loan were used to reduce borrowings under the revolving multicurrency credit facility, which was permanently reduced to $230 million. Interest was based on either a London InterBank Offered Rate (“LIBOR”) or an alternative base rate that was reset periodically plus a calculated margin amount. As of January 31, 2005, $65.0 million and $64.8 million were outstanding under the term loan and revolving multicurrency credit facility, respectively.

Credit Agreement

As of March 2, 2005, the Company and certain of its international subsidiaries, as borrowers, entered into a $350 million Credit Agreement with a syndicate of financial institutions, as lenders, Deutsche Bank AG, New York Branch, as administrative agent, Deutsche Bank Securities Inc., as joint lead arranger and sole book-runner, KeyBank National Association, as joint lead arranger and syndication agent and National City Bank, Fleet National Bank and ING Capital LLC, as co-documentation agents. The Credit Agreement provides for a $350 million revolving multicurrency credit facility. The revolving multicurrency credit facility is available for ongoing working capital and general corporate purposes and to refinance amounts outstanding under the Senior Secured Credit Agreement. Interest is based on either a eurocurrency rate or an alternative base rate that resets periodically plus a calculated margin amount. On March 3, 2005, $189.4 million was borrowed under the revolving multicurrency credit facility in order to prepay the obligations outstanding under the Senior Secured Credit Agreement and certain costs and expenses incurred in connection with the Credit Agreement.

A debt extinguishment charge of $2.8 million will be recorded during the second quarter of 2005.

Senior Subordinated Notes

On July 31, 2002, the Company issued Senior Subordinated Notes in the aggregate principal amount of $250 million, receiving net proceeds of approximately $248 million before expenses. At January 31, 2005, the outstanding balance of $252.8 million included gains on fair value hedges the Company has in place to hedge interest rate risk. 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. However, the Senior Subordinated Notes are redeemable at the option of the Company beginning August 1, 2007, at the redemption prices set forth below (expressed as percentages of principal amount), plus accrued interest, if any, to the redemption date:


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

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

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

Trade Accounts Receivable Credit Facility

On October 31, 2003, the Company entered into a five-year, up to $120.0 million, credit facility with an affiliate of a bank in connection with the securitization of certain of the Company’s United States trade accounts receivable. The credit facility is secured by certain of the Company’s United States trade accounts receivable and bears interest at a variable rate based on LIBOR plus a margin or other agreed upon rate (2.04 percent interest rate as of January 31, 2005). The Company also pays a commitment fee. The Company can terminate this facility at any time upon 60 days prior written notice. In connection with this transaction, the Company established Greif Receivables Funding LLC, which is included in the Company’s consolidated financial statements. This entity purchases and services the Company’s trade accounts receivable that are subject to this credit facility. As of January 31, 2005, there was a total of $83.5 million outstanding under the trade accounts receivable credit facility.

NOTE 10 – FINANCIAL INSTRUMENTS

The Company had interest rate swap agreements with an aggregate notional amount of $290 million at January 31, 2005 with various maturities through 2012. Under certain of these agreements, the Company receives interest quarterly from the counterparties equal to LIBOR and pays interest at a weighted average rate of 6.04

percent over the life of the contracts. The Company is also party to agreements in which the Company receives interest semi-annually from the counterparty equal to a fixed rate of 8.875 percent and pays interest based on LIBOR plus a margin. A net liability for the loss on interest rate swap contracts, which represented their fair values at that time, in the amount of $3.4 million ($2.3 million, net of tax) at January 31, 2005 was recorded.

At January 31, 2005, the Company had outstanding foreign currency forward contracts in the notional amount of $35.9 million. The fair value of these contracts at January 31, 2005 resulted in a loss of $0.7 million recorded in the consolidated statements of operations. The purpose of these contracts is to hedge the Company’s short-term intercompany loan balances with its international businesses.

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

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

NOTE 11 – CAPITAL STOCK

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

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


	Authorized Shares	Issued Shares	Outstanding Shares	Treasury Shares
January 31, 2005:
Class A Common Stock	32,000,000	21,140,960	11,248,336	9,892,624
Class B Common Stock	17,280,000	17,280,000	11,561,189	5,718,811

October 31, 2004:
Class A Common Stock	32,000,000	21,140,960	11,025,466	10,115,494
Class B Common Stock	17,280,000	17,280,000	11,661,189	5,618,811

NOTE 12 – DIVIDENDS PER SHARE

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


	Three months ended January 31,
	2005		2004
Class A Common Stock	$	0.16	$	0.14
Class B Common Stock	$	0.23	$	0.20

NOTE 13 – CALCULATION OF EARNINGS (LOSS) PER SHARE

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

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


	Three months ended January 31,
	2005	2004
Class A Common Stock:
Basic shares	11,119,292	10,620,133
Assumed conversion of stock options	408,582	—

Diluted shares	11,527,874	10,620,133

Class B Common Stock:
Basic and diluted shares	11,640,759	11,661,995

There were no stock options that were antidilutive for the three-month period ended January 31, 2005 (8,000 for the three-month period ended January 31, 2004). Since the Company reported a net loss in the first quarter of 2004, there was no assumed conversion of stock options as this would be antidilutive to the calculation.

NOTE 14 – COMPREHENSIVE INCOME (LOSS)

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


	Three months ended January 31,
	2005		2004
Net income (loss)	$	15,136	$	(3,366	)
Other comprehensive income (loss):
Foreign currency translation adjustment		10,688		(1,776	)
Change in market value of interest rate derivatives, net of tax		1,681		385
Minimum pension liability adjustment, net of tax		—		(497	)

Comprehensive income (loss)	$	27,505	$	(5,254	)

NOTE 15 – RETIREMENT PLANS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS

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


	Three months ended January 31,
	2005			2004
Service cost	$	3,165		$	3,037
Interest cost		6,619			6,051
Expected return on plan assets		(7,387	)		(6,853	)
Amortization of prior service cost, initial net asset and net actuarial gain		1,163			749

	$	3,560		$	2,984

The Company made $5.2 million in pension contributions in the first quarter of 2005. Based on minimum funding requirements, $16.6 million of pension contributions are estimated for the entire 2005 fiscal year.

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


	Three months ended January 31,
	2005			2004
Service cost	$	5		$	14
Interest cost		787			833
Amortization of net prior service cost and recognized actuarial loss		(59	)		(31	)

	$	733		$	816

NOTE 16 – BUSINESS SEGMENT INFORMATION

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

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

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

Operations in the Timber segment involve the management and sale of timber on approximately 281,000 acres of timberland in the southeastern United States. The Company also owns approximately 35,000 acres of timberland in Canada, which are not actively managed at this time.

The Company’s reportable segments are strategic business units that offer different products. The accounting policies of the reportable segments are substantially the same as those described in the “Description of Business and Summary of Significant Accounting Policies” note (see Note 1) in the 2004 Form 10-K.

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


	Three months ended January 31,
	2005		2004
Net sales:
Industrial Packaging & Services	$	429,042	$	337,391
Paper, Packaging & Services		148,205		125,294
Timber		5,317		6,175

Total net sales	$	582,564	$	468,860

Operating profit:
Operating profit before restructuring charges and timberland gains:
Industrial Packaging & Services	$	17,679	$	8,851
Paper, Packaging & Services		9,591		5,353
Timber		4,007		4,396

Operating profit before restructuring charges and timberland gains		31,277		18,600

Restructuring charges:
Industrial Packaging & Services		6,798		12,023
Paper, Packaging & Services		377		3,169
Timber		11		67

Total restructuring charges		7,186		15,259

Timberland gains:
Timber		8,072		3,934

Total operating profit	$	32,163	$	7,275

Depreciation, depletion and amortization expense:
Industrial Packaging & Services	$	16,136	$	17,058
Paper, Packaging & Services		8,452		8,825
Timber		394		827

Total depreciation, depletion and amortization expense	$	24,982	$	26,710

January 31,
2005

   October 31,
2004

Assets:


Industrial Packaging & Services
   $ 1,196,885    $ 1,201,689

Paper, Packaging & Services
   296,171    303,245

Timber
   139,695    130,688





Total segment
   1,632,751    1,635,622

Corporate and other
   165,662    177,616





Total assets
   $ 1,798,413    $ 1,813,238

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


	Three months ended January 31,
	2005		2004
Net sales:
North America	$	317,176	$	268,024
Europe		176,170		132,946
Other		89,218		67,890

Total net sales	$	582,564	$	468,860

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


	January 31, 2005		October 31, 2004
Assets:
North America	$	1,159,873	$	1,136,781
Europe		418,329		469,094
Other		220,211		207,363

Total assets	$	1,798,413	$	1,813,238

NOTE 17 – SUMMARIZED CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

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

On November 1, 2004, the Company restructured certain of its United States operations and subsidiaries. As a result, the condensed consolidating financial statements at January 31, 2005 and for the three-month period ended January 31, 2005 reflect these changes.

Presented below are condensed consolidating financial statements of the Parent, the Guarantor Subsidiaries and the non-Guarantor Subsidiaries at January 31, 2005 and October 31, 2004, and for the three-month periods ended January 31, 2005 and 2004. These summarized condensed consolidating financial statements are

prepared using the equity method. Separate financial statements for the Guarantor Subsidiaries are not presented based on management’s determination that they do not provide additional information that is material to investors.

Condensed Consolidating Statements of Operations

For the three months ended January 31, 2005


	Parent		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	1,266	$	317,357		$	295,396		$	(31,455	)	$	582,564
Cost of products sold		935		272,374			251,984			(31,455	)		493,838

Gross profit		331		44,983			43,412			—			88,726

Selling, general and administrative expenses		300		30,083			29,338			—			59,721
Restructuring charges		1		4,485			2,700			—			7,186
Gain (loss) on sale of assets		—		10,424			(80	)		—			10,344

Operating profit		30		20,839			11,294			—			32,163

Interest expense, net		—		8,975			1,118			—			10,093
Other income (expense), net (1)		2		(3,048	)		2,280			—			(766	)

Income before income tax expense and equity in earnings of affiliates and minority interests		32		8,816			12,456			—			21,304

Income tax expense		9		2,468			3,488			—			5,965
Equity in earnings of affiliates and minority interests		15,113		—			(203	)		(15,113	)		(203	)

Net income	$	15,136	$	6,348		$	8,765		$	(15,113	)	$	15,136

For the three months ended January 31, 2004


	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	153,790		$	131,158	$	239,754		$	(55,842	)	$	468,860
Cost of products sold		135,688			112,556		207,008			(55,842	)		399,410

Gross profit		18,102			18,602		32,746			—			69,450

Selling, general and administrative expenses		24,959			3,800		22,266			—			51,025
Restructuring charges		3,208			9,408		2,643			—			15,259
Gain on sale of assets		—			4,019		90			—			4,109

Operating profit (loss)		(10,065	)		9,413		7,927			—			7,275

Interest expense, net		10,172			1,064		1,011			—			12,247
Other income (expense), net (1)		(8,889	)		4,879		4,232			—			222

Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests		(29,126	)		13,228		11,148			—			(4,750	)

Income tax expense (benefit)		(8,971	)		4,074		3,434			—			(1,463	)
Equity in earnings of affiliates and minority interests		16,789			—		(79	)		(16,789	)		(79	)

Net income (loss)	$	(3,366	)	$	9,154	$	7,635		$	(16,789	)	$	(3,366	)

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

Condensed Consolidating Balance Sheets

January 31, 2005


	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	—	$	30,606	$	25,532	$	—		$	56,138
Trade accounts receivable		1,108		126,758		135,154		—			263,020
Inventories		364		71,099		141,040		—			212,503
Other current assets		1,848		14,494		58,287		—			74,629

		3,320		242,957		360,013		—			606,290

Long-term assets
Goodwill and other intangible assets		—		136,914		126,800		—			263,714
Other long-term assets		1,094,254		621,657		10,809		(1,673,443	)		53,277

		1,094,254		758,571		137,609		(1,673,443	)		316,991

Properties, plants and equipment, net		1,845		583,694		289,593		—			875,132

	$	1,099,419	$	1,585,222	$	787,215	$	(1,673,443	)	$	1,798,413

LIABILITIES & SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	86	$	119,146	$	125,718	$	—		$	244,950
Short-term borrowings		—		—		9,036		—			9,036
Other current liabilities		4,656		20,577		104,790		—			130,023

		4,742		139,723		239,544		—			384,009

Long-term liabilities
Long-term debt		441,382		—		35,674		—			477,056
Other long-term liabilities		52		199,107		82,958		—			282,117

		441,434		199,107		118,632		—			759,173

Minority interest		—		35		1,953		—			1,988

Shareholders’ equity		653,243		1,246,357		427,086		(1,673,443			653,243

	$	1,099,419	$	1,585,222	$	787,215	$	(1,673,443	)	$	1,798,413

October 31, 2004


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

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

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

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

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

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

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

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

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

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

Minority interest		—		—		1,725		—			1,725

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

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

Condensed Consolidating Statements of Cash Flows

For the three months ended January 31, 2005


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	(17,968	)	$	9,019		$	6,703		$	—	$	(2,246	)

Cash flows from investing activities:
Purchases of properties, plants and equipment		—			(5,211	)		(3,474	)		—		(8,685	)
Proceeds on disposals of properties, plants and equipment		—			13,014			(80	)		—		12,934

Net cash provided by (used in) investing activities		—			7,803			(3,554	)		—		4,249

Cash flows from financing activities:
Proceeds from issuance of long-term debt


	Amounts Incurred in the Current Period		Cumulative Amounts Incurred to Date		Total Amounts Expected to be Incurred
Industrial Packaging & Services:
Employee separation costs	$	3,208	$	47,751	$	53,552
Asset impairments		57		9,725		11,035
Professional fees		773		23,110		24,888
Other costs		2,760		19,111		20,111

		6,798		99,697		109,586

Paper, Packaging & Services:
Employee separation costs		2		7,005		7,005
Asset impairments		—		5,340		5,620
Professional fees		267		5,443		6,057
Other costs		108		3,994		3,994

		377		21,782		22,676

Timber:
Employee separation costs		—		154		154
Asset impairments		—		39		49
Professional fees		10		215		237
Other costs		1		160		160

		11		568		600

Total	$	7,186	$	122,047	$	132,862