UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 

 
FORM 10-Q 

 
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 	
 
For the quarterly period ended July 31, 2004 
 
OR 
 
☐	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  ☒    No  ☐ 
 
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☒    No  ☐ 
 
The number of shares outstanding of each of the issuer’s classes of common stock at the close of business on July 31, 2004 was as follows: 

Class A Common Stock	 	10,946,637 shares	
Class B Common Stock	 	11,661,189 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
July 31,
	 	 	Nine months ended
July 31,
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
Net sales	  	$	584,814	 	 	$	496,755	 	 	$	1,595,863	 	 	$	1,402,240	 	
Costs of products sold	  	 	484,921	 	 	 	407,714	 	 	 	1,337,259	 	 	 	1,155,227	 	
 	  				 				 				 				
Gross profit	  	 	99,893	 	 	 	89,041	 	 	 	258,604	 	 	 	247,013	 	
					
Selling, general and administrative expenses	  	 	57,105	 	 	 	54,622	 	 	 	163,875	 	 	 	173,123	 	
Restructuring charges	  	 	12,324	 	 	 	16,580	 	 	 	39,861	 	 	 	35,568	 	
Gain on sale of assets	  	 	1,290	 	 	 	3,407	 	 	 	6,521	 	 	 	5,752	 	
 	  				 				 				 				
Operating profit	  	 	31,754	 	 	 	21,246	 	 	 	61,389	 	 	 	44,074	 	
					
Interest expense, net	  	 	10,885	 	 	 	12,545	 	 	 	33,848	 	 	 	40,022	 	
Other income (expense), net	  	 	292	 	 	 	(1,816	)	 	 	1,208	 	 	 	546	 	
 	  				 				 				 				
Income before income tax expense and equity in earnings of affiliates and minority interests	  	 	21,161	 	 	 	6,885	 	 	 	28,749	 	 	 	4,598	 	
					
Income tax expense	  	 	6,000	 	 	 	2,203	 	 	 	8,337	 	 	 	1,471	 	
Equity in earnings of affiliates and minority interests	  	 	(292	)	 	 	(1,098	)	 	 	(460	)	 	 	(3,847	)	
 	  				 				 				 				
Income (loss) before cumulative effect of change in accounting principle	  	 	14,869	 	 	 	3,584	 	 	 	19,952	 	 	 	(720	)	
					
Cumulative effect of change in accounting principle	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	4,822	 	
 	  				 				 				 				
Net income	  	$	14,869	 	 	$	3,584	 	 	$	19,952	 	 	$	4,102	 	
 	  				 				 				 				
Basic earnings (loss) per share:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Class A Common Stock (before cumulative effect)	  	$	0.52	 	 	$	0.13	 	 	$	0.71	 	 	$	(0.02	)	
Class A Common Stock (after cumulative effect)	  	$	0.52	 	 	$	0.13	 	 	$	0.71	 	 	$	0.15	 	
Class B Common Stock (before cumulative effect)	  	$	0.79	 	 	$	0.19	 	 	$	1.06	 	 	$	(0.04	)	
Class B Common Stock (after cumulative effect)	  	$	0.79	 	 	$	0.19	 	 	$	1.06	 	 	$	0.21	 	
					
Diluted earnings (loss) per share:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Class A Common Stock (before cumulative effect)	  	$	0.51	 	 	$	0.13	 	 	$	0.70	 	 	$	(0.02	)	
Class A Common Stock (after cumulative effect)	  	$	0.51	 	 	$	0.13	 	 	$	0.70	 	 	$	0.15	 	
Class B Common Stock (before cumulative effect)	  	$	0.79	 	 	$	0.19	 	 	$	1.06	 	 	$	(0.04	)	
Class B Common Stock (after cumulative effect)	  	$	0.79	 	 	$	0.19	 	 	$	1.06	 	 	$	0.21	 	
 
See accompanying Notes to Consolidated Financial Statements 
 
2 

GREIF, INC. AND SUBSIDIARY COMPANIES 
CONSOLIDATED BALANCE SHEETS 
(Dollars in thousands) 
 
ASSETS 

 	  	July 31,
2004
	 	 	October 31,
2003
	 	
 	  	(Unaudited)	 	 	 	 	
 	  	 	 	 	 	 	 	 	
Current assets	  	 	 	 	 	 	 	 	
Cash and cash equivalents	  	$	25,013	 	 	$	49,767	 	
Trade accounts receivable, less allowance of $12,535 in 2004 and $10,286 in 2003	  	 	344,365	 	 	 	294,957	 	
Inventories	  	 	175,769	 	 	 	167,157	 	
Net assets held for sale	  	 	13,945	 	 	 	6,311	 	
Deferred tax assets	  	 	11,238	 	 	 	10,875	 	
Other current assets	  	 	58,122	 	 	 	54,390	 	
 	  				 				
 	  	 	628,452	 	 	 	583,457	 	
 	  				 				
Long-term assets	  	 	 	 	 	 	 	 	
Goodwill, net of amortization	  	 	241,975	 	 	 	252,309	 	
Other intangible assets, net of amortization	  	 	28,535	 	 	 	30,654	 	
Investment in affiliates	  	 	5,165	 	 	 	4,421	 	
Other long-term assets	  	 	66,412	 	 	 	47,995	 	
 	  				 				
 	  	 	342,087	 	 	 	335,379	 	
 	  				 				
Properties, plants and equipment	  	 	 	 	 	 	 	 	
Timber properties, net of depletion	  	 	127,491	 	 	 	119,573	 	
Land	  	 	67,645	 	 	 	67,479	 	
Buildings	  	 	315,214	 	 	 	320,229	 	
Machinery and equipment	  	 	829,117	 	 	 	831,815	 	
Capital projects in progress	  	 	49,343	 	 	 	36,522	 	
 	  				 				
 	  	 	1,388,810	 	 	 	1,375,618	 	
Accumulated depreciation	  	 	(510,985	)	 	 	(463,243	)	
 	  				 				
 	  	 	877,825	 	 	 	912,375	 	
 	  				 				
 	  	$	1,848,364	 	 	$	1,831,211	 	

See accompanying Notes to Consolidated Financial Statements 
 
3 

GREIF, INC. AND SUBSIDIARY COMPANIES 
CONSOLIDATED BALANCE SHEETS 
(Dollars in thousands) 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY 

 	  	July 31,
2004
	 	 	October 31,
2003
	 	
 	  	(Unaudited)	 	 	 	 	
 	  	 	 	 	 	 	 	 	
Current liabilities	  	 	 	 	 	 	 	 	
Accounts payable	  	$	198,412	 	 	$	158,333	 	
Accrued payrolls and employee benefits	  	 	38,318	 	 	 	43,126	 	
Restructuring reserves	  	 	16,013	 	 	 	15,972	 	
Short-term borrowings	  	 	15,602	 	 	 	15,605	 	
Current portion of long-term debt	  	 	—  	 	 	 	3,000	 	
Other current liabilities	  	 	79,589	 	 	 	76,282	 	
 	  				 				
 	  	 	347,934	 	 	 	312,318	 	
 	  				 				
Long-term liabilities	  	 	 	 	 	 	 	 	
Long-term debt	  	 	601,622	 	 	 	643,067	 	
Deferred tax liability	  	 	165,751	 	 	 	159,825	 	
Postretirement benefit liability	  	 	49,282	 	 	 	48,504	 	
Other long-term liabilities	  	 	85,067	 	 	 	93,047	 	
 	  				 				
 	  	 	901,722	 	 	 	944,443	 	
 	  				 				
Minority interest	  	 	1,700	 	 	 	1,886	 	
 	  				 				
Shareholders’ equity	  	 	 	 	 	 	 	 	
Common stock, without par value	  	 	22,038	 	 	 	12,207	 	
Treasury stock, at cost	  	 	(63,449	)	 	 	(64,228	)	
Retained earnings	  	 	688,685	 	 	 	681,043	 	
Accumulated other comprehensive loss:	  	 	 	 	 	 	 	 	
- foreign currency translation	  	 	(12,289	)	 	 	(15,314	)	
- interest rate derivatives	  	 	(8,859	)	 	 	(12,938	)	
- minimum pension liability	  	 	(29,118	)	 	 	(28,206	)	
 	  				 				
 	  	 	597,008	 	 	 	572,564	 	
 	  				 				
 	  	$	1,848,364	 	 	$	1,831,211	 	

See accompanying Notes to Consolidated Financial Statements 
 
4 

GREIF, INC. AND SUBSIDIARY COMPANIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(UNAUDITED) 
(Dollars in thousands) 

For the nine months ended July 31,	  	2004
	 	 	2003
	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	
Net income	  	$	19,952	 	 	$	4,102	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Depreciation, depletion and amortization	  	 	77,134	 	 	 	65,769	 	
Asset impairments	  	 	2,581	 	 	 	5,963	 	
Deferred income taxes	  	 	8,766	 	 	 	6,764	 	
Gain on disposals of properties, plants and equipment, net	  	 	(6,520	)	 	 	(3,945	)	
Equity in earnings of affiliates, net of dividends received, and minority interests	  	 	(930	)	 	 	(1,176	)	
Cumulative effect of change in accounting principle	  	 	—  	 	 	 	(4,822	)	
Increase (decrease) in cash from changes in certain assets and liabilities:	  	 	 	 	 	 	 	 	
Trade accounts receivable	  	 	(45,482	)	 	 	(12,745	)	
Inventories	  	 	(6,785	)	 	 	(8,920	)	
Other current assets	  	 	(3,212	)	 	 	5,885	 	
Other long-term assets	  	 	(8,088	)	 	 	(162	)	
Accounts payable	  	 	35,641	 	 	 	15,916	 	
Accrued payroll and employee benefits	  	 	(4,808	)	 	 	(11,347	)	
Restructuring reserves	  	 	41	 	 	 	9,184	 	
Other current liabilities	  	 	814	 	 	 	(30	)	
Postretirement benefit liability	  	 	778	 	 	 	(1,109	)	
Other long-term liabilities	  	 	(11,016	)	 	 	(11,333	)	
 	  				 				
Net cash provided by operating activities	  	 	58,866	 	 	 	57,994	 	
 	  				 				
Cash flows from investing activities:	  	 	 	 	 	 	 	 	
Capital expenditures	  	 	(37,848	)	 	 	(35,896	)	
Acquisition of timber properties	  	 	(8,723	)	 	 	(4,100	)	
Acquisition of businesses, net of cash acquired	  	 	(835	)	 	 	(5,166	)	
Proceeds from disposals of properties, plants and equipment	  	 	10,324	 	 	 	6,625	 	
 	  				 				
Net cash used in investing activities	  	 	(37,082	)	 	 	(38,537	)	
 	  				 				
Cash flows from financing activities:	  	 	 	 	 	 	 	 	
Payments on long-term debt	  	 	(44,052	)	 	 	(4,878	)	
Payments on short-term borrowings	  	 	(887	)	 	 	(805	)	
Dividends paid	  	 	(12,310	)	 	 	(11,715	)	
Acquisitions of treasury stock	  	 	(29	)	 	 	(1,031	)	
Exercise of stock options	  	 	10,552	 	 	 	—  	 	
 	  				 				
Net cash used in financing activities	  	 	(46,726	)	 	 	(18,429	)	
 	  				 				
Effects of exchange rates on cash	  	 	188	 	 	 	(4,939	)	
 	  				 				
Net decrease in cash and cash equivalents	  	 	(24,754	)	 	 	(3,911	)	
Cash and cash equivalents at beginning of period	  	 	49,767	 	 	 	25,396	 	
 	  				 				
Cash and cash equivalents at end of period	  	$	25,013	 	 	$	21,485	 	

See accompanying Notes to Consolidated Financial Statements 
 
5 

GREIF, INC. AND SUBSIDIARY COMPANIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JULY 31, 2004 
 
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 July 31, 2004 and October 31, 2003, the consolidated statements of operations for the three-month and nine-month periods ended July 31, 2004 and 2003 and cash flows for the nine-month periods ended July 31, 2004 and 2003 of Greif, Inc. and subsidiaries (the “Company”). These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended October 31, 2003 (the “2003 Form 10-K”). 
 
The Company’s fiscal year begins on November 1 and ends on October 31 of the following year. Any references to the year 2004 or 2003, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ending in that year. 
 
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates. 
 
Certain prior year amounts have been reclassified to conform to the 2004 presentation. 
 
6 

Stock-Based Compensation 
 
At July 31, 2004, the Company had various stock-based compensation plans as described in Note 10 to the Notes to Consolidated Financial Statements in the 2003 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 and earnings per share would have been as follows (Dollars in thousands, except per share amounts): 

 	  	Three months
ended July 31,
	  	Nine months
ended July 31,
	
 	  	2004
	  	2003
	  	2004
	  	2003
	
Net income as reported	  	$	14,869	  	$	3,584	  	$	19,952	  	$	4,102	
Deduct total stock option expense determined under fair value method, net of tax	  	 	650	  	 	952	  	 	2,106	  	 	2,926	
 	  			  			  			  			
Pro forma net income	  	$	14,219	  	$	2,632	  	$	17,846	  	$	1,176	
 	  			  			  			  			
Earnings per share:	  	 	 	  	 	 	  	 	 	  	 	 	
					
Class A Common Stock:	  	 	 	  	 	 	  	 	 	  	 	 	
Basic earnings per share:	  	 	 	  	 	 	  	 	 	  	 	 	
As reported	  	$	0.52	  	$	0.13	  	$	0.71	  	$	0.15	
Pro forma	  	$	0.50	  	$	0.09	  	$	0.64	  	$	0.05	
					
Diluted earnings per share:	  	 	 	  	 	 	  	 	 	  	 	 	
As reported	  	$	0.51	  	$	0.13	  	$	0.70	  	$	0.15	
Pro forma	  	$	0.49	  	$	0.09	  	$	0.63	  	$	0.05	
					
Class B Common Stock:	  	 	 	  	 	 	  	 	 	  	 	 	
Basic and diluted earnings per share:	  	 	 	  	 	 	  	 	 	  	 	 	
As reported	  	$	0.79	  	$	0.19	  	$	1.06	  	$	0.21	
Pro forma	  	$	0.75	  	$	0.14	  	$	0.94	  	$	0.06	
 
NOTE 2 — RECENT ACCOUNTING STANDARDS 
 
In December 2003, the Financial Accounting Standards Board (“FASB”) issued a revision to SFAS No. 132, “Employers Disclosures about Pensions and Other Postretirement Benefits.” The revision relates to employers’ disclosures about pension plans and other postretirement benefit plans. It does not alter the measurement or recognition provisions of the original SFAS No. 132. It requires additional disclosures regarding assets, obligations, cash flows and net periodic benefit costs of pension plans and other defined benefit postretirement plans. Excluding certain disclosure requirements, the revised Statement is effective for financial statements with fiscal years ended after December 15, 2003. Interim period disclosures are effective for interim periods beginning after December 15, 2003 and have been included in Note 14 to the Notes to Consolidated Financial Statements in this Form 10-Q. 
 
NOTE 3 — INVENTORIES 
 
Inventories are summarized as follows (Dollars in thousands): 

 	  	July 31,
2004
	 	 	October 31,
2003
	 	
Finished goods	  	$	55,736	 	 	$	44,894	 	
Raw materials and work-in-process	  	 	154,122	 	 	 	153,482	 	
 	  				 				
 	  	 	209,858	 	 	 	198,376	 	
Reduction to state inventories on last-in, first-out basis	  	 	(34,089	)	 	 	(31,219	)	
 	  				 				
 	  	$	175,769	 	 	$	167,157	 	

7 

NOTE 4 — 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 the Impairment or Disposal of Long-Lived Assets.” As of July 31, 2004, there were 13 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 5 — 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 concluded that no impairment exists at this time. 
 
Changes to the carrying amount of goodwill for the nine-month period ended July 31, 2004 are as follows (Dollars in thousands): 

 	  	Industrial
Packaging &
Services
	 	 	Paper,
Packaging &
Services
	  	Total
	 	
Balance at October 31, 2003	  	$	220,619	 	 	$	31,690	  	$	252,309	 	
Goodwill acquired	  	 	365	 	 	 	1,697	  	 	2,062	 	
Goodwill adjustments	  	 	(9,541	)	 	 	—  	  	 	(9,541	)	
Currency translation	  	 	(2,855	)	 	 	—  	  	 	(2,855	)	
 	  				 			  				
Balance at July 31, 2004	  	$	208,588	 	 	$	33,387	  	$	241,975	 	

The goodwill acquired relates to refinements to the purchase price allocation for the acquisition of a small steel drum company in Europe in the Industrial Packaging & Services segment and refinements to the allocation of the investment in CorrChoice, Inc. in the Paper, Packaging & Services segment. 
 
The goodwill adjustments primarily relate to the recognition of cash surrender value for reinsurance contracts that are used to fund pension payments in Europe. This adjustment relates to the Van Leer Industrial Packaging acquisition and was recorded in the second quarter of 2004. 
 
8 

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 July 31, 2004 and October 31, 2003 are as follows (Dollars in thousands): 

 	  	Gross
Intangible
Assets
	  	Accumulated
Amortization
	  	Net
Intangible
Assets
	
July 31, 2004:	  	 	 	  	 	 	  	 	 	
Trademarks and patents	  	$	18,077	  	$	5,701	  	$	12,376	
Non-compete agreements	  	 	9,525	  	 	7,326	  	 	2,199	
Customer relationships	  	 	7,413	  	 	321	  	 	7,092	
Other	  	 	10,417	  	 	3,549	  	 	6,868	
 	  			  			  			
Total	  	$	45,432	  	$	16,897	  	$	28,535	
 	  			  			  			
October 31, 2003:	  	 	 	  	 	 	  	 	 	
Trademarks and patents	  	$	18,077	  	$	4,675	  	$	13,402	
Non-compete agreements	  	 	9,525	  	 	5,985	  	 	3,540	
Customer relationships	  	 	6,582	  	 	47	  	 	6,535	
Other	  	 	10,417	  	 	3,240	  	 	7,177	
 	  			  			  			
Total	  	$	44,601	  	$	13,947	  	$	30,654	

During the first nine months of 2004, there were no significant acquisitions of other intangible assets. Amortization expense for the nine months ended July 31, 2004 and 2003 was $3.0 million and $3.4 million, respectively. Amortization expense for the next five years is expected to be $4.0 million in 2004, $3.6 million in 2005, $2.9 million in 2006, $2.5 million in 2007 and $2.4 million in 2008. 
 
In accordance with the transition provisions of SFAS No. 141, “Business Combinations,” the Company recorded a $4.8 million gain as a cumulative effect of change in accounting principle for its remaining unamortized negative goodwill upon the adoption of SFAS No. 142 in the first quarter of 2003. 
 
NOTE 6 — 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%) was sold, which resulted in a loss of $0.3 million. 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 July 31,
	  	Nine months
ended July 31,
	
 	  	2004
	  	2003
	  	2004
	  	2003
	
Net sales	  	$	3,785	  	$	4,144	  	$	11,975	  	$	11,539	
Gross profit	  	$	661	  	$	933	  	$	2,466	  	$	2,533	
Net income	  	$	403	  	$	146	  	$	699	  	$	420	
 
NOTE 7 — RESTRUCTURING CHARGES 
 
During 2003, the Company began its transformation initiatives, which are expected to enhance long-term organic sales growth and productivity and achieve permanent cost reductions. As a 
 
9 

result, the Company incurred restructuring charges of $60.7 million in 2003 and $39.9 million during the first nine months of 2004. The Company anticipates incurring additional restructuring charges of approximately $10 million to $15 million during the remainder of 2004, which is $5 million higher than previously disclosed due to additional opportunities identified this year. 
 
As part of the transformation initiatives, the Company closed four company-owned plants (three in the Industrial Packaging & Services segment and one in the Paper, Packaging & Services segment) during the nine months ended July 31, 2004. All of the plants are located in North America. In addition, administrative staff reductions have continued throughout the world. As a result of the transformation initiatives, during the first nine months of 2004, the Company recognized pre-tax restructuring charges of $39.9 million, consisting of $12.5 million in employee separation costs, $2.6 million in asset impairments and $24.8 million in other costs, which were primarily for consulting services in connection with the transformation initiatives. The asset impairment charges, which relate to the write-down to fair value of buildings and equipment, are based on recent buy offers, market comparables and/or data obtained from the Company’s commercial real estate broker. A total of approximately 1,200 employees have been terminated in connection with the transformation initiatives, 600 of which were terminated during the nine months ended July 31, 2004. For each of the Company’s business segments, amounts incurred in the third quarter of 2004, the cumulative amounts incurred from the start of the transformation initiatives through July 31, 2004 and the total amounts expected to be incurred in connection with the transformation initiatives through October 31, 2004 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	  	$	3,094	  	$	39,778	  	$	47,924	
Asset impairments	  	 	25	  	 	8,198	  	 	10,458	
Other costs	  	 	7,237	  	 	31,867	  	 	34,400	
 	  			  			  			
 	  	 	10,356	  	 	79,843	  	 	92,782	
 	  			  			  			
Paper, Packaging & Services:	  	 	 	  	 	 	  	 	 	
Employee separation costs	  	 	337	  	 	7,276	  	 	7,276	
Asset impairments	  	 	304	  	 	4,566	  	 	4,566	
Other costs	  	 	1,282	  	 	8,384	  	 	8,384	
 	  			  			  			
 	  	 	1,923	  	 	20,226	  	 	20,226	
 	  			  			  			
Timber:	  	 	 	  	 	 	  	 	 	
Employee separation costs	  	 	3	  	 	150	  	 	150	
Asset impairments	  	 	—  	  	 	36	  	 	36	
Other costs	  	 	42	  	 	349	  	 	349	
 	  			  			  			
 	  	 	45	  	 	535	  	 	535	
 	  			  			  			
Total	  	$	12,324	  	$	100,604	  	$	113,543	

10 

Following is a reconciliation of the beginning and ending restructuring reserve balances for the nine-month period ended July 31, 2004 (Dollars in thousands): 

 	  	Balance at
October 31,
2003
	  	Costs
Incurred
and
Charged to
Expense
	  	Costs Paid
or
Otherwise
Settled
	  	Balance at
July 31,
2004
	
Cash charges:	  	 	 	  	 	 	  	 	 	  	 	 	
Employee separation costs	  	$	13,289	  	$	12,468	  	$	14,237	  	$	11,520	
Other costs	  	 	2,482	  	 	24,812	  	 	22,801	  	 	4,493	
 	  			  			  			  			
 	  	 	15,771	  	 	37,280	  	 	37,038	  	 	16,013	
					
Non-cash charges:	  	 	 	  	 	 	  	 	 	  	 	 	
Asset impairments	  	 	201	  	 	2,581	  	 	2,782	  	 	—  	
 	  			  			  			  			
Total	  	$	15,972	  	$	39,861	  	$	39,820	  	$	16,013	

NOTE 8 — LONG-TERM DEBT 
 
Long-term debt is summarized as follows (Dollars in thousands): 

 	  	July 31,
2004
	  	October 31,
2003
	 	
$550 million Amended and Restated Senior Secured Credit Agreement	  	$	261,299	  	$	308,783	 	
8 7/8% Senior Subordinated Notes	  	 	250,794	  	 	251,380	 	
Trade accounts receivable credit facility	  	 	89,026	  	 	85,406	 	
Other long-term debt	  	 	503	  	 	498	 	
 	  			  				
 	  	 	601,622	  	 	646,067	 	
Current portion	  	 	—  	  	 	(3,000	)	
 	  			  				
 	  	$	601,622	  	$	643,067	 	

$550 million Amended and Restated Senior Secured Credit Agreement 
 
On August 23, 2002, the Company and certain of its non-United States subsidiaries entered into a $550 million Amended and Restated Senior Secured Credit Agreement with a syndicate of lenders. The Amended and Restated Senior Secured Credit Agreement originally provided for a $300 million term loan and a $250 million revolving multicurrency credit facility. The revolving multicurrency credit facility is available for working capital and general corporate purposes, and has been permanently reduced to $240 million. On February 11, 2004, the Company amended its term loan under the Amended and Restated Senior Secured Credit Agreement. As a result of the amendment, the term loan was increased from its balance then outstanding of $226 million to $250 million, and the applicable margin was lowered by 50 basis points while maintaining the existing maturity schedule. The incremental borrowings under the term loan were used to reduce borrowings under the revolving multicurrency credit facility. The term loan periodically reduces through its maturity date of August 23, 2009 and the revolving multicurrency credit facility matures on February 28, 2006. 
 
8 7/8% Senior Subordinated Notes 
 
On July 31, 2002, the Company issued Senior Subordinated Notes in the aggregate principal amount of $250 million, receiving net proceeds of approximately 
 
11 

$248 million before expenses. At July 31, 2004, the outstanding balance of $250.8 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%. The Senior Subordinated Notes do not have required principal payments prior to maturity on August 1, 2012. However, the Senior Subordinated Notes are redeemable at the option of the Company beginning August 1, 2007, at the redemption prices set forth below (expressed as percentages of principal amount), plus accrued interest, if any, to the redemption date: 

Year
	  	Redemption
Price
	 	
2007	  	104.438	%	
2008	  	102.958	%	
2009	  	101.479	%	
2010 and thereafter	  	100.000	%	
 
In addition, prior to August 1, 2007, the Company may redeem the Senior Subordinated Notes by paying a specified “make-whole” premium. 
 
A description of the guarantors of the Senior Subordinated Notes by the Company’s United States subsidiaries is included in Note 16. 
 
Trade Accounts Receivable Credit Facility 
 
On October 31, 2003, the Company entered into a five-year, up to $120 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 the London InterBank Offered Rate (“LIBOR”) plus a margin or other agreed upon rate (1.40% interest rate as of July 31, 2004). 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. 
 
NOTE 9 — FINANCIAL INSTRUMENTS 
 
The Company had interest rate swap agreements with an aggregate notional amount of $345 million at July 31, 2004, with various maturities through 2012. Under certain of these agreements, the Company receives interest quarterly from the counterparties equal to the LIBOR rate and pays interest at a weighted average rate of 5.6% 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% and pays interest based on the LIBOR rate plus a spread. At July 31, 2004, a net liability for the loss on interest rate swap contracts, which represented their fair values at that time, in the amount of $10.1 million ($7.2 million net of tax) was recorded. 
 
12 

At July 31, 2004, the Company had outstanding foreign currency forward contracts in the notional amount of $36.3 million. The fair value of these contracts at July 31, 2004 resulted in a loss of $0.5 million recorded in the consolidated statement of operations. The purpose of these contracts is to hedge short-term intercompany loan balances with foreign businesses. 
 
While the Company may be exposed to credit losses in the event of nonperformance by the counterparties to its derivative financial instrument contracts, its counterparties are established banks and financial institutions with high credit ratings. The Company has no reason to believe that such counterparties will not be able to fully satisfy their obligations under these contracts. 
 
The fair values of all derivative financial instruments are estimated based on current settlement prices of comparable contracts obtained from dealer quotes. The values represent the estimated amounts the Company would pay or receive to terminate the agreements at the reporting date. 
 
NOTE 10 — 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  1/2 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 1/2 cents a share for Class B Common Stock. The Class A Common Stock has no voting rights unless four quarterly cumulative dividends upon the Class A Common Stock are in arrears. The Class B Common Stock has full voting rights. There is no cumulative voting for the election of directors. 
 
The following table summarizes the Company’s Class A and Class B common and treasury shares at the specified dates: 

 	  	Authorized
Shares
	  	Issued
Shares
	  	Outstanding
Shares
	  	Treasury
Shares
	
July 31, 2004:	  	 	  	 	  	 	  	 	
Class A Common Stock	  	32,000,000	  	21,140,960	  	10,946,637	  	10,194,323	
Class B Common Stock	  	17,280,000	  	17,280,000	  	11,661,189	  	5,618,811	
					
October 31, 2003:	  	 	  	 	  	 	  	 	
Class A Common Stock	  	32,000,000	  	21,140,960	  	10,573,346	  	10,567,614	
Class B Common Stock	  	17,280,000	  	17,280,000	  	11,662,003	  	5,617,997	
 
13 

NOTE 11 — DIVIDENDS PER SHARE 
 
The following dividends per share were paid during the periods indicated: 

 	  	Three months
ended July 31,
	  	Nine months
ended July 31,
	
 	  	2004
	  	2003
	  	2004
	  	2003
	
Class A Common Stock	  	$	0.16	  	$	0.14	  	$	0.44	  	$	0.42	
Class B Common Stock	  	$	0.24	  	$	0.21	  	$	0.65	  	$	0.62	
 
NOTE 12 — CALCULATION OF EARNINGS PER SHARE 
 
The Company has two classes of common stock and, as such, applies the “two-class method” of computing earnings per share as prescribed in SFAS No. 128, “Earnings Per Share.” In accordance with the Statement, earnings 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 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 per share: 

 	  	Three months
ended July 31,
	  	Nine months
ended July 31,
	
 	  	2004
	  	2003
	  	2004
	  	2003
	
Class A Common Stock:	  	 	  	 	  	 	  	 	
Basic shares	  	10,874,559	  	10,570,846	  	10,759,271	  	10,568,111	
Assumed conversion of stock options	  	283,481	  	—  	  	241,356	  	—  	
 	  		  		  		  		
Diluted shares	  	11,158,040	  	10,570,846	  	11,000,627	  	10,568,111	
 	  		  		  		  		
Class B Common Stock:	  	 	  	 	  	 	  	 	
Basic and diluted shares	  	11,661,939	  	11,724,403	  	11,661,908	  	11,734,489	

There were 20,000 stock options that were antidilutive for the nine-month period ended July 31, 2004 (1,889,530 for the three-month and nine-month periods, respectively, ended July 31, 2003). No stock options were antidilutive for the three-month period ended July 31, 2004. 
 
14 

NOTE 13 — COMPREHENSIVE INCOME 
 
Comprehensive income 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, net of tax, are as follows (Dollars in thousands): 

 	  	Three months
ended July 31,
	 	 	Nine months
ended July 31,
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
Net income	  	$	14,869	 	 	$	3,584	 	 	$	19,952	 	 	$	4,102	 	
Other comprehensive income (loss):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency translation adjustment	  	 	(1,740	)	 	 	(874	)	 	 	3,025	 	 	 	4,145	 	
Change in market value of interest rate derivatives, net of tax	  	 	1,411	 	 	 	2,907	 	 	 	4,079	 	 	 	2,083	 	
Minimum pension liability adjustment, net of tax	  	 	(415	)	 	 	—  	 	 	 	(912	)	 	 	(1,224	)	
 	  				 				 				 				
Comprehensive income	  	$	14,125	 	 	$	5,617	 	 	$	26,144	 	 	$	9,106	 	

NOTE 14 — 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 July 31,
	 	 	Nine months
ended July 31,
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
Service cost	  	$	3,065	 	 	$	2,783	 	 	$	9,205	 	 	$	8,350	 	
Interest cost	  	 	6,106	 	 	 	5,620	 	 	 	18,327	 	 	 	16,860	 	
Expected return on plan assets	  	 	(7,080	)	 	 	(6,580	)	 	 	(21,218	)	 	 	(19,741	)	
Amortization of prior service cost, initial net asset and net actuarial gain	  	 	744	 	 	 	228	 	 	 	2,242	 	 	 	684	 	
 	  				 				 				 				
 	  	$	2,835	 	 	$	2,051	 	 	$	8,556	 	 	$	6,153	 	

The Company made $6.7 million in pension contributions in the first three quarters of 2004. Based on minimum funding requirements, pension contributions for the entire 2004 fiscal year are estimated at $10.7 million. 
 
The components of net periodic cost for postretirement benefits include the following (Dollars in thousands): 

 	  	Three months
ended July 31,
	 	 	Nine months
ended July 31,
	 	
 	  	  2004  
	 	 	  2003  
	 	 	2004
	 	 	2003
	 	
Service cost	  	$	15	 	 	$	34	 	 	$	44	 	 	$	102	 	
Interest cost	  	 	839	 	 	 	884	 	 	 	2,505	 	 	 	2,651	 	
Amortization of net prior service cost and recognized actuarial loss	  	 	(37	)	 	 	(12	)	 	 	(100	)	 	 	(37	)	
 	  				 				 				 				
 	  	$	817	 	 	$	906	 	 	$	2,449	 	 	$	2,716	 	

15 

On December 8, 2003, the “Medicare Prescription Drug Improvement and Modernization Act of 2003” (the “Act”) was signed into law. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least “actuarially equivalent” to Medicare Part D. 
 
The Company has determined that its plan is actuarially equivalent and has compared the Medicare Part D plan to its retiree prescription drug coverage using actuarial equivalencies and reflecting the retiree premiums and cost sharing provisions of the various plans. This analysis shows the Company’s plans provide more valuable benefits to retirees than the Medicare Part D plan. The adjustment is not expected to have a material impact on the Company’s financial position or results of operations. As permitted in FASB Staff Position FAS 106-1, the Company elected to defer recognition of the expected subsidy from the Medicare Act. In May 2004, the FASB issued Staff Position FAS 106-2, which provides additional guidance and disclosure for the subsidy. Staff Position FAS 106-2 will be effective for the Company in the fourth quarter of 2004. 
 
NOTE 15 — BUSINESS SEGMENT INFORMATION 
 
The Company operates in three business segments: Industrial Packaging & Services; Paper, Packaging & Services; and Timber. 
 
The Company’s reportable segments are strategic business units that offer different products. The accounting policies of the reportable segments are the same as those described in the “Description of Business and Summary of Significant Accounting Policies” note (see Note 1) in the 2003 Form 10-K, except that the Company accounts for inventories on a first-in, first-out basis at the segment level compared to a last-in, first-out basis at the consolidated level for most locations in the United States. 
 
16 

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

 	  	Three months
ended July 31,
	  	Nine months
ended July 31,
	
 	  	2004
	  	2003
	  	2004
	  	2003
	
Net sales:	  	 	 	  	 	 	  	 	 	  	 	 	
Industrial Packaging & Services	  	$	436,087	  	$	370,399	  	$	1,173,167	  	$	1,016,934	
Paper, Packaging & Services	  	 	143,621	  	 	119,497	  	 	406,958	  	 	364,952	
Timber	  	 	5,106	  	 	6,859	  	 	15,738	  	 	20,354	
 	  			  			  			  			
Total net sales	  	$	584,814	  	$	496,755	  	$	1,595,863	  	$	1,402,240	
 	  			  			  			  			
Operating profit:	  	 	 	  	 	 	  	 	 	  	 	 	
Operating profit before restructuring charges and timberland gains:	  	 	 	  	 	 	  	 	 	  	 	 	
Industrial Packaging & Services	  	$	33,972	  	$	27,097	  	$	70,583	  	$	44,554	
Paper, Packaging & Services	  	 	5,789	  	 	3,568	  	 	13,577	  	 	16,280	
Timber	  	 	3,453	  	 	4,647	  	 	10,928	  	 	14,330	
 	  			  			  			  			
Total operating profit before restructuring charges and timberland gains	  	 	43,214	  	 	35,312	  	 	95,088	  	 	75,164	
 	  			  			  			  			
Restructuring charges:	  	 	 	  	 	 	  	 	 	  	 	 	
Industrial Packaging & Services	  	 	10,356	  	 	10,920	  	 	31,919	  	 	25,647	
Paper, Packaging & Services	  	 	1,923	  	 	5,591	  	 	7,757	  	 	9,756	
Timber	  	 	45	  	 	69	  	 	185	  	 	165	
 	  			  			  			  			
Total restructuring charges	  	 	12,324	  	 	16,580	  	 	39,861	  	 	35,568	
 	  			  			  			  			
Timberland gains:	  	 	 	  	 	 	  	 	 	  	 	 	
Timber	  	 	864	  	 	2,514	  	 	6,162	  	 	4,478	
 	  			  			  			  			
Total	  	$	31,754	  	$	21,246	  	$	61,389	  	$	44,074	
 	  			  			  			  			
Depreciation, depletion and amortization expense:	  	 	 	  	 	 	  	 	 	  	 	 	
Industrial Packaging & Services	  	$	14,474	  	$	16,129	  	$	48,552	  	$	47,071	
Paper, Packaging & Services	  	 	8,871	  	 	8,294	  	 	26,182	  	 	25,848	
Timber	  	 	982	  	 	678	  	 	2,400	  	 	1,432	
 	  			  			  			  			
Total depreciation, depletion and amortization expense	  	$	24,327	  	$	25,101	  	$	77,134	  	$	74,351	

							
 	  	July 31,
2004
	  	October 31,
2003
	
Assets:	  	 	 	  	 	 	
Industrial Packaging & Services	  	$	1,177,750	  	$	1,153,939	
Paper, Packaging & Services	  	 	301,119	  	 	341,305	
Timber	  	 	129,285	  	 	123,582	
 	  			  			
Total segment	  	 	1,608,154	  	 	1,618,826	
Corporate and other	  	 	240,210	  	 	212,385	
 	  			  			
Total assets	  	$	1,848,364	  	$	1,831,211	

17 

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

 	  	Three months
ended July 31,
	  	Nine months
ended July 31,
	
 	  	2004
	  	2003
	  	2004
	  	2003
	
Net sales:	  	 	 	  	 	 	  	 	 	  	 	 	
North America	  	$	327,351	  	$	283,602	  	$	900,845	  	$	842,639	
Europe	  	 	179,335	  	 	148,265	  	 	471,282	  	 	384,993	
Other	  	 	78,128	  	 	64,888	  	 	223,736	  	 	174,608	
 	  			  			  			  			
Total net sales	  	$	584,814	  	$	496,755	  	$	1,595,863	  	$	1,402,240	

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

 	  	July 31,
2004
	  	October 31,
2003
	
Assets:	  	 	 	  	 	 	
North America	  	$	1,225,220	  	$	1,253,983	
Europe	  	 	427,281	  	 	389,171	
Other	  	 	195,863	  	 	188,057	
 	  			  			
Total assets	  	$	1,848,364	  	$	1,831,211	

NOTE 16 — 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. 
 
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. 
 
18 

Condensed Consolidating Statement of Operations 
Three months ended July 31, 2004 

 	  	Parent
	 	 	Guarantor
Subsidiaries
	  	Non-Guarantor
Subsidiaries
	 	 	Eliminations
	 	 	Consolidated
	 	
Net sales	  	$	176,705	 	 	$	166,601	  	$	311,481	 	 	$	(69,973	)	 	$	584,814	 	
Cost of products sold	  	 	150,290	 	 	 	143,135	  	 	261,469	 	 	 	(69,973	)	 	 	484,921	 	
 	  				 			  				 				 				
Gross profit	  	 	26,415	 	 	 	23,466	  	 	50,012	 	 	 	—  	 	 	 	99,893	 	
						
Selling, general and administrative expenses	  	 	22,629	 	 	 	6,445	  	 	28,031	 	 	 	—  	 	 	 	57,105	 	
Restructuring charges	  	 	1,121	 	 	 	8,504	  	 	2,699	 	 	 	—  	 	 	 	12,324	 	
Gain on sale of assets	  	 	—  	 	 	 	989	  	 	301	 	 	 	—  	 	 	 	1,290	 	
 	  				 			  				 				 				
Operating profit	  	 	2,665	 	 	 	9,506	  	 	19,583	 	 	 	—  	 	 	 	31,754	 	
						
Interest expense, net	  	 	9,669	 	 	 	120	  	 	1,096	 	 	 	—  	 	 	 	10,885	 	
Other income (expense), net (1)	  	 	(10,617	)	 	 	8,209	  	 	2,700	 	 	 	—  	 	 	 	292	 	
 	  				 			  				 				 				
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests	  	 	(17,621	)	 	 	17,595	  	 	21,187	 	 	 	—  	 	 	 	21,161	 	
						
Income tax expense (benefit)	  	 	(4,230	)	 	 	4,591	  	 	5,639	 	 	 	—  	 	 	 	6,000	 	
Equity in earnings of affiliates and minority interests	  	 	28,260	 	 	 	—  	  	 	(292	)	 	 	(28,260	)	 	 	(292	)	
 	  				 			  				 				 				
Net income (loss)	  	$	14,869	 	 	$	13,004	  	$	15,256	 	 	$	(28,260	)	 	$	14,869	 	

Condensed Consolidating Statement of Operations 
Three months ended July 31, 2003 

 	  	Parent
	 	 	Guarantor
Subsidiaries
	 	 	Non-Guarantor
Subsidiaries
	 	 	Eliminations
	 	 	Consolidated
	 	
Net sales	  	$	175,148	 	 	$	127,725	 	 	$	254,731	 	 	$	(60,849	)	 	$	496,755	 	
Cost of products sold	  	 	148,254	 	 	 	105,746	 	 	 	214,563	 	 	 	(60,849	)	 	 	407,714	 	
 	  				 				 				 				 				
Gross profit	  	 	26,894	 	 	 	21,979	 	 	 	40,168	 	 	 	—  	 	 	 	89,041	 	
						
Selling, general and administrative expenses	  	 	24,965	 	 	 	7,433	 	 	 	22,224	 	 	 	—  	 	 	 	54,622	 	
Restructuring charges	  	 	4,088	 	 	 	5,860	 	 	 	6,632	 	 	 	—  	 	 	 	16,580	 	
Gain on sale of assets	  	 	—  	 	 	 	1,186	 	 	 	2,221	 	 	 	—  	 	 	 	3,407	 	
 	  				 				 				 				 				
Operating profit (loss)	  	 	(2,159	)	 	 	9,872	 	 	 	13,533	 	 	 	—  	 	 	 	21,246	 	
						
Interest expense (income), net	  	 	11,685	 	 	 	(213	)	 	 	1,073	 	 	 	—  	 	 	 	12,545	 	
Other income (expense), net (1)	  	 	(10,745	)	 	 	12,713	 	 	 	(3,784	)	 	 	—  	 	 	 	(1,816	)	
 	  				 				 				 				 				
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests	  	 	(24,589	)	 	 	22,798	 	 	 	8,676	 	 	 	—  	 	 	 	6,885	 	
						
Income tax expense (benefit)	  	 	(7,868	)	 	 	7,295	 	 	 	2,776	 	 	 	—  	 	 	 	2,203	 	
Equity in earnings of affiliates and minority interests	  	 	20,305	 	 	 	(3,040	)	 	 	(155	)	 	 	(18,208	)	 	 	(1,098	)	
 	  				 				 				 				 				
Net income (loss)	  	$	3,584	 	 	$	12,463	 	 	$	5,745	 	 	$	(18,208	)	 	$	3,584	 	

(1)	Parent column other expense amount and a related amount of other income in the Guarantor Subsidiaries column primarily relate to an intercompany royalty arrangement. 	
 
19 

Condensed Consolidating Statement of Operations 
Nine months ended July 31, 2004 

 	  	Parent
	 	 	Guarantor
Subsidiaries
	  	Non-Guarantor
Subsidiaries
	 	 	Eliminations
	 	 	Consolidated
	 	
Net sales	  	$	499,394	 	 	$	450,580	  	$	835,572	 	 	$	(189,683	)	 	$	1,595,863	 	
Cost of products sold	  	 	430,349	 	 	 	388,276	  	 	708,317	 	 	 	(189,683	)	 	 	1,337,259	 	
 	  				 			  				 				 				
Gross profit	  	 	69,045	 	 	 	62,304	  	 	127,255	 	 	 	—  	 	 	 	258,604	 	
						
Selling, general and administrative expenses	  	 	70,590	 	 	 	15,888	  	 	77,397	 	 	 	—  	 	 	 	163,875	 	
Restructuring charges	  	 	6,170	 	 	 	27,495	  	 	6,196	 	 	 	—  	 	 	 	39,861	 	
Gain on sale of assets	  	 	—  	 	 	 	5,890	  	 	631	 	 	 	—  	 	 	 	6,521	 	
 	  				 			  				 				 				
Operating profit (loss)	  	 	(7,715	)	 	 	24,811	  	 	44,293	 	 	 	—  	 	 	 	61,389	 	
						
Interest expense, net	  	 	29,187	 	 	 	1,609	  	 	3,052	 	 	 	—  	 	 	 	33,848	 	
Other income (expense), net (1)	  	 	(29,659	)	 	 	22,823	  	 	8,044	 	 	 	—  	 	 	 	1,208	 	
 	  				 			  				 				 				
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests	  	 	(66,561	)	 	 	46,025	  	 	49,285	 	 	 	—  	 	 	 	28,749	 	
						
Income tax expense (benefit)	  	 	(19,303	)	 	 	13,347	  	 	14,293	 	 	 	—  	 	 	 	8,337	 	
Equity in earnings of affiliates and minority interests	  	 	67,210	 	 	 	—  	  	 	(460	)	 	 	(67,210	)	 	 	(460	)	
 	  				 			  				 				 				
Net income (loss)	  	$	19,952	 	 	$	32,678	  	$	34,532	 	 	$	(67,210	)	 	$	19,952	 	

Condensed Consolidating Statement of Operations 
Nine months ended July 31, 2003 

 	  	Parent
	 	 	Guarantor
Subsidiaries
	 	 	Non-Guarantor
Subsidiaries
	 	 	Eliminations
	 	 	Consolidated
	 	
Net sales	  	$	517,343	 	 	$	381,087	 	 	$	676,912	 	 	$	(173,102	)	 	$	1,402,240	 	
Cost of products sold	  	 	441,534	 	 	 	317,934	 	 	 	568,861	 	 	 	(173,102	)	 	 	1,155,227	 	
 	  				 				 				 				 				
Gross profit	  	 	75,809	 	 	 	63,153	 	 	 	108,051	 	 	 	—  	 	 	 	247,013	 	
						
Selling, general and administrative expenses	  	 	76,192	 	 	 	25,098	 	 	 	71,833	 	 	 	—  	 	 	 	173,123	 	
Restructuring charges	  	 	7,622	 	 	 	15,918	 	 	 	12,028	 	 	 	—  	 	 	 	35,568	 	
Gain on sale of assets	  	 	—  	 	 	 	2,972	 	 	 	2,780	 	 	 	—  	 	 	 	5,752	 	
 	  				 				 				 				 				
Operating profit (loss)	  	 	(8,005	)	 	 	25,109	 	 	 	26,970	 	 	 	—  	 	 	 	44,074	 	
						
Interest expense (income), net	  	 	36,474	 	 	 	(585	)	 	 	4,133	 	 	 	—  	 	 	 	40,022	 	
Other income (expense), net (1)	  	 	(31,056	)	 	 	35,247	 	 	 	(3,645	)	 	 	—  	 	 	 	546	 	
 	  				 				 				 				 				
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests	  	 	(75,535	)	 	 	60,941	 	 	 	19,192	 	 	 	—  	 	 	 	4,598	 	
						
Income tax expense (benefit)	  	 	(24,171	)	 	 	19,501	 	 	 	6,141	 	 	 	—  	 	 	 	1,471	 	
Equity in earnings of affiliates and minority interests	  	 	50,644	 	 	 	(11,013	)	 	 	(356	)	 	 	(43,122	)	 	 	(3,847	)	
 	  				 				 				 				 				
Income (loss) before cumulative effect of change in accounting principle	  	 	(720	)	 	 	30,427	 	 	 	12,695	 	 	 	(43,122	)	 	 	(720	)	
Cumulative effect of change in accounting principle	  	 	4,822	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	4,822	 	
 	  				 				 				 				 				
Net income (loss)	  	$	4,102	 	 	$	30,427	 	 	$	12,695	 	 	$	(43,122	)	 	$	4,102	 	

(1)	Parent column other expense amount and a related amount of other income in the Guarantor Subsidiaries column primarily relate to an intercompany royalty arrangement. 	
 
20 

Condensed Consolidating Balance Sheet 
July 31, 2004 
																	
 	  	Parent
	  	Guarantor
Subsidiaries
	  	Non-Guarantor
Subsidiaries
	  	Eliminations
	 	 	Consolidated
	
ASSETS	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Current assets	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Cash and cash equivalents	  	$	—  	  	$	2,161	  	$	22,852	  	$	—  	 	 	$	25,013	
Trade accounts receivable	  	 	84,563	  	 	67,668	  	 	192,134	  	 	—  	 	 	 	344,365	
Inventories	  	 	15,034	  	 	49,742	  	 	110,993	  	 	—  	 	 	 	175,769	
Other current assets	  	 	29,437	  	 	12,155	  	 	41,713	  	 	—  	 	 	 	83,305	
 	  			  			  			  				 			
 	  	 	129,034	  	 	131,726	  	 	367,692	  	 	—  	 	 	 	628,452	
 	  			  			  			  				 			
Long-term assets	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Goodwill and other intangible assets	  	 	113,364	  	 	39,386	  	 	117,760	  	 	—  	 	 	 	270,510	
Other long-term assets	  	 	927,880	  	 	519,584	  	 	36,844	  	 	(1,412,731	)	 	 	71,577	
 	  			  			  			  				 			
 	  	 	1,041,244	  	 	558,970	  	 	154,604	  	 	(1,412,731	)	 	 	342,087	
 	  			  			  			  				 			
Properties, plants and equipment, net	  	 	227,644	  	 	370,099	  	 	280,082	  	 	—  	 	 	 	877,825	
 	  			  			  			  				 			
 	  	$	1,397,922	  	$	1,060,795	  	$	802,378	  	$	(1,412,731	)	 	$	1,848,364	
 	  			  			  			  				 			
LIABILITIES & SHAREHOLDERS’ EQUITY	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Current liabilities	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Accounts payable	  	$	26,183	  	$	45,701	  	$	126,528	  	$	—  	 	 	$	198,412	
Short-term borrowings	  	 	—  	  	 	—  	  	 	15,602	  	 	—  	 	 	 	15,602	
Current portion long-term debt	  	 	—  	  	 	—  	  	 	—  	  	 	—  	 	 	 	—  	
Other current liabilities	  	 	19,526	  	 	37,896	  	 	76,498	  	 	—  	 	 	 	133,920	
 	  			  			  			  				 			
 	  	 	45,709	  	 	83,597	  	 	218,628	  	 	—  	 	 	 	347,934	
 	  			  			  			  				 			
Long-term liabilities	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Long-term debt	  	 	590,324	  	 	—  	  	 	11,298	  	 	—  	 	 	 	601,622	
Other long-term liabilities	  	 	164,881	  	 	58,220	  	 	76,999	  	 	—  	 	 	 	300,100	
 	  			  			  			  				 			
 	  	 	755,205	  	 	58,220	  	 	88,297	  	 	—  	 	 	 	901,722	
 	  			  			  			  				 			
Minority interest	  	 	—  	  	 	—  	  	 	1,700	  	 	—  	 	 	 	1,700	
 	  			  			  			  				 			
Shareholders’ equity	  	 	597,008	  	 	918,978	  	 	493,753	  	 	(1,412,731	)	 	 	597,008	
 	  			  			  			  				 			
 	  	$	1,397,922	  	$	1,060,795	  	$	802,378	  	$	(1,412,731	)	 	$	1,848,364	

Condensed Consolidating Balance Sheet 
October 31, 2003 
																	
 	  	Parent
	  	Guarantor
Subsidiaries
	  	Non-Guarantor
Subsidiaries
	  	Eliminations
	 	 	Consolidated
	
ASSETS	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Current assets	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Cash and cash equivalents	  	$	—  	  	$	26,421	  	$	23,346	  	$	—  	 	 	$	49,767	
Trade accounts receivable	  	 	84,282	  	 	49,517	  	 	161,158	  	 	—  	 	 	 	294,957	
Inventories	  	 	16,896	  	 	46,696	  	 	103,565	  	 	—  	 	 	 	167,157	
Other current assets	  	 	30,938	  	 	8,348	  	 	32,290	  	 	—  	 	 	 	71,576	
 	  			  			  			  				 			
 	  	 	132,116	  	 	130,982	  	 	320,359	  	 	—  	 	 	 	583,457	
 	  			  			  			  				 			
Long-term assets	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Goodwill and other intangible assets	  	 	113,117	  	 	38,847	  	 	130,999	  	 	—  	 	 	 	282,963	
Other long-term assets	  	 	952,972	  	 	524,372	  	 	10,651	  	 	(1,435,579	)	 	 	52,416	
 	  			  			  			  				 			
 	  	 	1,066,089	  	 	563,219	  	 	141,650	  	 	(1,435,579	)	 	 	335,379	
 	  			  			  			  				 			
Properties, plants and equipment, net	  	 	243,007	  	 	383,205	  	 	286,163	  	 	—  	 	 	 	912,375	
 	  			  			  			  				 			
 	  	$	1,441,212	  	$	1,077,406	  	$	748,172	  	$	(1,435,579	)	 	$	1,831,211	
 	  			  			  			  				 			
LIABILITIES & SHAREHOLDERS’ EQUITY	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Current liabilities	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Accounts payable	  	$	26,776	  	$	39,392	  	$	92,165	  	$	—  	 	 	$	158,333	
Short-term borrowings	  	 	—  	  	 	—  	  	 	15,605	  	 	—  	 	 	 	15,605	
Current portion of long-term debt	  	 	3,000	  	 	—  	  	 	—  	  	 	—  	 	 	 	3,000	
Other current liabilities	  	 	20,353	  	 	22,146	  	 	92,881	  	 	—  	 	 	 	135,380	
 	  			  			  			  				 			
 	  	 	50,129	  	 	61,538	  	 	200,651	  	 	—  	 	 	 	312,318	
 	  			  			  			  				 			
Long-term liabilities	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
Long-term debt	  	 	637,034	  	 	—  	  	 	6,033	  	 	—  	 	 	 	643,067	
Other long-term liabilities	  	 	181,485	  	 	56,645	  	 	63,246	  	 	—  	 	 	 	301,376	
 	  			  			  			  				 			
 	  	 	818,519	  	 	56,645	  	 	69,279	  	 	—  	 	 	 	944,443	
 	  			  			  			  				 			
Minority interest	  	 	—  	  	 	—  	  	 	1,886	  	 	—  	 	 	 	1,886	
 	  			  			  			  				 			
Shareholders’ equity	  	 	572,564	  	 	959,223	  	 	476,356	  	 	(1,435,579	)	 	 	572,564	
 	  			  			  			  				 			
 	  	$	1,441,212	  	$	1,077,406	  	$	748,172	  	$	(1,435,579	)	 	$	1,831,211	

21 

Condensed Consolidating Statement of Cash Flows 
For the nine months ended July 31, 2004 

 	  	Parent
	 	 	Guarantor
Subsidiaries
	 	 	Non-Guarantor
Subsidiaries
	 	 	Eliminations
	  	Consolidated
	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net cash provided by (used in) operating activities	  	$	62,631	 	 	$	(17,484	)	 	$	13,719	 	 	$	 —  	  	$	58,866	 	
 	  				 				 				 			  				
Cash flows from investing activities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Capital expenditures	  	 	(17,071	)	 	 	(8,377	)	 	 	(12,400	)	 	 	—  	  	 	(37,848	)	
Acquisition of timber properties	  	 	—  	 	 	 	(8,723	)	 	 	—  	 	 	 	—  	  	 	(8,723	)	
Acquisition of businesses, net of cash acquired	  	 	—  	 	 	 	—  	 	 	 	(835	)	 	 	—  	  	 	(835	)	
Proceeds on disposals of properties, plants and equipment	  	 	—  	 	 	 	10,324	 	 	 	—  	 	 	 	—  	  	 	10,324	 	
 	  				 				 				 			  				
Net cash used in investing activities	  	 	(17,071	)	 	 	(6,776	)	 	 	(13,235	)	 	 	—  	  	 	(37,082	)	
 	  				 				 				 			  				
Cash flows from financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Payments on long-term debt	  	 	(43,773	)	 	 	—  	 	 	 	(279	)	 	 	—  	  	 	(44,052	)	
Payments on short-term borrowings	  	 	—  	 	 	 	—  	 	 	 	(887	)	 	 	—  	  	 	(887	)	
Dividends paid	  	 	(12,310	)	 	 	—  	 	 	 	—  	 	 	 	—  	  	 	(12,310	)	
Acquisition of treasury stock	  	 	(29	)	 	 	—  	 	 	 	—  	 	 	 	—  	  	 	(29	)	
Exercise of stock options	  	 	10,552	 	 	 	—  	 	 	 	—  	 	 	 	—  	  	 	10,552	 	
 	  				 				 				 			  				
Net cash used in financing activities	  	 	(45,560	)	 	 	—  	 	 	 	(1,166	)	 	 	—  	  	 	(46,726	)	
 	  				 				 				 			  				
Effects of exchange rates on cash	  	 	—  	 	 	 	—  	 	 	 	188	 	 	 	—  	  	 	188	 	
 	  				 				 				 			  				
Net decrease in cash and cash equivalents	  	 	—  	 	 	 	(24,260	)	 	 	(494	)	 	 	—  	  	 	(24,754	)	
Cash and cash equivalents at beginning of period	  	 	—  	 	 	 	26,421	 	 	 	23,346	 	 	 	—  	  	 	49,767	 	
 	  				 				 				 			  				
Cash and cash equivalents at end of period	  	$	—  	 	 	$	2,161	 	 	$	22,852	 	 	$	 —  	  	$	25,013	 	

Condensed Consolidating Statement of Cash Flows 
For the nine months ended July 31, 2003 

 	  	Parent
	 	 	Guarantor
Subsidiaries
	 	 	Non-Guarantor
Subsidiaries
	 	 	Eliminations
	  	Consolidated
	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net cash provided by operating activities	  	$	45,789	 	 	$	11,916	 	 	$	289	 	 	$	 —  	  	$	57,994	 	
 	  				 				 				 			  				
Cash flows from investing activities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Capital expenditures	  	 	(11,234	)	 	 	(12,157	)	 	 	(12,505	)	 	 	—  	  	 	(35,896	)	
Acquisition of timber properties	  	 	—  	 	 	 	(4,100	)	 	 	—  	 	 	 	—  	  	 	(4,100	)	
Acquisition of businesses, net of cash acquired	  	 	—  	 	 	 	—  	 	 	 	(5,166	)	 	 	—  	  	 	(5,166	)	
Proceeds on disposals of properties, plants and equipment	  	 	2,109	 	 	 	4,516	 	 	 	—  	 	 	 	—  	  	 	6,625	 	
 	  				 				 				 			  				
Net cash used in investing activities	  	 	(9,125	)	 	 	(11,741	)	 	 	(17,671	)	 	 	—  	  	 	(38,537	)	
 	  				 				 				 			  				
Cash flows from financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Proceeds from long-term debt	  	 	—  	 	 	 	—  	 	 	 	20,366	 	 	 	—  	  	 	20,366	 	
Payments on long-term debt	  	 	(25,244	)	 	 	—  	 	 	 	—  	 	 	 	—  	  	 	(25,244	)	
Payments on short-term borrowings	  	 	—  	 	 	 	—  	 	 	 	(805	)	 	 	—  	  	 	(805	)	
Dividends paid	  	 	(11,715	)	 	 	—  	 	 	 	—  	 	 	 	—  	  	 	(11,715	)	
Acquisition of treasury stock	  	 	(1,031	)	 	 	—  	 	 	 	—  	 	 	 	—  	  	 	(1,031	)	
 	  				 				 				 			  				
Net cash (used in) provided by financing activities	  	 	(37,990	)	 	 	—  	 	 	 	19,561	 	 	 	—  	  	 	(18,429	)	
 	  				 				 				 			  				
Effects of exchange rates on cash	  	 	—  	 	 	 	—  	 	 	 	(4,939	)	 	 	—  	  	 	(4,939	)	
 	  				 				 				 			  				
Net (decrease) increase in cash and cash equivalents	  	 	(1,326	)	 	 	175	 	 	 	(2,760	)	 	 	—  	  	 	(3,911	)	
Cash and cash equivalents at beginning of period	  	 	1,326	 	 	 	2,218	 	 	 	21,852	 	 	 	—  	  	 	25,396	 	
 	  				 				 				 			  				
Cash and cash equivalents at end of period	  	$	—  	 	 	$	2,393	 	 	$	19,092	 	 	$	 —  	  	$	21,485	 	

22 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 
GENERAL 
 
The terms “Greif,” “our company,” “we,” “us” and “our” as used in this discussion refer to Greif, Inc. and its subsidiaries. Our fiscal year begins on November 1 and ends on October 31 of the following year. Any references in this Form 10-Q to the years 2004 or 2003, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ending in that year. 
 
OVERVIEW 
 
We operate in three business segments: Industrial Packaging & Services; Paper, Packaging & Services; and Timber. 
 
We are a leading global provider of industrial packaging products such as steel, fibre and plastic drums, intermediate bulk containers, closure systems for industrial shipping containers 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. Our corrugated container products are used to ship such diverse products as home appliances, small machinery, grocery products, building products, automotive components, books and furniture, as well as numerous other applications. Our full line of industrial and consumer multiwall bag products is used to ship a wide range of industrial and consumer products, such as fertilizers, chemicals, concrete, flour, sugar, feed, seed, pet foods, popcorn, charcoal and salt. Our products are primarily sold to the agricultural, automotive, chemical, building products, food and packaging industries. 
 
As of July 31, 2004, we owned approximately 278,000 acres of timberland in the southeastern United States and approximately 40,000 acres of timberland in Canada. Our timber management in the United States is focused on the active harvesting and regeneration of our timber properties to achieve sustainable long-term yields on our timberland. While timber sales are subject to fluctuations, we seek to maintain a consistent cutting schedule, within the limits of market and weather conditions. Our Canadian timberland is not actively managed at this time. 
 
CRITICAL ACCOUNTING POLICIES 
 
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements in accordance with GAAP requires 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. 
 
23 

A summary of our significant accounting policies is included in Note 1 to the Notes to Consolidated Financial Statements in our 2003 Form 10-K. We believe that the consistent application of these policies enables us to provide readers of the consolidated financial statements with useful and reliable information about our operating results and financial condition. The following are the accounting policies that we believe are most important to the portrayal of our financial condition and results of operations and 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 length of time receivables are past due with allowance percentages, based on our historical experiences, applied on a graduated scale relative to the age of the receivable amounts. If circumstances change (i.e., higher than expected bad debt experience or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to us), our estimates of the recoverability of amounts due to us could be reduced 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 meet the classification requirements of net assets held for sale as defined in Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” We record net assets held for sale in accordance with SFAS No. 144 at the lower of carrying value or fair value less cost to sell. Fair value is based on the estimated proceeds from the sale of the facility utilizing recent buy offers, market comparables and/or data obtained from our commercial real estate broker. Our estimate as to fair value is regularly reviewed and subject to changes in the commercial real estate markets and our continuing evaluation as to the facility’s acceptable sale price. 	
 
 	•	Properties, Plants and Equipment — Depreciation on properties, plants and equipment is provided on the straight-line method over the estimated useful lives of our assets. 	
 
We own timber properties in the southeastern United States and in Canada. With respect to our United States timber properties, which are being actively managed, 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 
 
24 

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. 
 
We believe that the lives and methods of determining depreciation and depletion are reasonable; however, using other lives and methods could provide materially different results. 
 
 	•	Restructuring Charges — Restructuring charges are determined in accordance with appropriate accounting guidance, including SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” and Staff Accounting Bulletin No. 100, “Restructuring and Impairment Charges,” depending upon the facts and circumstances surrounding the situation. Restructuring charges recorded in connection with existing and acquired companies are further discussed in Note 7 to the Notes to Consolidated Financial Statements included in this Form 10-Q. 	
 
 	•	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 included in Note 14 to the Notes to Consolidated Financial Statements in this Form 10-Q and Notes 12 and 13 to the Notes to Consolidated Financial Statements included in our 2003 Form 10-K. The actual results would be different using other assumptions. 	
 
 	•	Income Taxes — Our effective tax rate, taxes payable and the tax bases of our assets and liabilities reflect current tax rates in our domestic and foreign tax jurisdictions and our best estimate of the ultimate outcome of ongoing and potential future tax audits. Valuation allowances are established where expected future taxable income does not support the realization of the deferred tax assets. 	
 
 	•	Environmental Cleanup Costs — 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. 	

25 

Our reserves for environmental liabilities at July 31, 2004 amounted to $9.0 million, which included a reserve of $4.9 million related to our facility in Lier, Belgium and $4.1 million for asserted and unasserted environmental litigation, claims and/or assessments at several manufacturing sites or other locations where we believe the outcome of such matters will be unfavorable to us. The environmental exposures for those sites included in the $4.1 million reserve were not individually significant. The reserve for the Lier, Belgium site is based on environmental studies that have been conducted at this location. The Lier, Belgium site is being monitored by the Public Flemish Waste Company (“PFWC”), which is the Belgian body for waste control. The PFWC must approve all remediation efforts that are undertaken by us at this site. 
 
We anticipate that expenditures in future periods for remediation costs at identified sites will be over an extended period of time. Given the inherent uncertainties in evaluating environmental exposures, actual costs may vary from those estimated at July 31, 2004. Our exposure to adverse developments with respect to any individual site is not expected to be material. Although environmental remediation could have a material effect on results of operations if a series of adverse developments occur in a particular quarter or fiscal year, we believe that the chance of such developments occurring in the same quarter or fiscal year is remote. Future information and developments will require us to continually reassess the expected impact of these environmental matters. 
 
 	•	Contingencies — Various lawsuits, claims and proceedings have been or may be instituted or asserted against us, including those pertaining to environmental, product liability, 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 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 that could have a significant impact on the consolidated financial statements include the risks and uncertainties listed in this Form 10-Q under the “Forward-Looking Statements; Certain Factors Affecting Future Results” below. Actual results could differ materially using different estimates and assumptions or if conditions are significantly different in the future. 
 
26 

RESULTS OF OPERATIONS 
 
The following comparative information is presented for the three-month and nine-month periods ended July 31, 2004 and 2003. Historically, revenues or earnings may or may not be representative of future operating results due to various economic and other factors. 
 
The non-GAAP financial measure of operating profit before restructuring charges and timberland gains is used throughout the following discussion of our results of operations (except with respect to the segment discussions for Industrial Packaging & Services and Paper, Packaging & Services, where timberland gains are not applicable). Operating profit before restructuring charges and timberland gains is equal to the GAAP operating profit plus restructuring charges less timberland gains. We use operating profit before restructuring charges and timberland gains because we believe that this measure provides a better indication of our operational performance than the corresponding GAAP measure because it excludes restructuring charges, which are not representative of ongoing operations, and timberland gains, which are volatile from period to period, and it provides a more stable platform on which to compare our historical performance. 
 
Third Quarter Results 
 
Overview 
 
Net sales rose 18 percent to $584.8 million for the third quarter of 2004 from $496.8 million for the same quarter last year. Net sales increased approximately 14 percent excluding the impact of foreign currency translation. Higher selling prices and volumes in the Industrial Packaging & Services segment and higher volumes in the Paper, Packaging & Services segment contributed to this increase. 
 
GAAP operating profit was $31.8 million for the third quarter of 2004 compared with GAAP operating profit of $21.2 million for the same period last year. 
 
Operating profit before restructuring charges and timberland gains increased 22 percent to $43.2 million for the third quarter of 2004 compared with $35.3 million for the same period last year. There were $12.3 million and $16.6 million of restructuring charges and $0.9 million and $2.5 million of timberland gains during the third quarter of 2004 and 2003, respectively. 
 
27 

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

For the three months ended July 31,	  	2004
	  	2003

Net sales:	  	 	 	  	 	 	
Industrial Packaging & Services	  	$	436,087	  	$	370,399	
Paper, Packaging & Services	  	 	143,621	  	 	119,497	
Timber	  	 	5,106	  	 	6,859	
 	  			  			
Total net sales	  	$	584,814	  	$	496,755	
 	  			  			
Operating profit:	  	 	 	  	 	 	
Operating profit, before restructuring charges
and timberland gains:	  	 	 	  	 	 	
Industrial Packaging & Services	  	$	33,972	  	$	27,097	
Paper, Packaging & Services	  	 	5,789	  	 	3,568	
Timber	  	 	3,453	  	 	4,647	
 	  			  			
Total operating profit before restructuring
charges and timberland gains	  	 	43,214	  	 	35,312	
 	  			  			
Restructuring charges:	  	 	 	  	 	 	
Industrial Packaging & Services	  	 	10,356	  	 	10,920	
Paper, Packaging & Services	  	 	1,923	  	 	5,591	
Timber	  	 	45	  	 	69	
 	  			  			
Total restructuring charges	  	 	12,324	  	 	16,580	
 	  			  			
Timberland gains:	  	 	 	  	 	 	
Timber	  	 	864	  	 	2,514	
 	  			  			
Total operating profit	  	$	31,754	  	$	21,246	

Segment Review 
 
Industrial Packaging & Services 
 
Net sales rose 18 percent to $436.1 million for the third quarter of 2004 from $370.4 million for the same period last year. Net sales increased 13 percent excluding the impact of foreign currency translation. Selling prices rose primarily in response to higher raw material costs, especially steel, and contributed to the increase in net sales for the third quarter of 2004. Additionally, sales volumes were generally higher for steel and plastic drums for the quarter. 
 
GAAP operating profit was $23.6 million for the third quarter of 2004 compared with $16.2 million for the third quarter of 2003. 
 
Operating profit before restructuring charges rose to $34.0 million for the third quarter of 2004 from $27.1 million for the same period a year ago. Restructuring charges were $10.4 million for the third quarter of 2004 compared with $10.9 million a year ago. The Industrial Packaging & Services segment’s gross profit margin benefited from labor and other manufacturing efficiencies resulting from transformation initiatives, partially offset by higher raw material costs. SG&A expenses also reflect a portion of the savings from this segment’s transformation initiatives. 
 
28 

Paper, Packaging & Services 
 
Net sales rose 20 percent to $143.6 million for the third quarter of 2004 from $119.5 million for the same period last year due to generally improved volumes for this segment’s products. 
 
GAAP operating profit was $3.9 million for the third quarter of 2004 compared with GAAP operating loss of $2.0 million for the third quarter of 2003. 
 
Operating profit before restructuring charges was $5.8 million for the third quarter of 2004 compared with $3.6 million the prior year. Restructuring charges were $1.9 million for the third quarter of 2004 versus $5.6 million a year ago. The increase in operating profit before restructuring charges was primarily due to improved sales volumes, partially offset by a decline in gross profit margin resulting from higher raw material costs, particularly old corrugated containers (“OCC”), and higher energy costs in the containerboard operations. Lower SG&A expenses in the third quarter of 2004 compared with the same quarter last year also contributed to this improvement. 
 
Timber 
 
Timber net sales were $5.1 million for the third quarter of 2004 compared with $6.9 million for the same period last year. These net sales were consistent with planned levels for both periods. 
 
GAAP operating profit was $4.3 million for the third quarter of 2004 compared with $7.1 million for the third quarter of 2003. 
 
As a result of the lower planned sales volume, operating profit before restructuring charges and timberland gains was $3.5 million for the third quarter of 2004 compared to $4.6 million a year ago. Restructuring charges were $0.1 million for the third quarter of 2003. Timberland gains were $0.9 million for the third quarter of 2004 and $2.5 million for the same period last year. 
 
Cost of Products Sold 
 
The cost of products sold, as a percentage of net sales, increased to 82.9 percent for the third quarter of 2004 from 82.1 percent for the third quarter of 2003. The principal factors impacting the 80 basis point increase were higher raw material costs, particularly steel and OCC, lower planned timber sales, which have a relatively lower cost as a percentage of net sales than our other products, and higher energy costs. These factors were partially offset by improved efficiencies in labor and other manufacturing costs, which benefited from the ongoing transformation initiatives and higher prices on certain industrial packaging products. 
 
Selling, General and Administrative Expenses 
 
Selling, general and administrative (“SG&A”) expenses were $57.1 million, or 9.8 percent of net sales, for the third quarter of 2004 compared to $54.6 million, or 11.0 percent of net sales, for the same period a year ago. The increase in SG&A expenses was primarily attributable to higher employee benefit costs and the approximate $1.5 million impact of foreign currency, partially offset by additional savings realized from our ongoing transformation initiatives. 
 
29 

Restructuring Charges 
 
As a result of our transformation initiatives, during the third quarter of 2004, we recognized restructuring charges of $12.3 million, consisting of $3.4 million in employee separation costs, $0.3 million in asset impairments and $8.6 million in other costs, which were primarily for consulting services in connection with the transformation initiatives. 
 
For further information, see the “Year-to-Date Results—Segment Review - Restructuring Charges” and “Transformation Initiatives” sections below. 
 
Gain on Sale of Assets 
 
Gain on sale of assets decreased to $1.3 million in the third quarter of 2004 as compared to $3.4 million in the third quarter of 2003 primarily due to lower gains on the sale of timber properties of $1.6 million. 
 
Interest Expense, Net 
 
Interest expense, net declined to $10.9 million for the third quarter of 2004 from $12.5 million for the same period last year. This 13 percent decrease was primarily due to a $25 million, or 4 percent, reduction in average debt outstanding and lower average interest rates during the third quarter of 2004 compared to the third quarter of 2003. 
 
Other Income (Expense), Net 
 
Other income, net was $0.3 million in the third quarter of 2004 versus other expense, net of $1.8 million in the third quarter of 2003. The increase was primarily due to certain foreign exchange losses incurred in the third quarter of last year. 
 
Income Tax Expense 
 
The effective tax rate was 28.4 percent and 32.0 percent in the third quarter of 2004 and 2003, respectively, resulting in an income tax expense of $6.0 million for the third quarter of 2004 and $2.2 million for the third quarter of 2003. The lower effective tax rate was primarily due to a change in the mix of income outside the United States. 
 
Equity in Earnings of Affiliates and Minority Interests 
 
Equity in earnings of affiliates and minority interests was a charge of $0.3 million for the third quarter of 2004 as compared to a charge of $1.1 million in the same period in 2003. Prior to September 30, 2003, we had a 63 percent investment in CorrChoice, Inc. (“CorrChoice”). As such, a 37 percent, or $0.9 million, deduction of CorrChoice’s net income related to its minority shareholders was recorded in the third quarter of 2003. In the fourth quarter of 2003, our ownership increased to 100 percent due to CorrChoice’s redemption of its minority shareholders’ outstanding shares. Therefore, no such deduction was made in fiscal 2004. 
 
30 

Net Income 
 
Based on the foregoing, we recorded net income of $14.9 million for the third quarter of 2004 compared to $3.6 million in the same period last year. As noted above, the results for both of these periods were significantly impacted by restructuring charges. 
 
Year-to-Date Results 
 
Overview 
 
Net sales rose 14 percent to $1.6 billion for the first nine months of 2004 from $1.4 billion during the same period last year. Net sales increased approximately 9 percent excluding the impact of foreign currency translation. Higher selling prices and volumes in the Industrial Packaging & Services segment and higher volumes in the Paper, Packaging & Services segment contributed to this increase. 
 
GAAP operating profit was $61.4 million for the first nine months of 2004 compared with GAAP operating profit of $44.1 million for the same period last year. 
 
Operating profit before restructuring charges and timberland gains increased 26 percent to $95.1 million for the first nine months of 2004 compared with $75.2 million for the same period last year. There were $39.9 million and $35.6 million of restructuring charges and $6.2 million and $4.5 million of timberland gains during the nine month periods ended July 31, 2004 and 2003, respectively. 
 
31 

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

For the nine months ended July 31,	  	2004
	  	2003

Net sales:	  	 	 	  	 	 	
Industrial Packaging & Services	  	$	1,173,167	  	$	1,016,934	
Paper, Packaging & Services	  	 	406,958	  	 	364,952	
Timber	  	 	15,738	  	 	20,354	
 	  			  			
Total net sales	  	$	1,595,863	  	$	1,402,240	
 	  			  			
Operating profit:	  	 	 	  	 	 	
Operating profit, before restructuring charges
and timberland gains:	  	 	 	  	 	 	
Industrial Packaging & Services	  	$	70,583	  	$	44,554	
Paper, Packaging & Services	  	 	13,577	  	 	16,280	
Timber	  	 	10,928	  	 	14,330	
 	  			  			
Total operating profit before restructuring
charges and timberland gains	  	 	95,088	  	 	75,164	
 	  			  			
Restructuring charges:	  	 	 	  	 	 	
Industrial Packaging & Services	  	 	31,919	  	 	25,647	
Paper, Packaging & Services	  	 	7,757	  	 	9,756	
Timber	  	 	185	  	 	165	
 	  			  			
Total restructuring charges	  	 	39,861	  	 	35,568	
 	  			  			
Timberland gains:	  	 	 	  	 	 	
Timber	  	 	6,162	  	 	4,478	
 	  			  			
Total operating profit	  	$	61,389	  	$	44,074	

Segment Review 
 
Industrial Packaging & Services 
 
Net sales rose 15 percent to $1.2 billion for the nine months ended July 31, 2004 from $1.0 billion for the same period last year. Net sales increased 8 percent excluding the impact of foreign currency translation. Selling prices rose in response to higher raw material costs, especially steel, and contributed to the increase in net sales. Additionally, sales volumes were generally higher for steel and plastic drums. 
 
GAAP operating profit was $38.7 million for the first nine months of 2004 compared with $18.9 million for the first nine months of 2003. This segment’s results have been significantly impacted by a high level of restructuring charges for the periods presented. 
 
Operating profit before restructuring charges rose to $70.6 million for the first nine months of 2004 from $44.6 million for the same period a year ago. Restructuring charges were $31.9 million for the first nine months of 2004 compared with $25.6 million a year ago. The Industrial Packaging & Services segment’s gross profit margin benefited from labor and other manufacturing efficiencies resulting from transformation initiatives, partially offset by higher raw material costs. SG&A expenses also reflect a portion of the savings from this segment’s transformation initiatives. 
 
Paper, Packaging & Services 
 
Net sales rose 12 percent to $407.0 million for the nine months ended July 31, 2004 from $365.0 million for the same period last year. Improved volumes for most of this segment’s products were partially offset by lower average selling prices in the containerboard operations. 
 
32 

GAAP operating profit was $5.8 million for the first nine months of 2004 compared with $6.5 million for the same period last year. 
 
Operating profit before restructuring charges was $10.9 million for the first nine months of 2004 compared with $16.8 million for the first nine months of the prior year. Restructuring charges were $7.8 million for the first nine months of 2004 versus $9.8 million a year ago. This decrease was primarily due to a decline in gross profit margin resulting from reduced pricing levels and higher raw material costs, particularly for OCC, and energy costs in the containerboard operations. Lower SG&A expenses for the first nine months of 2004 compared with the same period last year partially offset this reduction. 
 
Timber 
 
Timber net sales were $15.7 million for the nine months ended July 31, 2004 compared with $20.4 million for the same period last year. These net sales were consistent with planned levels for both periods. 
 
GAAP operating profit was $16.9 million for the first nine months of 2004 compared with $18.6 million for the first nine months of 2003. 
 
As a result of the lower planned sales volume, operating profit before restructuring charges and timberland gains was $10.9 million for the first nine months of 2004 compared to $14.3 million a year ago. Restructuring charges were $0.2 million for the first nine months of both 2004 and 2003. Timberland gains were $6.2 million for the first nine months of 2004 and $4.5 million for the first nine months of 2003. 
 
Cost of Products Sold 
 
The cost of products sold, as a percentage of net sales, increased to 83.8 percent for the first nine months of 2004 from 82.4 percent for the first nine months of 2003. The principal factors impacting the 140 basis point increase were higher raw material costs, particularly steel and OCC, lower planned timber sales, which have a relatively lower cost as a percentage of net sales than our other products, and higher energy costs. Improved efficiencies in labor and other manufacturing costs, which benefited from our ongoing transformation initiatives, partially offset these factors. 
 
Selling, General and Administrative Expenses 
 
SG&A expenses were $163.9 million, or 10.3 percent of net sales, for the first nine months of 2004 compared to $173.1 million, or 12.4 percent of net sales, for the same period a year ago. The decline in SG&A expenses was primarily attributable to realization of additional savings from our transformation initiatives. The dollar reduction in SG&A expenses was partially offset by the impact of foreign currency translation (approximately $7 million). 
 
33 

Restructuring Charges 
 
As part of our transformation initiatives, we closed four company-owned plants (three in the Industrial Packaging & Services segment and one in the Paper, Packaging & Services segment) during the nine months ended July 31, 2004. All of the plants were located in North America. In addition, administrative staff reductions have continued throughout the world. As a result of our transformation initiatives, during the nine months ended July 31, 2004, we recognized restructuring charges of $39.9 million, consisting of $12.5 million in employee separation costs, $2.6 million in asset impairments and $24.8 million in other costs, which were primarily for consulting services in connection with the transformation initiatives. The asset impairment charges, which relate to the write-down to far value of buildings and equipment, were based on recent buy offers, market comparables and/or data obtained from our commercial real estate broker. A total of approximately 1200 employees have been terminated in connection with the transformation initiatives, 600 of which were terminated during the nine months ended July 31, 2004. 
 
For further information, see the “Transformation Initiatives” section below. 
 
Gain on Sale of Assets 
 
Gain on sale of assets increased to $6.5 million for the first nine months of 2004 as compared to $5.8 million for the first nine months of 2003 primarily due to higher gains on the sale of timber properties of $1.7 million. 
 
Interest Expense, Net 
 
Interest expense, net declined to $33.8 million for the first nine months of 2004 from $40.0 million for the same period last year. This 16 percent decrease was primarily due to a $15 million, or 2 percent, reduction in average debt outstanding and lower average interest rates during the first nine months of 2004 compared to the first nine months of 2003. 
 
Other Income, Net 
 
Other income, net was $1.2 million for the first nine months of 2004 versus $0.5 million for the first nine months of 2003. The increase was primarily due to certain foreign exchange losses recorded in the 2003 results. 
 
Income Tax Expense 
 
The effective tax rate was 29.0 percent and 32.0 percent for the first nine months of 2004 and 2003, respectively, resulting in an income tax expense of $8.3 million for the first nine months of 2004 and $1.5 million for the first nine months of 2003. The lower effective tax rate was primarily due to a change in the mix of income outside the United States. 
 
Equity in Earnings of Affiliates and Minority Interests 
 
Equity in earnings of affiliates and minority interests was a charge of $0.5 million for the first nine months of 2004 as compared to a charge of $3.8 million in the same period in 2003. Prior to September 30, 2003, we had a 63 percent investment in CorrChoice. As such, we had a 37 percent, or $3.5 million, deduction of CorrChoice’s net income related to its minority shareholders in the first nine months of 2003. In the fourth quarter of 2003, our ownership increased to 100 percent resulting from CorrChoice’s redemption of its minority shareholders’ outstanding shares. Therefore, no such deduction was made for the first nine months of 2004. 
 
34 

Cumulative Effect of Change in Accounting Principle 
 
During the first quarter of 2003, we recorded a $4.8 million gain as a cumulative effect of change in accounting principle resulting from the adjustment of our unamortized negative goodwill in accordance with the transition provisions of SFAS No. 141, “Business Combinations,” upon the adoption of SFAS No. 142. 
 
Net Income 
 
Based on the foregoing, we recorded net income of $20.0 million for the first nine months of 2004 compared to $4.1 million in the same period last year. As noted above, the results for both of these periods were significantly impacted by restructuring charges. 
 
Transformation Initiatives 
 
Our transformation initiatives continue to enhance long-term organic sales growth and productivity, and achieve permanent cost reductions. The focus during 2003 was primarily on SG&A optimization, which is expected to result in annual cost savings of $60 million realized in 2004. 
 
In 2004, the focus has been on becoming an even leaner, more market-focused / performance-driven company. This final phase of the transformation is expected to deliver additional annualized benefits of approximately $50 million, with about $15 million of those savings to be realized in fiscal 2004 and the remainder in fiscal 2005. The opportunities include, but are not limited to, improved labor productivity, material yield and other manufacturing efficiencies, coupled with further footprint consolidation. The related one-time costs for this final phase will be approximately $50 million to $55 million in 2004, which is $5 million higher than previously disclosed due to additional opportunities identified this year. Approximately $10 million to $15 million of this amount will be incurred in the fourth quarter of 2004. In addition, we have launched a strategic sourcing initiative to more effectively leverage our global spending and lay the foundation for a world-class sourcing and supply chain capability. 
 
LIQUIDITY AND CAPITAL RESOURCES 
 
Our primary sources of liquidity are operating cash flows, the proceeds from our Senior Subordinated Notes and trade accounts receivable credit facility, and borrowings under our Amended and Restated Senior Secured Credit Agreement, discussed below. We have used these sources to fund our working capital needs, capital expenditures, cash dividends, common stock repurchases and acquisitions. We anticipate continuing to fund these items in a like manner. We currently expect that operating cash flows, the proceeds from our Senior Subordinated Notes and trade accounts receivable credit facility, and borrowings under our Amended and Restated Senior Secured Credit Agreement will be sufficient to fund our working capital, capital expenditures, debt repayment and other liquidity needs for the foreseeable future. 
 
35 

Capital Expenditures 
 
During the first three quarters of 2004, we invested $46.6 million in capital expenditures, which are not expected to exceed $65 million in 2004. The capital expenditures expectation represents a $10 to $15 million reduction from the balance originally anticipated, which is primarily due to the timing of certain purchases and capital projects. In addition to our capital expenditures, we acquired timber properties for use in our Timber segment operations. 
 
Balance Sheet Changes 
 
The increase in accounts receivable was primarily due to higher sales in the third quarter of 2004 as compared with the fourth quarter of 2003. In addition, the timing of receipts from customers has been extended in certain circumstances due to seasonality considerations. 
 
Net assets held for sale has increased due to our transformation initiatives. We now have 13 properties classified as held for sale versus eight properties at October 31, 2003. 
 
Goodwill has decreased, and other long-term assets has increased, primarily as a result of an adjustment to recognize the cash surrender value of reinsurance contracts that are used to fund pension payments in Europe. The adjustment, which relates to the Van Leer Industrial Packaging acquisition, was recorded in the second quarter of 2004. 
 
Accounts payable increased due to higher raw material costs and the timing of payments made to our suppliers. 
 
Long-term debt has decreased due to payments made during the first three quarters of 2004. We expect to continue repaying debt throughout the fourth quarter of 2004 from cash generated by our operating activities. 
 
Borrowing Arrangements 
 
$550 million Amended and Restated Senior Secured Credit Agreement 
 
On August 23, 2002, we and certain of our non-United States subsidiaries entered into a $550 million Amended and Restated Senior Secured Credit Agreement with a syndicate of lenders. The Amended and Restated Senior Secured Credit Agreement originally provided for a $300 million term loan and a $250 million revolving multicurrency credit facility. The revolving multicurrency credit facility is available for working capital and general corporate purposes, and has been permanently reduced to $240 million. On February 11, 2004, we amended our term loan under the Amended and Restated Senior Secured Credit Agreement. As a result of the amendment, the term loan was increased from its balance then outstanding of $226 million to $250 
 
36 

million, and the applicable margin was lowered by 50 basis points while maintaining the existing maturity schedule. The incremental borrowings under the term loan were used to reduce borrowings under the revolving multicurrency credit facility. Interest is based on either a London InterBank Offered Rate (“LIBOR”) or an alternative base rate that resets periodically plus a calculated margin amount. As of July 31, 2004, there was a total of $261.3 million outstanding under the Amended and Restated Senior Secured Credit Agreement. 
 
The Amended and Restated Senior Secured Credit Agreement contains certain covenants, which include financial covenants that require us to maintain a certain leverage ratio, a minimum coverage of interest expense and fixed charges, and a minimum net worth. At July 31, 2004, we were in compliance with these covenants. The terms of the Amended and Restated Senior Secured Credit Agreement also limit our ability to make “restricted payments,” which include dividends and purchases, redemptions and acquisitions of equity interests. The repayment of this facility is secured by a first lien on substantially all of the personal property and certain of the real property of Greif and its United States subsidiaries and, in part, by the capital stock of the non-United States borrowers and any intercompany notes payable to them. 
 
8 7/8 % Senior Subordinated Notes 
 
On July 31, 2002, we issued Senior Subordinated Notes in the aggregate principal amount of $250 million, receiving net proceeds of approximately $248 million before expenses. Interest on the Senior Subordinated Notes is payable semi-annually at the annual rate of 8.875%. The Senior Subordinated Notes do not have required principal payments prior to maturity on August 1, 2012. As of July 31, 2004, there was a total of $250.8 million outstanding under the Senior Subordinated Notes. The increase in the balance as compared to the proceeds originally received was primarily due to the recording of gains on fair value hedges we have in place to hedge interest rate risk. 
 
The Indenture pursuant to which the Senior Subordinated Notes were issued contains certain covenants. At July 31, 2004, 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 million credit facility with an affiliate of a bank 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 LIBOR plus a margin or other agreed upon rate. We also pay a commitment fee. We can terminate the facility at any time upon 60 days prior written notice. In connection with this transaction, we established Greif Receivables Funding LLC, which is included in our consolidated financial statements. This entity purchases and services our trade accounts receivable that are subject to this credit facility. As of July 31, 2004, there was a total of $89.0 million outstanding under the trade accounts receivable credit facility. 
 
37 

The trade accounts receivable credit facility provides that in the event we breach any of our financial covenants under the Amended and Restated Senior Secured Credit Agreement, and the majority of the lenders thereunder consent to a waiver thereof, but the provider of the trade accounts receivable credit facility does not consent to any such waiver, then we must within 90 days of providing notice of the breach pay all amounts outstanding under the trade accounts receivable credit facility. 
 
Contractual Obligations 
 
As of July 31, 2004, 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	  	$	602	  	$	—  	  	$	24	  	$	89	  	$	489	
Short-term borrowings	  	 	15	  	 	15	  	 	—  	  	 	—  	  	 	—  	
Non-cancelable
operating leases	  	 	53	  	 	4	  	 	23	  	 	13	  	 	13	
 	  			  			  			  			  			
Total contractual cash
obligations	  	$	670	  	$	19	  	$	47	  	$	102	  	$	502	

Stock Repurchase Program 
 
In February 1999, our Board of Directors authorized a one million-share stock repurchase program. During the first three quarters of 2004, we repurchased 814 shares of Class B Common Stock and 0 shares of Class A Common Stock. No shares of Class B Common Stock were purchased during the third quarter of 2004. As of July 31, 2004, we had repurchased 713,680 shares, including 435,476 shares of Class A Common Stock and 278,204 shares of Class B Common Stock. The total cost of the shares repurchased during 1999 through July 31, 2004 was $20.5 million. 
 
Recent Accounting Standards 
 
In December 2003, the Financial Accounting Standards Board (“FASB”) issued a revision to SFAS No. 132, “Employers Disclosures about Pensions and Other Postretirement Benefits.” The revision relates to employers’ disclosures about pension plans and other postretirement benefit plans. It does not alter the measurement or recognition provisions of the original SFAS No. 132. It requires additional disclosures regarding assets, obligations, cash flows and net periodic benefit costs of pension plans and other defined benefit postretirement plans. Excluding certain disclosure requirements, the revised Statement is effective for financial statements with fiscal years ended after December 15, 2003. Interim period disclosures are effective for interim periods beginning after December 15, 2003 and have been included in Note 14 to the Notes to Consolidated Financial Statements in this Form 10-Q. 
 
38 

Forward-Looking Statements; Certain Factors Affecting Future Results 
 
All statements other than statements of historical facts included in this Form 10-Q, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs, goals and plans and objectives of management for future operations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology. All forward-looking statements made in this Form 10-Q are based on information currently available to our management. Although we believe that the expectations reflected in forward-looking statements have a reasonable basis, we can give no assurance that these expectations will prove to be correct. Forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Such risks and uncertainties that could cause a difference include, but are not limited to: general economic and business conditions, including a prolonged or substantial economic downturn; changing trends and demands in the industries in which we compete, including industry over-capacity; industry competition; the continuing consolidation of our customer base for industrial packaging, containerboard and corrugated products; political instability in those foreign countries where we manufacture and sell our products; foreign currency fluctuations and devaluations; availability and costs of raw materials for the manufacture of our products, particularly steel and resin, and price fluctuations in energy costs; costs associated with litigation or claims against us pertaining to environmental, safety and health, product liability and other matters; work stoppages and other labor relations matters; property loss resulting from wars, acts of terrorism, or natural disasters; the frequency and volume of sales of our timber and timberland; and the deviation of actual results from the estimates and/or assumptions used by us in the application of our significant accounting policies. These and other risks and uncertainties that could materially affect our consolidated financial results are further discussed in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended October 31, 2003. We assume no obligation to update any forward-looking statements. 
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 
 
There has not been a significant change in the quantitative and qualitative disclosures about the Company’s market risk from the disclosures contained in the 2003 Form 10-K. 
 
ITEM 4. CONTROLS AND PROCEDURES 
 
Under the supervision of the Chief Executive Officer and Chief Financial Officer, the Company’s management conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined under Rule 15d–15(e) promulgated under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective in timely making known to them material information required to be included in the Company’s periodic filings with the Securities and Exchange Commission. 
 
39 

There has been no change in the Company’s internal controls over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting. 
 
PART II. OTHER INFORMATION 
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 
 
 	(a.)	Exhibits 	

Exhibit No.
	  	Description of Exhibit
	
  3.F	  	Amendment to Amended and Restated By-Laws of Greif Bros. Corporation	
		
31.1	  	Certification of Chief Executive Officer Pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934	
		
31.2	  	Certification of Chief Financial Officer Pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934	
		
32.1	  	Certification of Chief Executive Officer required by Rule 13a - 14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code	
		
32.2	  	Certification of Chief Financial Officer required by Rule 13a - 14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code	
 
 	(b.)	Reports on Form 8-K. 	
 
No events occurred requiring a Form 8-K to be filed during the third quarter of 2004. 
 
40 

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

			
 	  	Greif, Inc.
(Registrant)	
		
Date: September 7, 2004	  	/s/ Donald S. Huml
	
 	  	Donald S. Huml, Chief Financial	
 	  	Officer (Duly Authorized Signatory)	
 
41 

GREIF, INC. 
 
Form 10-Q 
For Quarterly Period Ended July 31, 2004 
 
EXHIBIT INDEX 

Exhibit No.
	 	Description of Exhibit
	
  3.F	 	Amendment to Amended and Restated By-Laws of Greif Bros. Corporation	
		
31.1	 	Certification of Chief Executive Officer Pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934	
		
31.2	 	Certification of Chief Financial Officer Pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934	
		
32.1	 	Certification of Chief Executive Officer required by Rule 13a - 14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code	
		
32.2	 	Certification of Chief Financial Officer required by Rule 13a - 14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code	
Exhibit 3.F 
 
AMENDMENT TO AMENDED AND RESTATED BY-LAWS OF GREIF 
BROS. CORPORATION 
August 31, 2004 
 
Article II, Section 1 shall be deleted and the following shall be inserted in lieu thereof: 
 
“Section 1. Number of Directors. Until changed in accordance with the provisions of Article IX, below, the number of Directors of the Corporation shall be nine.” 
EXHIBIT 31.1 
 
CERTIFICATION 
 
I, Michael J. Gasser, certify that: 
 
1. I have reviewed this quarterly report on Form 10-Q of Greif, Inc.; 
 
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 
 
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: 
 
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 	
 
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 	
 
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 	
 
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): 
 
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 	

EXHIBIT 31.1 
(concluded) 
 
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 	

Date: September 7, 2004	  	/s/ Michael J. Gasser
	
 	  	Michael J. Gasser, Chairman	
 	  	and Chief Executive Officer	
 	  	(Principal executive officer)	
EXHIBIT 31.2 
 
CERTIFICATION 
 
I, Donald S. Huml, certify that: 
 
1. I have reviewed this quarterly report on Form 10-Q of Greif, Inc.; 
 
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 
 
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: 
 
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 	
 
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 	
 
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 	
 
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): 
 
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 	

EXHIBIT 31.2 
(concluded) 
 
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 	

Date: September 7, 2004	  	/s/ Donald S. Huml
	
 	  	Donald S. Huml, Chief Financial	
 	  	Officer (Principal financial officer)	
 
EXHIBIT 32.1 
 
Certification Required by Rule 13a – 14(b) of the Securities Exchange Act of 1934 
and Section 1350 of Chapter 63 of Title 18 of the United States Code 
 
In connection with the Quarterly Report of Greif, Inc. (the “Company”) on Form 10-Q for the quarterly period ended July 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael J. Gasser, the chief executive officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: 
 
 	(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 	
 
 	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 	

Date: September 7, 2004	  	/s/ Michael J. Gasser
	
 	  	Michael J. Gasser, Chairman	
 	  	and Chief Executive Officer	
 
A signed original of this written statement required by Section 906 has been provided to Greif, Inc. and will be retained by Greif, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. 
EXHIBIT 32.2 
 
Certification Required by Rule 13a – 14(b) of the Securities Exchange Act of 1934 
and Section 1350 of Chapter 63 of Title 18 of the United States Code 
 
In connection with the Quarterly Report of Greif, Inc. (the “Company”) on Form 10-Q for the quarterly period ended July 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald S. Huml, the chief financial officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: 
 
 	(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 	
 
 	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 	

Date: September 7, 2004	  	/s/ Donald S. Huml
	
 	  	Donald S. Huml, Chief Financial
Officer	
 
A signed original of this written statement required by Section 906 has been provided to Greif, Inc. and will be retained by Greif, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.