##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 or
 o
    
    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: 1-13182
 Graphic Packaging Corporation
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    58-2205241
(I.R.S. employer
identification no.)814 Livingston CourtMarietta, Georgia
    
    30067(Address of principal executive offices)
    
    (Zip Code)
 (770) 644-3000
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  o þ




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##### Table of Contents



Information Concerning Forward-Looking Statements
 Certain statements of Graphic Packaging Corporations expectations, including, but not
limited to, statements regarding inflationary pressures, cost savings from its
continuous improvement programs and manufacturing rationalization, price increases,
capital spending, depreciation and amortization, and interest expense, in this report
constitute forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. Such statements are based on currently available operating,
financial and competitive information and are subject to various risks and
uncertainties that could cause actual results to differ materially from the Companys
historical experience and its present expectations. These risks and uncertainties
include, but are not limited to, inflation of and volatility in raw material and energy
costs, the Companys substantial amount of debt, continuing pressure for lower cost
products, the Companys ability to implement its business strategies, currency
translation movements and other risks of conducting business internationally, and the
impact of regulatory and litigation matters, including those that impact the Companys
ability to protect and use its intellectual property. Undue reliance should not be
placed on such forward-looking statements, as such statements speak only as of the date
on which they are made and the Company undertakes no obligation to update such
statements. Additional information regarding these and other risks is contained in Part
II, Item 1A. Risk Factors herein.
 2




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 1A. RISK FACTORSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 6. EXHIBITSSIGNATURESEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 3




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GRAPHIC PACKAGING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Millions, Except Share Amounts)
(Unaudited)
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent Assets:Cash and Equivalents
    
    $
    7.3
    
    
    $
    12.7Receivables, Net
    
    
    272.5
    
    
    
    216.3Inventories
    
    
    291.1
    
    
    
    298.5Other Current Assets
    
    
    30.4
    
    
    
    26.1Total Current Assets
    
    
    601.3
    
    
    
    553.6Property, Plant and Equipment, Net
    
    
    1,509.3
    
    
    
    1,551.5Goodwill
    
    
    642.7
    
    
    
    642.6Intangible Assets, Net
    
    
    152.6
    
    
    
    157.3Deferred Tax Assets
    
    
    352.3
    
    
    
    350.8Other Assets
    
    
    88.0
    
    
    
    100.2Total Assets
    
    $
    3,346.2
    
    
    $
    3,356.0LIABILITIESCurrent Liabilities:Short Term Debt
    
    $
    17.5
    
    
    $
    11.0Accounts Payable and Other Accrued Liabilities
    
    
    410.4
    
    
    
    409.6Total Current Liabilities
    
    
    427.9
    
    
    
    420.6Long Term Debt
    
    
    1,980.5
    
    
    
    1,967.3Deferred Tax Liabilities
    
    
    472.3
    
    
    
    461.5Other Noncurrent Liabilities
    
    
    251.3
    
    
    
    237.9Total Liabilities
    
    
    3,132.0
    
    
    
    3,087.3SHAREHOLDERS EQUITYPreferred Stock, par value $.01 per share; 50,000,000 shares authorized;
no shares issued or outstanding
    
    
    
    
    
    
    Common Stock, par value $.01 per share; 500,000,000 shares authorized;
198,776,992 and 198,663,007 shares issued and outstanding at
June 30, 2006 and December 31, 2005, respectively
    
    
    2.0
    
    
    
    2.0Capital in Excess of Par Value
    
    
    1,169.9
    
    
    
    1,169.6Unearned Compensation
    
    
    
    
    
    
    (0.1
    )Accumulated Deficit
    
    
    (858.1
    )
    
    
    (800.6
    )Minimum Pension Liability Adjustment
    
    
    (90.0
    )
    
    
    (90.0
    )Accumulated Derivative Instruments (Loss) Gain
    
    
    (2.2
    )
    
    
    5.2Cumulative Currency Translation Adjustment
    
    
    (7.4
    )
    
    
    (17.4
    )Total Shareholders Equity
    
    
    214.2
    
    
    
    268.7Total Liabilities and Shareholders Equity
    
    $
    3,346.2
    
    
    $
    3,356.0
  4




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GRAPHIC PACKAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net Sales
    
    $
    625.5
    
    
    $
    623.0
    
    
    $
    1,205.9
    
    
    $
    1,206.0Cost of Sales
    
    
    550.8
    
    
    
    537.2
    
    
    
    1,064.0
    
    
    
    1,053.0Selling, General and Administrative
    
    
    51.0
    
    
    
    53.2
    
    
    
    100.6
    
    
    
    100.9Research, Development and Engineering
    
    
    3.0
    
    
    
    3.2
    
    
    
    6.0
    
    
    
    5.5Other (Income) Expense, Net
    
    
    (0.8
    )
    
    
    5.8
    
    
    
    (0.5
    )
    
    
    10.7Income from Operations
    
    
    21.5
    
    
    
    23.6
    
    
    
    35.8
    
    
    
    35.9Interest Income
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.4
    
    
    
    0.2Interest Expense
    
    
    (43.2
    )
    
    
    (39.0
    )
    
    
    (84.7
    )
    
    
    (76.2
    )Loss before Income Taxes and Equity in Net Earnings of
Affiliates
    
    
    (21.5
    )
    
    
    (15.3
    )
    
    
    (48.5
    )
    
    
    (40.1
    )Income Tax Expense
    
    
    (4.9
    )
    
    
    (4.8
    )
    
    
    (9.5
    )
    
    
    (9.7
    )Equity in Net Earnings of Affiliates
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.6Net Loss
    
    $
    (26.0
    )
    
    $
    (19.6
    )
    
    $

    (57.5
    )
    
    $

    (49.2
    )Loss Per Share  Basic
    
    $
    (0.13
    )
    
    $
    (0.10
    )
    
    $
    (0.29
    )
    
    $
    (0.25
    )Loss Per Share  Diluted
    
    $
    (0.13
    )
    
    $
    (0.10
    )
    
    $
    (0.29
    )
    
    $
    (0.25
    )Weighted Average Number of Shares Outstanding  Basic
    
    
    198.7
    
    
    
    198.6
    
    
    
    198.7
    
    
    
    198.6Weighted Average Number of Shares Outstanding  Diluted
    
    
    198.7
    
    
    
    198.6
    
    
    
    198.7
    
    
    
    198.6
  5




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GRAPHIC PACKAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in Millions)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net Loss
    
    $
    (26.0
    )
    
    $
    (19.6
    )
    
    $

    (57.5
    )
    
    $

    (49.2
    )Other Comprehensive (Loss) Income:Derivative Instruments (Loss) Gain, Net of Tax of $0
    
    
    (1.9
    )
    
    
    (4.3
    )
    
    
    (7.4
    )
    
    
    12.1Currency Translation Adjustments, Net of Tax of $0
    
    
    7.3
    
    
    
    (8.2
    )
    
    
    10.0
    
    
    
    (12.9
    )Comprehensive Loss
    
    $
    (20.6
    )
    
    $
    (32.1
    )
    
    $
    (54.9
    )
    
    $
    (50.0
    )
  6




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GRAPHIC PACKAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Millions)
(Unaudited)
 Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net Loss
    
    $
    (57.5
    )
    
    $
    (49.2
    )Noncash Items Included in Net Loss:Depreciation and Amortization
    
    
    98.8
    
    
    
    106.6Deferred Income Taxes
    
    
    10.0
    
    
    
    9.1Pension, Postemployment and Postretirement Benefits
Expense, Net of Contributions
    
    
    11.6
    
    
    
    12.2Amortization of Deferred Debt Issuance Costs
    
    
    4.4
    
    
    
    4.0Other, Net
    
    
    1.7
    
    
    
    4.8Changes in Operating Assets & Liabilities
    
    
    (50.0
    )
    
    
    (58.7
    )Net Cash Provided by Operating Activities
    
    
    19.0
    
    
    
    28.8CASH FLOWS FROM INVESTING ACTIVITIES:Capital Spending
    
    
    (31.1
    )
    
    
    (54.8
    )Change in Other Assets
    
    
    (12.3
    )
    
    
    (9.5
    )Net Cash Used in Investing Activities
    
    
    (43.4
    )
    
    
    (64.3
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowing under Revolving Credit Facilities
    
    
    371.1
    
    
    
    263.8Payments on Revolving Credit Facilities
    
    
    (351.3
    )
    
    
    (228.5
    )Other, Net
    
    
    (0.8
    )
    
    
    0.3Net Cash Provided by Financing Activities
    
    
    19.0
    
    
    
    35.6Effect of Exchange Rate Changes on Cash
    
    
    
    
    
    
    (0.3
    )Net Decrease in Cash and Equivalents
    
    
    (5.4
    )
    
    
    (0.2
    )Cash and Equivalents at Beginning of Period
    
    
    12.7
    
    
    
    7.3Cash and Equivalents at End of Period
    
    $
    7.3
    
    
    $
    7.1
  7




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GRAPHIC PACKAGING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 1  ORGANIZATION AND BASIS OF PRESENTATION
      NOTE 2  ACCOUNTING POLICIES
  Recent Accounting Pronouncement
 Inventory Costs, an Amendment of ARB
No. 43, Chapter 4
 Exchanges of Nonmonetary
Assets, an Amendment of APB Opinion No. 29
 8




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##### Table of Contents



Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and Statement No. 3
 Accounting for Uncertainty
in Income Taxes  an interpretation of FASB Statement 109
 NOTE 3  STOCK INCENTIVE PLANS
 Stock Options
 Accounting for Stock
Issued to Employees Accounting for Stock-Based Compensation Share-Based Payment
  Three Months
    
    
    Six MonthsEnded
    
    
    Ended(Amounts in Millions, Except Per Share Amounts)
    
    June 30, 2005
    
    
    June 30, 2005Net Loss, As Reported
    
    $
    (19.6
    )
    
    $
    (49.2
    )Add: Stock-Based Employee Compensation Expense
Included in Reported Net Loss
    
    
    
    
    
    
    Deduct: Total Stock-Based Employee
Compensation Expense Determined Under Fair
Value Based Method for All Awards
    
    
    (0.8
    )
    
    
    (1.6
    )Adjusted Net Loss
    
    $
    (20.4
    )
    
    $
    (50.8
    )Loss Per Basic Share-As Reported
    
    $
    (0.10
    )
    
    $
    (0.25
    )Loss Per Basic Share-As Adjusted
    
    $
    (0.10
    )
    
    $
    (0.26
    )Loss Per Diluted Share-As Reported
    
    $
    (0.10
    )
    
    $
    (0.25
    )Loss Per Diluted Share-As Adjusted
    
    $
    (0.10
    )
    
    $
    (0.26
    )
 9




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Restricted Stock Awards
   Weighted Avg.Shares
    
    Value Per Share(In thousands)RSUs  Employees
    
    
    2,239
    
    
    $
    2.83Shares  Board of Directors
    
    
    71
    
    
    $
    3.39
     10




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NOTE 4 INVENTORIES
  June 30,
    
    
    December 31,(Amounts in Millions)
    
    2006
    
    
    2005Finished goods
    
    $
    145.5
    
    
    $
    164.2Work in progress
    
    
    27.5
    
    
    
    22.7Raw materials
    
    
    69.1
    
    
    
    67.3Supplies
    
    
    49.0
    
    
    
    44.3Total
    
    $
    291.1
    
    
    $
    298.5
 NOTE 5  ENVIRONMENTAL AND LEGAL MATTERS
     11




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NOTE 6  BUSINESS SEGMENT INFORMATION
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(Amounts in Millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005NET SALES:Paperboard Packaging
    
    $
    601.5
    
    
    $
    600.3
    
    
    $
    1,161.8
    
    
    $
    1,159.3Containerboard/Other
    
    
    24.0
    
    
    
    22.7
    
    
    
    44.1
    
    
    
    46.7Total
    
    $
    625.5
    
    
    $
    623.0
    
    
    $
    1,205.9
    
    
    $
    1,206.0INCOME (LOSS) FROM OPERATIONS:Paperboard Packaging
    
    $
    34.3
    
    
    $
    43.7
    
    
    $
    62.2
    
    
    $
    72.6Containerboard/Other
    
    
    (5.1
    )
    
    
    (4.0
    )
    
    
    (9.8
    )
    
    
    (8.2
    )Corporate
    
    
    (7.7
    )
    
    
    (16.1
    )
    
    
    (16.6
    )
    
    
    (28.5
    )Total
    
    $
    21.5
    
    
    $
    23.6
    
    
    $
    35.8
    
    
    $
    35.9
 NOTE 7  PENSIONS AND OTHER POSTRETIREMENT BENEFITS
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(Amounts in Millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service Cost
    
    $
    4.0
    
    
    $
    3.5
    
    
    $
    8.0
    
    
    $
    7.4Interest Cost
    
    
    8.1
    
    
    
    8.1
    
    
    
    16.2
    
    
    
    15.6Expected Return on Plan Assets
    
    
    (8.0
    )
    
    
    (7.8
    )
    
    
    (16.0
    )
    
    
    (15.2
    )Amortizations:Prior Service Cost
    
    
    0.5
    
    
    
    0.4
    
    
    
    1.0
    
    
    
    1.1Actuarial Loss
    
    
    1.3
    
    
    
    0.9
    
    
    
    2.6
    
    
    
    1.7Net Periodic Pension Cost
    
    $
    5.9
    
    
    $
    5.1
    
    
    $
    11.8
    
    
    $
    10.6
 12




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OTHER POSTRETIREMENT BENEFITS
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(Amounts in Millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service Cost
    
    $
    0.3
    
    
    $
    0.3
    
    
    $
    0.6
    
    
    $
    0.5Interest Cost
    
    
    0.6
    
    
    
    0.7
    
    
    
    1.2
    
    
    
    1.5Amortizations:Actuarial Loss
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.4Net Periodic Postretirement Benefits Cost
    
    $
    0.9
    
    
    $
    1.2
    
    
    $
    1.8
    
    
    $
    2.4
   13




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NOTE 8
 RESTRUCTURING CHARGES
   AdjustmentsBalance at
    
    
    (Statement of
    
    
    Purchase
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    Operations Impact)
    
    
    Price
    
    
    Cash
    
    
    June 30,(Amounts in Millions)
    
    2005
    
    
    Expense
    
    
    Reversal
    
    
    Allocation
    
    
    Payments
    
    
    2006Equipment Removal Costs
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Facility Restoration and
Carrying Costs
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    0.2Severance of Employees and
Other Employee
Termination-Related Charges
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    Total
    
    $
    1.2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1.0
    )
    
    $
    0.2
  AdjustmentsBalance at
    
    
    (Statement of
    
    
    Purchase
    
    
    
    
    
    
    Balance atJanuary 1,
    
    
    Operations Impact)
    
    
    Price
    
    
    Cash
    
    
    December 31,(Amounts in Millions)
    
    2005
    
    
    Expense
    
    
    Reversal
    
    
    Allocation
    
    
    Payments
    
    
    2005Equipment Removal Costs
    
    $
    0.8
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.8
    )
    
    $
    Facility Restoration and
Carrying Costs
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.6Severance of Employees and
Other Employee
Termination-Related Charges
    
    
    3.1
    
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    (1.5
    )
    
    $
    0.6Total
    
    $
    4.5
    
    
    $
    
    
    
    $
    (1.0
    )
    
    $
    
    
    
    $
    (2.3
    )
    
    $
    1.2
 14




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NOTE 9
 DEBT
  June 30,
    
    
    December 31,(Amounts in Millions)
    
    2006
    
    
    2005Senior Notes with interest payable semi-annually at 8.5%, payable in 2011
    
    $
    425.0
    
    
    $
    425.0Senior Subordinated Notes with interest payable semi-annually at 9.5%,
payable in 2013
    
    
    425.0
    
    
    
    425.0Senior Secured Term Loan Facility with interest payable at various dates
at floating rates (7.52% at June 30, 2006 and 6.60% at December 31,
2005) payable through 2010
    
    
    1,109.0
    
    
    
    1,109.0Senior Secured Revolving Facility with interest payable at various dates
at floating rates (9.25%at June 30, 2006 and 9.25% at December 31,
2005) payable in 2009
    
    
    25.0
    
    
    
    6.0Other
    
    
    2.7
    
    
    
    3.51,986.7
    
    
    
    1,968.5Less, current portion
    
    
    6.2
    
    
    
    1.2Total
    
    $
    1,980.5
    
    
    $
    1,967.3
    15




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Minimum CreditMaximum Consolidated
    
    Agreement EBITDA toDebt to Credit Agreement
    
    Consolidated InterestEBITDA
Leverage Ratio (a)
    

Expense
Ratio (a)Four Fiscal Quarters Ending2006
June 30, 2006
    
    
    6.75 to 1.00
    
    
    
    1.75 to 1.00September 30, 2006
    
    
    6.75 to 1.00
    
    
    
    1.75 to 1.00December 31, 2006
    
    
    6.75 to 1.00
    
    
    
    1.75 to 1.002007
March 31, 2007
    
    
    6.50 to 1.00
    
    
    
    1.75 to 1.00June 30, 2007
    
    
    6.50 to 1.00
    
    
    
    1.75 to 1.00September 30, 2007
    
    
    6.50 to 1.00
    
    
    
    1.75 to 1.00December 31, 2007
    
    
    6.00 to 1.00
    
    
    
    1.85 to 1.002008
March 31, 2008
    
    
    6.00 to 1.00
    
    
    
    1.85 to 1.00June 30, 2008
    
    
    6.00 to 1.00
    
    
    
    1.85 to 1.00September 30, 2008
    
    
    6.00 to 1.00
    
    
    
    1.85 to 1.00December 31, 2008
    
    
    5.50 to 1.00
    
    
    
    2.00 to 1.002009
March 31, 2009 and thereafter
    
    
    4.50 to 1.00
    
    
    
    2.90 to 1.00
    
   16




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 INTRODUCTION
         OVERVIEW OF BUSINESS
  Significant Factors That Impact The Companys Business
 Impact of Inflation.
 17




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##### Table of Contents



Substantial Debt Obligations
 Commitment to Cost Reduction
 Market Factors.
  18




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##### Table of Contents



OVERVIEW OF 2006 RESULTS
 
    
    Net Sales in the second quarter of 2006 increased by $2.5 million, or 0.4%,
to $625.5 million from $623.0 million in the second quarter of 2005 due
primarily to improved pricing for cartons, rollstock and containerboard, and higher unit volumes in the international
beverage markets somewhat offset by lower carton sales in North
America, primarily in the food and consumer product markets.
    
    Income from Operations in the second quarter of 2006 decreased by $2.1
million, or 8.9%, to $21.5 million from $23.6 million in the second quarter of
2005 due primarily to inflation of approximately $23 million and approximately
$6 million of higher manufacturing costs somewhat offset by worldwide cost
reductions of approximately $9 million resulting from the Companys cost reduction initiatives, improved
pricing and lower depreciation
expense.
    
    Debt decreased by $38.7 million during the second quarter of 2006 as a
result of cash provided by operating activities.
 RESULTS OF OPERATIONS
 Segment Information
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(Amounts in Millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005NET SALES:Paperboard Packaging
    
    $
    601.5
    
    
    $
    600.3
    
    
    $
    1,161.8
    
    
    $
    1,159.3Containerboard/Other
    
    
    24.0
    
    
    
    22.7
    
    
    
    44.1
    
    
    
    46.7Total
    
    $
    625.5
    
    
    $
    623.0
    
    
    $
    1,205.9
    
    
    $
    1,206.0INCOME (LOSS) FROM OPERATIONS:Paperboard Packaging
    
    $
    34.3
    
    
    $
    43.7
    
    
    $
    62.2
    
    
    $
    72.6Containerboard/Other
    
    
    (5.1
    )
    
    
    (4.0
    )
    
    
    (9.8
    )
    
    
    (8.2
    )Corporate
    
    
    (7.7
    )
    
    
    (16.1
    )
    
    
    (16.6
    )
    
    
    (28.5
    )Total
    
    $
    21.5
    
    
    $
    23.6
    
    
    $
    35.8
    
    
    $
    35.9
 SECOND QUARTER 2006 COMPARED WITH SECOND QUARTER 2005
 Net Sales
  Three Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Three MonthsEnded
    
    Variances
    
    Ended(Amounts in Millions)
    
    June 30, 2005
    
    Price
    
    Volume/Mix
    
    Exchange
    
    Total
    
    June 30, 2006Net Sales
    
    $
    623.0
    
    
    
    8.0
    
    
    
    (4.0
    )
    
    
    (1.5
    )
    
    
    2.5
    
    
    $
    625.5
 Paperboard Packaging
  19




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##### Table of Contents



Containerboard/Other
  Income (Loss) from Operations
  Three Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Three MonthsEnded
    
    Variances
    
    Ended(Amounts in Millions)
    
    June 30, 2005
    
    Price
    
    Volume/Mix
    
    Inflation
    
    Exchange
    
    Other (a)
    
    Total
    
    June 30, 2006Income (Loss) from Operations
    
    $
    23.6
    
    
    
    8.0
    
    
    
    (1.1
    )
    
    
    (22.8
    )
    
    
    1.2
    
    
    
    12.6
    
    
    
    (2.1
    )
    
    $
    21.5
 Note:
  Paperboard Packaging
  Containerboard/Other
  Corporate
  FIRST SIX MONTHS OF 2006 COMPARED WITH FIRST SIX MONTHS OF 2005
 Net Sales
  20




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##### Table of Contents



Six Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six MonthsEnded
    
    Variances
    
    Ended(Amounts in Millions)
    
    June 30, 2005
    
    Price
    
    Volume/Mix
    
    Exchange
    
    Total
    
    June 30, 2006Net Sales
    
    $
    1,206.0
    
    
    
    11.7
    
    
    
    (3.8
    )
    
    
    (8.0
    )
    
    
    (0.1
    )
    
    $
    1,205.9
 Paperboard Packaging
  Containerboard/Other
  Income (Loss) from Operations
  Six Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six MonthsEnded
    
    Variances
    
    Ended(Amounts in Millions)
    
    June 30, 2005
    
    Price
    
    Volume/Mix
    
    Inflation
    
    Exchange
    
    Other (a)
    
    Total
    
    June 30, 2006Income (Loss) from Operations
    
    $
    35.9
    
    
    
    11.7
    
    
    
    1.0
    
    
    
    (39.9
    )
    
    
    2.7
    
    
    
    24.4
    
    
    
    (0.1
    )
    
    $
    35.8
 Note:
  Paperboard Packaging
  21




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##### Table of Contents



Containerboard/Other
  Corporate
  INTEREST INCOME, INTEREST EXPENSE, INCOME TAX EXPENSE, AND EQUITY IN NET EARNINGS OF
AFFILIATES
 Interest Income
  Interest Expense
  Income Tax Expense
  Equity in Net Earnings of Affiliates
  FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
  Cash Flows
  22




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##### Table of Contents



Liquidity and Capital Resources
   June 30,
    
    
    December 31,(Amounts in Millions)
    
    2006
    
    
    2005Senior Notes with interest payable semi-annually at 8.5%, payable in 2011
    
    $
    425.0
    
    
    $
    425.0Senior Subordinated Notes with interest payable semi-annually at 9.5%,
payable in 2013
    
    
    425.0
    
    
    
    425.0Senior Secured Term Loan Facility with interest payable at various dates
at floating rates (7.52% at June 30, 2006 and 6.60% at December 31,
2005) payable through 2010
    
    
    1,109.0
    
    
    
    1,109.0Senior Secured Revolving Facility with interest payable at various dates
at floating rates (9.25%at June 30, 2006 and 9.25% at December 31,
2005) payable in 2009
    
    
    25.0
    
    
    
    6.0Other
    
    
    2.7
    
    
    
    3.51,986.7
    
    
    
    1,968.5Less, current portion
    
    
    6.2
    
    
    
    1.2Total
    
    $
    1,980.5
    
    
    $
    1,967.3
   Total Amount of
    
    
    Total Amount
    
    
    Total Amount(Amounts in Millions)
    
    Commitments
    
    
    Outstanding
    
    
    Available (A)Revolving Credit Facility
    
    $
    325.0
    
    
    $
    25.0
    
    
    $
    288.1International Facilities
    
    
    22.3
    
    
    
    9.2
    
    
    
    13.1Total
    
    $
    347.3
    
    
    $
    34.2
    
    
    $
    301.2
 Note:
 (A)
    
    In accordance with its debt agreements, the Companys availability under its
Revolving Credit Facility has been reduced by the amount of standby letters of
credit issued of $11.9 million as of June 30, 2006. These letters of credit are
used as security against its self-insurance obligations and workers compensation
obligations. These letters of credit expire at various dates through 2007 unless
extended.
  23




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##### Table of Contents



Covenant Restrictions
   24




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##### Table of Contents



Minimum CreditMaximum Consolidated
    
    Agreement EBITDA toDebt to Credit Agreement
    
    Consolidated InterestEBITDA Leverage Ratio
    
    Expense RatioFour Fiscal Quarters Ending2006
June 30, 2006
    
    
    6.75 to 1.00
    
    
    
    1.75 to 1.00September 30, 2006
    
    
    6.75 to 1.00
    
    
    
    1.75 to 1.00December 31, 2006
    
    
    6.75 to 1.00
    
    
    
    1.75 to 1.002007
March 31, 2007
    
    
    6.50 to 1.00
    
    
    
    1.75 to 1.00June 30, 2007
    
    
    6.50 to 1.00
    
    
    
    1.75 to 1.00September 30, 2007
    
    
    6.50 to 1.00
    
    
    
    1.75 to 1.00December 31, 2007
    
    
    6.00 to 1.00
    
    
    
    1.85 to 1.002008
March 31, 2008
    
    
    6.00 to 1.00
    
    
    
    1.85 to 1.00June 30, 2008
    
    
    6.00 to 1.00
    
    
    
    1.85 to 1.00September 30, 2008
    
    
    6.00 to 1.00
    
    
    
    1.85 to 1.00December 31, 2008
    
    
    5.50 to 1.00
    
    
    
    2.00 to 1.002009
March 31, 2009 and thereafter
    
    
    4.50 to 1.00
    
    
    
    2.90 to 1.00
  
   25




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##### Table of Contents



Twelve Months Ended(Amounts in Millions)
    
    June 30, 2006Net Loss
    
    $
    (99.4
    )Income Tax Expense
    
    
    23.1Interest Expense, Net
    
    
    164.2Depreciation and Amortization
    
    
    197.5Equity in Net Earnings of Affiliates
    
    
    (1.1
    )Pension, Postemployment and Postretirement
Benefits Expense, Net of Contributions
    
    
    8.9Merger Related Expenses
    
    
    7.9Write-Down of Assets
    
    
    0.4Dividends from Equity Investments
    
    
    2.4Credit Agreement EBITDA (a)
    
    $
    303.9
 Twelve Months Ended(Amounts in Millions)
    
    June 30, 2006Interest Expense, Net
    
    $
    164.2Amortization of Deferred Debt Issuance Costs
    
    
    (8.6
    )Credit Agreement Interest Expense Adjustments (b)
    
    
    0.1Consolidated Interest Expense (c)
    
    $
    155.7As of(Amounts in Millions)
    
    June 30, 2006Short Term Debt
    
    $
    17.5Long Term Debt
    
    
    1,980.5Total Debt
    
    $
    1,998.0
       26




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##### Table of Contents



Capital Investment
  Environmental Matters
    27




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   NEW ACCOUNTING STANDARDS
  BUSINESS OUTLOOK
      
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  28




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Director
    
    For
    
    WithheldG. Andrea Botta
    
    
    174,613,021
    
    
    
    622,243William R. Fields
    
    
    174,689,627
    
    
    
    545,637Harold R. Logan
    
    
    174,485,697
    
    
    
    749,567
  
 ITEM 6. EXHIBITS
 a)
    
    Exhibit Index
 29




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##### Table of Contents



Exhibit Number
    
    Description3.1
    
    Amended and Restated
Bylaws of Graphic Packaging Corporation.  Filed on July 24, 2006 as
Exhibit 3.1 to the Registrants Current Report on Form 8-K (Date
of Earliest Event Reported:  July 20, 2006) and incorporated herein
by reference.10.1
    
    Employment Agreement dated as of July 20, 2006 by and between Graphic
Packaging International, Inc., Graphic Packaging Corporation and Jeffrey H. Coors.
Filed on July 24, 2006 as Exhibit 10.1 to the Registrants Current Report on Form
8-K (Date of Earliest Event Reported: July 20, 2006) and incorporated herein by
reference.10.2
    
    Employment Agreement dated as of July 20, 2006 by and between Graphic
Packaging International, Inc., Graphic Packaging Corporation and Stephen M.
Humphrey. Filed on July 24, 2006 as Exhibit 10.2 to the Registrants Current
Report on Form 8-K (Date of Earliest Event Reported: July 20, 2006) and
incorporated herein by reference.10.3
    
    Employment Agreement dated as of July 20, 2006 by and between Graphic
Packaging International, Inc., Graphic Packaging Corporation and David W.
Scheible. Filed on July 24, 2006 as Exhibit 10.3 to the Registrants Current
Report on Form 8-K (Date of Earliest Event Reported: July 20, 2006) and
incorporated herein by reference.10.4
    
    Employment Agreement dated as of July 20, 2006 by and between Graphic
Packaging International, Inc., Graphic Packaging Corporation and Daniel J. Blount.
Filed on July 24, 2006 as Exhibit 10.4 to the Registrants Current Report on Form
8-K (Date of Earliest Event Reported: July 20, 2006) and incorporated herein by
reference.10.5
    
    Employment Agreement dated as of July 20, 2006 by and between Graphic
Packaging International, Inc., Graphic Packaging Corporation and Stephen A.
Hellrung. Filed on July 24, 2006 as Exhibit 10.5 to the Registrants Current
Report on Form 8-K (Date of Earliest Event Reported: July 20, 2006) and
incorporated herein by reference.10.6
    
    Employment Agreement dated as of July 20, 2006 by and between Graphic
Packaging International, Inc., Graphic Packaging Corporation and Wayne E. Juby.
Filed on July 24, 2006 as Exhibit 10.6 to the Registrants Current Report on Form
8-K (Date of Earliest Event Reported: July 20, 2006) and incorporated herein by
reference.10.7
    
    Employment Agreement dated as of July 20, 2006 by and between Graphic
Packaging International, Inc., Graphic Packaging Corporation and Michael R.
Schmal. Filed on July 24, 2006 as Exhibit 10.7 to the Registrants Current Report
on Form 8-K (Date of Earliest Event Reported: July 20, 2006) and incorporated
herein by reference.10.8
    
    Employment Agreement dated as of July 20, 2006 by and between Graphic
Packaging International, Inc., Graphic Packaging Corporation and Robert M. Simko.
Filed on July 24, 2006 as Exhibit 10.8 to the Registrants Current Report on Form
8-K (Date of Earliest Event Reported: July 20, 2006) and incorporated herein by
reference.10.9
    
    Amendment No. 3 to Stockholders Agreement dated as of July 20, 2006 by and
among Graphic Packaging Corporation, the Family Stockholders named therein,
Clayton, Dubilier & Rice Fund V Limited Partnership and EXOR Group S.A. Filed as
Exhibit 10.9 to the Registrants Current Report on Form 8-K (Date of Earliest
Event Reported: July 20, 2006) and incorporated herein by reference.31.1
    
    Certification required by Rule 13a-14(a).31.2
    
    Certification required by Rule 13a-14(a).32.1
    
    Certification required by Section 1350 of Chapter 63 of Title 18 of the United States Code.32.2
    
    Certification required by Section 1350 of Chapter 63 of Title 18 of the United States Code.
 30




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##### Table of Contents



SIGNATURES
  GRAPHIC PACKAGING
CORPORATION(Registrant)/s/ STEPHEN A. HELLRUNG
    
    Senior Vice President, GeneralStephen A. Hellrung
    
    Counsel
and Secretary
    
    August 2, 2006/s/ DANIEL J. BLOUNT
    
    Senior Vice President andDaniel J. Blount
    
    Chief
Financial Officer (Principal
Financial Officer)
    
    August 2, 2006/s/ DEBORAH R. FRANK
    
    Vice President and ControllerDeborah R. Frank
    
    (Principal
Accounting Officer)
    
    August 2, 2006
 31