##### 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, 2007
 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 Court 
Marietta, Georgia
(Address of principal executive offices)
    
    30067
(Zip Code)
 (770) 644-3000
  þ o
  o þ o
  o þ




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Information Concerning Forward-Looking Statements
  2




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##### Table of Contents



TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATION
    
    
    4ITEM 1. FINANCIAL STATEMENTS
    
    
    4ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    16ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    29ITEM 4. CONTROLS AND PROCEDURES
    
    
    29PART II  OTHER INFORMATION
    
    
    30ITEM 1. LEGAL PROCEEDINGS
    
    
    30ITEM 1A. RISK FACTORS
    
    
    30ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
    
    
    30ITEM 6. EXHIBITS
    
    
    30SIGNATURES
    
    
    31EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  3




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 GRAPHIC PACKAGING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    December 31,In millions, except share and per share amounts
    
    2007
    
    2006(Unaudited)ASSETSCurrent Assets:Cash and Equivalents
    
    $
    11.8
    
    
    $
    7.3Receivables, Net
    
    
    261.8
    
    
    
    230.9Inventories
    
    
    297.9
    
    
    
    301.3Other Current Assets
    
    
    25.1
    
    
    
    24.8Total Current Assets
    
    
    596.6
    
    
    
    564.3Property, Plant and Equipment, Net
    
    
    1,436.7
    
    
    
    1,488.7Goodwill
    
    
    642.3
    
    
    
    642.3Intangible Assets, Net
    
    
    144.2
    
    
    
    148.5Deferred Tax Assets
    
    
    345.6
    
    
    
    345.0Other Assets
    
    
    38.1
    
    
    
    44.8Total Assets
    
    $
    3,203.5
    
    
    $
    3,233.6LIABILITIESCurrent Liabilities:Short Term Debt
    
    $
    23.7
    
    
    $
    12.0Accounts Payable
    
    
    191.0
    
    
    
    214.4Other Accrued Liabilities
    
    
    174.7
    
    
    
    193.9Total Current Liabilities
    
    
    389.4
    
    
    
    420.3Long Term Debt
    
    
    1,944.7
    
    
    
    1,910.7Deferred Tax Liabilities
    
    
    484.9
    
    
    
    475.2Accrued Pension and Postretirement Benefits
    
    
    207.5
    
    
    
    206.7Other Noncurrent Liabilities
    
    
    42.2
    
    
    
    39.0Total Liabilities
    
    
    3,068.7
    
    
    
    3,051.9SHAREHOLDERS 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; 200,978,569 and
200,584,591 shares issued and outstanding at
June 30, 2007 and December 31, 2006, respectively
    
    
    2.0
    
    
    
    2.0Capital in Excess of Par Value
    
    
    1,190.3
    
    
    
    1,186.8Accumulated Deficit
    
    
    (961.1
    )
    
    
    (901.1
    )Accumulated Other Comprehensive Loss
    
    
    (96.4
    )
    
    
    (106.0
    )Total Shareholders Equity
    
    
    134.8
    
    
    
    181.7Total Liabilities and Shareholders Equity
    
    $
    3,203.5
    
    
    $
    3,233.6
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GRAPHIC PACKAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,In millions, except per share amounts
    
    2007
    
    2006
    
    2007
    
    2006Net Sales
    
    $
    647.3
    
    
    $
    625.5
    
    
    $
    1,256.0
    
    
    $
    1,205.9Cost of Sales
    
    
    557.8
    
    
    
    547.6
    
    
    
    1,103.3
    
    
    
    1,066.0Selling, General and Administrative
    
    
    49.2
    
    
    
    51.0
    
    
    
    97.0
    
    
    
    100.6Research, Development and Engineering
    
    
    2.4
    
    
    
    3.0
    
    
    
    5.0
    
    
    
    6.0Other Expense (Income), Net
    
    
    0.5
    
    
    
    (0.8
    )
    
    
    1.6
    
    
    
    (0.5
    )Income from Operations
    
    
    37.4
    
    
    
    24.7
    
    
    
    49.1
    
    
    
    33.8Interest Income
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.4Interest Expense
    
    
    (43.2
    )
    
    
    (43.2
    )
    
    
    (86.6
    )
    
    
    (84.7
    )Loss on Early Extinguishment of Debt
    
    
    (9.5
    )
    
    
    
    
    
    
    (9.5
    )
    
    
    Loss before Income Taxes and Equity in Net Earnings of Affiliates
    
    
    (15.2
    )
    
    
    (18.3
    )
    
    
    (46.7
    )
    
    
    (50.5
    )Income Tax Expense
    
    
    (6.4
    )
    
    
    (4.9
    )
    
    
    (13.8
    )
    
    
    (9.5
    )Loss before Equity in Net Earnings of Affiliates
    
    
    (21.6
    )
    
    
    (23.2
    )
    
    
    (60.5
    )
    
    
    (60.0
    )Equity in Net Earnings of Affiliates
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.5Net Loss
    
    $
    (21.3
    )
    
    $
    (22.8
    )
    
    $
    (60.0
    )
    
    $
    (59.5
    )Loss Per Share  Basic
    
    $
    (0.11
    )
    
    $
    (0.11
    )
    
    $
    (0.30
    )
    
    $
    (0.30
    )Loss Per Share  Diluted
    
    $
    (0.11
    )
    
    $
    (0.11
    )
    
    $
    (0.30
    )
    
    $
    (0.30
    )Weighted Average Number of Shares Outstanding  Basic
    
    
    201.8
    
    
    
    201.1
    
    
    
    201.5
    
    
    
    200.9Weighted Average Number of Shares Outstanding  Diluted
    
    
    201.8
    
    
    
    201.1
    
    
    
    201.5
    
    
    
    200.9
  5




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GRAPHIC PACKAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months EndedJune 30,In millions
    
    2007
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net Loss
    
    $
    (60.0
    )
    
    $
    (59.5
    )Noncash Items Included in Net Loss:Depreciation and Amortization
    
    
    103.5
    
    
    
    98.8Loss on Early Extinguishment of Debt
    
    
    9.5
    
    
    
    Deferred Income Taxes
    
    
    9.2
    
    
    
    10.0Pension, Postemployment and Postretirement Benefits Expense, Net of Contributions
    
    
    6.2
    
    
    
    11.6Amortization of Deferred Debt Issuance Costs
    
    
    4.2
    
    
    
    4.4Other, Net
    
    
    4.2
    
    
    
    1.7Changes in Operating Assets & Liabilities
    
    
    (67.6
    )
    
    
    (47.9
    )Net Cash Provided by Operating Activities
    
    
    9.2
    
    
    
    19.1CASH FLOWS FROM INVESTING ACTIVITIES:Capital Spending
    
    
    (42.6
    )
    
    
    (43.4
    )Other, Net
    
    
    (1.8
    )
    
    
    (0.1
    )Net Cash Used in Investing Activities
    
    
    (44.4
    )
    
    
    (43.5
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from Issuance of Debt
    
    
    1,135.0
    
    
    
    Payment on Debt
    
    
    (1,135.0
    )
    
    
    Borrowing under Revolving Credit Facilities
    
    
    466.9
    
    
    
    371.1Payments on Revolving Credit Facilities
    
    
    (421.0
    )
    
    
    (351.3
    )Increase in Debt Issuance Costs
    
    
    (7.0
    )
    
    
    Other, Net
    
    
    0.5
    
    
    
    (0.8
    )Net Cash Provided by Financing Activities
    
    
    39.4
    
    
    
    19.0EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    0.3
    
    
    
    Net Increase (Decrease) in Cash and Equivalents
    
    
    4.5
    
    
    
    (5.4
    )Cash and Equivalents at Beginning of Period
    
    
    7.3
    
    
    
    12.7CASH AND EQUIVALENTS AT END OF PERIOD
    
    $
    11.8
    
    
    $
    7.3
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GRAPHIC PACKAGING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 1  ORGANIZATION
      NOTE 2  ACCOUNTING POLICIES
   Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets and Financial
Liabilities  Including an Amendment of FASB Statement No. 115,
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Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement 109
     Fair Value Measurements,
 Accounting for Planned Major
Maintenance Activities
 NOTE 3  STOCK INCENTIVE PLANS
  Share-Based Payment
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Stock Options
  Stock Awards, Restricted Stock and Restricted Stock Units
   Weighted Avg.Grant Date Fair ValueIn thousands
    
    
    Shares
    
    Per ShareRSUs  Employees
    
    
    2,501
    
    
    $
    4.76Stock Awards  Board of Directors
    
    
    50
    
    
    $
    4.83
     NOTE 4  INVENTORIES
  June 30,
    
    December 31,In millions
    
    2007
    
    2006Finished goods
    
    $
    142.8
    
    
    $
    159.4Work in progress
    
    
    27.5
    
    
    
    22.1Raw materials
    
    
    75.0
    
    
    
    71.9Supplies
    
    
    60.3
    
    
    
    56.8305.6
    
    
    
    310.2Less, Allowance
    
    
    7.7
    
    
    
    8.9Total
    
    $
    297.9
    
    
    $
    301.3
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NOTE 5  ENVIRONMENTAL AND LEGAL MATTERS
 Environmental Matters
     Legal Matters
  NOTE 6  BUSINESS SEGMENT INFORMATION
  10




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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,In millions
    
    2007
    
    2006
    
    2007
    
    2006NET SALES:Paperboard Packaging
    
    $
    623.3
    
    
    $
    601.5
    
    
    $
    1,209.7
    
    
    $
    1,161.8Containerboard/Other
    
    
    24.0
    
    
    
    24.0
    
    
    
    46.3
    
    
    
    44.1Total
    
    $
    647.3
    
    
    $
    625.5
    
    
    $
    1,256.0
    
    
    $
    1,205.9INCOME (LOSS) FROM OPERATIONS:Paperboard Packaging
    
    $
    48.8
    
    
    $
    37.5
    
    
    $
    74.1
    
    
    $
    60.2Containerboard/Other
    
    
    (3.1
    )
    
    
    (5.1
    )
    
    
    (6.8
    )
    
    
    (9.8
    )Corporate
    
    
    (8.3
    )
    
    
    (7.7
    )
    
    
    (18.2
    )
    
    
    (16.6
    )Total
    
    $
    37.4
    
    
    $
    24.7
    
    
    $
    49.1
    
    
    $
    33.8
 NOTE 7  PENSIONS AND OTHER POSTRETIREMENT BENEFITS
   Pension and Postretirement Expense
  Pension Benefits
    
    Postretirement BenefitsThree Months
    
    Six Months
    
    Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,
    
    Ended June 30,
    
    Ended June 30,In millions
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006Service Cost
    
    $
    3.4
    
    
    $
    4.0
    
    
    $
    6.8
    
    
    $
    8.0
    
    
    $
    0.3
    
    
    $
    0.3
    
    
    $
    0.6
    
    
    $
    0.6Interest Cost
    
    
    8.7
    
    
    
    8.1
    
    
    
    17.4
    
    
    
    16.2
    
    
    
    0.6
    
    
    
    0.6
    
    
    
    1.2
    
    
    
    1.2Expected Return on Plan Assets
    
    
    (9.0
    )
    
    
    (8.0
    )
    
    
    (18.0
    )
    
    
    (16.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortizations:Prior Service Cost
    
    
    0.7
    
    
    
    0.5
    
    
    
    1.4
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Actuarial Loss
    
    
    0.6
    
    
    
    1.3
    
    
    
    1.2
    
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Periodic Cost
    
    $
    4.4
    
    
    $
    5.9
    
    
    $
    8.8
    
    
    $
    11.8
    
    
    $
    0.9
    
    
    $
    0.9
    
    
    $
    1.8
    
    
    $
    1.8
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NOTE 8  DEBT
  Debtors Accounting
for a Modification or Exchange of Debt Instruments Debtors Accounting for
Changes in Line-of-Credit or Revolving-Debt Arrangements,
  June 30,
    
    December 31,In millions
    
    2007
    
    2006Senior 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 (7.47% at December 31, 2006) payable through 2010
    
    
    
    
    
    
    1,055.0Senior Secured Revolving Facility with interest payable at various dates at
floating rates (10.25% at December 31, 2006) payable in 2009
    
    
    
    
    
    
    3.6Senior Secured Term Loan Facility with interest payable at various dates at
floating rates (7.36% at June 30, 2007) payable through 2014
    
    
    1,055.0
    
    
    
    Senior Secured Revolving Facility with interest payable at various dates at
floating rates (8.31% at June 30, 2007) payable in 2013
    
    
    48.5
    
    
    
    Other
    
    
    2.1
    
    
    
    2.41,955.6
    
    
    
    1,911.0Less, current portion
    
    
    10.9
    
    
    
    0.3Total
    
    $
    1,944.7
    
    
    $
    1,910.7
  Total Amount of
    
    Total Amount
    
    Total AmountIn millions
    
    Commitments
    
    Outstanding
    
    Available(a)Revolving Credit Facility
    
    $
    300.0
    
    
    $
    48.5
    
    
    $
    222.4International Facilities
    
    
    16.4
    
    
    
    10.7
    
    
    
    5.7Total
    
    $
    316.4
    
    
    $
    59.2
    
    
    $
    228.1
  (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 $29.1 million as of June 30, 2007.
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.  12




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Minimum CreditMaximum Consolidated
    
    Agreement EBITDA toDebt to Credit Agreement
    
    Consolidated InterestEBITDA Leverage Ratio(a)
    
    Expense Ratio(a)2007
    
    
    6.75 to 1.00
    
    
    
    1.75 to 1.002008
    
    
    6.00 to 1.00
    
    
    
    1.75 to 1.002009
    
    
    5.25 to 1.00
    
    
    
    2.00 to 1.002010 and thereafter
    
    
    4.75 to 1.00
    
    
    
    2.25 to 1.00
 Note:(a)
    
    Credit Agreement EBITDA is defined in the Credit Agreement as consolidated net income
before consolidated net interest expense, non-cash expenses and charges, total income tax
expense, depreciation expense, expense associated with amortization of intangibles and other
assets, non-cash provisions for reserves for discontinued operations, extraordinary, unusual
or non-recurring gains or losses or charges or credits, gain or loss associated with sale or
write-down of assets not in the ordinary course of business, and any income or loss accounted
for by the equity method of accounting.  
  13




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Twelve Months EndedIn millions
    
    June 30, 2007Net Loss
    
    $
    (101.1
    )Income Tax Expense
    
    
    24.5Interest Expense, Net
    
    
    173.7Loss on Early Extinguishment of Debt
    
    
    9.5Depreciation and Amortization
    
    
    200.7Dividends Received, Net of Earnings of Equity Affiliates
    
    
    (0.3
    )Pension, Postemployment and Postretirement Benefits Expense
    
    
    27.4Merger Related Expenses
    
    
    0.1Write-Down of Assets
    
    
    4.4Credit Agreement EBITDA
    
    $
    338.9
 Twelve Months EndedIn millions
    
    June 30, 2007Interest Expense, Net
    
    $
    173.7Amortization of Deferred Debt Issuance Costs
    
    
    (8.7
    )Credit Agreement Interest Expense Adjustments (a)
    
    
    0.1Consolidated Interest Expense
    
    $
    165.1
 As ofIn millions
    
    June 30, 2007Short Term Debt
    
    $
    23.7Long Term Debt
    
    
    1,944.7Total Debt
    
    $
    1,968.4
 Note:(a)
    
    Credit agreement interest expense adjustments include the discount from the financing of
certain receivables.  NOTE 9  COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,In millions
    
    2007
    
    2006
    
    2007
    
    2006Net Loss
    
    $
    (21.3
    )
    
    $
    (22.8
    )
    
    $
    (60.0
    )
    
    $
    (59.5
    )Other Comprehensive (Loss) Income:Derivative Instruments (Loss) Gain
    
    
    (0.6
    )
    
    
    (1.9
    )
    
    
    3.5
    
    
    
    (7.4
    )Currency Translation Adjustments
    
    
    2.3
    
    
    
    7.3
    
    
    
    3.1
    
    
    
    10.0Amortization of Prior Service Cost
    
    
    0.7
    
    
    
    
    
    
    
    1.4
    
    
    
    Amortization of Net Actuarial Loss
    
    
    0.8
    
    
    
    
    
    
    
    1.6
    
    
    
    Comprehensive Loss
    
    $
    (18.1
    )
    
    $
    (17.4
    )
    
    $
    (50.4
    )
    
    $
    (56.9
    )
 14




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NOTE 10  SUBSEQUENT EVENT
    15




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 INTRODUCTION
  Ø
    
    Overview of BusinessØ
    
    Overview of 2007 ResultsØ
    
    Results of OperationsØ
    
    Financial Condition, Liquidity and Capital ResourcesØ
    
    Critical Accounting PoliciesØ
    
    New Accounting StandardsØ
    
    Business Outlook
 OVERVIEW OF BUSINESS
  Significant Factors That Impact The Companys Business
 Substantial Debt Obligations
 Commitment to Cost Reduction
 16




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Impact of Inflation.
 Market Factors.
  OVERVIEW OF 2007 RESULTS
 
    
    Net Sales in the second quarter of 2007 increased by $21.8 million, or 3.5%, to $647.3
million from $625.5 million in the second quarter of 2006 due primarily to improved pricing
across all of the Companys product lines as well as volume increases in North American food
and consumer cartons, open market roll stock and Europe. Also contributing to the increase
was $3.6 million relating to the favorable foreign currency exchange rates in Europe.
    
    Income from Operations in the second quarter of 2007 increased by $12.7 million, or
51.4%, to $37.4 million from $24.7 million in the second quarter of 2006. The improved
pricing and worldwide continuous improvement programs and other cost reduction initiatives
were partially offset by higher inflation, and expenses related to a planned maintenance
outage.
    
    Debt decreased by $9.3 million during the second quarter of 2007.
 17




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RESULTS OF OPERATIONS
 Segment Information
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,In millions
    
    2007
    
    2006
    
    2007
    
    2006NET SALES:Paperboard Packaging
    
    $
    623.3
    
    
    $
    601.5
    
    
    $
    1,209.7
    
    
    $
    1,161.8Containerboard/Other
    
    
    24.0
    
    
    
    24.0
    
    
    
    46.3
    
    
    
    44.1Total
    
    $
    647.3
    
    
    $
    625.5
    
    
    $
    1,256.0
    
    
    $
    1,205.9INCOME (LOSS) FROM OPERATIONS:Paperboard Packaging
    
    $
    48.8
    
    
    $
    37.5
    
    
    $
    74.1
    
    
    $
    60.2Containerboard/Other
    
    
    (3.1
    )
    
    
    (5.1
    )
    
    
    (6.8
    )
    
    
    (9.8
    )Corporate
    
    
    (8.3
    )
    
    
    (7.7
    )
    
    
    (18.2
    )
    
    
    (16.6
    )Total
    
    $
    37.4
    
    
    $
    24.7
    
    
    $
    49.1
    
    
    $
    33.8
 SECOND QUARTER 2007 COMPARED WITH SECOND QUARTER 2006
 Net Sales
 Three Months Ended June 30,PercentIn millions
    
    2007
    
    2006
    
    Increase
    
    ChangePaperboard Packaging
    
    $
    623.3
    
    
    $
    601.5
    
    
    $
    21.8
    
    
    
    3.6
    %Containerboard/Other
    
    
    24.0
    
    
    
    24.0
    
    
    
    
    
    
    
    Total
    
    $
    647.3
    
    
    $
    625.5
    
    
    $
    21.8
    
    
    
    3.5
    %
  Three Months Ended June 30,VariancesIn millions
    
    2006
    
    Price
    
    Volume/Mix
    
    Exchange
    
    Total
    
    2007Paperboard Packaging
    
    $
    601.5
    
    
    
    8.5
    
    
    
    9.7
    
    
    
    3.6
    
    
    
    21.8
    
    
    $
    623.3Containerboard/Other
    
    
    24.0
    
    
    
    0.7
    
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    24.0Total
    
    $
    625.5
    
    
    
    9.2
    
    
    
    9.0
    
    
    
    3.6
    
    
    
    21.8
    
    
    $
    647.3
 Paperboard Packaging
  Containerboard/Other
  18




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##### Table of Contents



Income (Loss) from Operations
 Three Months Ended June 30,Increase
    
    
    PercentIn millions
    
    2007
    
    2006
    
    (Decrease)
    
    ChangePaperboard Packaging
    
    $
    48.8
    
    
    $
    37.5
    
    
    $
    11.3
    
    
    
    30.1
    %Containerboard/Other
    
    
    (3.1
    )
    
    
    (5.1
    )
    
    
    2.0
    
    
    
    39.2Corporate
    
    
    (8.3
    )
    
    
    (7.7
    )
    
    
    (0.6
    )
    
    
    (7.8
    )Total
    
    $
    37.4
    
    
    $
    24.7
    
    
    $
    12.7
    
    
    
    51.4
    %
  Three Months Ended June 30,VariancesIn millions
    
    2006
    
    Price
    
    Volume/Mix
    
    Inflation
    
    Exchange
    
    Other(a)
    
    Total
    
    2007Paperboard Packaging
    
    $
    37.5
    
    
    
    8.5
    
    
    
    2.3
    
    
    
    (6.7
    )
    
    
    1.0
    
    
    
    6.2
    
    
    
    11.3
    
    
    $
    48.8Containerboard/Other
    
    
    (5.1
    )
    
    
    0.7
    
    
    
    1.6
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.2
    )
    
    
    2.0
    
    
    
    (3.1
    )Corporate
    
    
    (7.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    (0.6
    )
    
    
    (8.3
    )Total
    
    $
    24.7
    
    
    
    9.2
    
    
    
    3.9
    
    
    
    (6.8
    )
    
    
    1.0
    
    
    
    5.4
    
    
    
    12.7
    
    
    $
    37.4
 Note:(a)
    
    Includes the benefits from the Companys cost reduction initiatives and the impact of
higher depreciation and amortization expense as well as the infrastructure upgrade at the
Companys West Monroe, LA mill. Paperboard Packaging
  Containerboard/Other
  Corporate
  19




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##### Table of Contents



FIRST SIX MONTHS OF 2007 COMPARED WITH FIRST SIX MONTHS OF 2006
 Net Sales
 Six Months Ended June 30,PercentIn millions
    
    2007
    
    2006
    
    Increase
    
    ChangePaperboard Packaging
    
    $
    1,209.7
    
    
    $
    1,161.8
    
    
    $
    47.9
    
    
    
    4.1
    %Containerboard/Other
    
    
    46.3
    
    
    
    44.1
    
    
    
    2.2
    
    
    
    5.0Total
    
    $
    1,256.0
    
    
    $
    1,205.9
    
    
    $
    50.1
    
    
    
    4.2
    %
  Six Months Ended June 30,VariancesIn millions
    
    2006
    
    Price
    
    Volume/Mix
    
    Exchange
    
    Total
    
    2007Paperboard Packaging
    
    $
    1,161.8
    
    
    
    20.6
    
    
    
    18.0
    
    
    
    9.3
    
    
    
    47.9
    
    
    $
    1,209.7Containerboard/Other
    
    
    44.1
    
    
    
    2.6
    
    
    
    (0.4
    )
    
    
    
    
    
    
    2.2
    
    
    
    46.3Total
    
    $
    1,205.9
    
    
    
    23.2
    
    
    
    17.6
    
    
    
    9.3
    
    
    
    50.1
    
    
    $
    1,256.0
 Paperboard Packaging
  Containerboard/Other
  Income (Loss) from Operations
 Six Months Ended June 30,Increase


    
    
    PercentIn millions
    
    2007
    
    2006
    
    (Decrease)
    
    ChangePaperboard Packaging
    
    $
    74.1
    
    
    $
    60.2
    
    
    $
    13.9
    
    
    
    23.1
    %Containerboard/Other
    
    
    (6.8
    )
    
    
    (9.8
    )
    
    
    3.0
    
    
    
    30.6Corporate
    
    
    (18.2
    )
    
    
    (16.6
    )
    
    
    (1.6
    )
    
    
    (9.6
    )Total
    
    $
    49.1
    
    
    $
    33.8
    
    
    $
    15.3
    
    
    
    45.3
    %
 20




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##### Table of Contents



Six Months Ended June 30,VariancesIn millions
    
    2006
    
    Price
    
    Volume/Mix
    
    Inflation
    
    Exchange
    
    

    Other(a)
    
    
    Total
    
    2007Paperboard Packaging
    
    $
    60.2
    
    
    
    20.6
    
    
    
    2.3
    
    
    
    (17.0
    )
    
    
    3.3
    
    
    
    4.7
    
    
    
    13.9
    
    
    $
    74.1Containerboard/Other
    
    
    (9.8
    )
    
    
    2.6
    
    
    
    1.4
    
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    3.0
    
    
    
    (6.8
    )Corporate
    
    
    (16.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.6
    )
    
    
    (1.6
    )
    
    
    (18.2
    )Total
    
    $
    33.8
    
    
    
    23.2
    
    
    
    3.7
    
    
    
    (18.0
    )
    
    
    3.3
    
    
    
    3.1
    
    
    
    15.3
    
    
    $
    49.1
 Note:(a)
    
    Includes the benefits from the Companys cost reduction initiatives and the impact of
higher depreciation and amortization expense as well as the infrastructure upgrade at the
Companys West Monroe, LA mill. Paperboard Packaging
  Containerboard/Other
  Corporate
  21




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##### Table of Contents



INTEREST INCOME, INTEREST EXPENSE, INCOME TAX EXPENSE AND EQUITY IN NET EARNINGS OF AFFILIATES
 Interest Income
  Interest Expense
  Loss on Early Extinguishment of Debt
  Income Tax Expense
  Equity in Net Earnings of Affiliates
  22




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##### Table of Contents



FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
  Cash Flows
  Liquidity and Capital Resources
   Debtors Accounting
for a Modification or Exchange of Debt Instruments Debtors Accounting for
Changes in Line-of-Credit or Revolving-Debt Arrangements,
 23




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##### Table of Contents



June 30,
    
    December 31,In millions
    
    2007
    
    2006Senior 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 (7.47% at
December 31, 2006) payable through
2010
    
    
    
    
    
    
    1,055.0Senior Secured Revolving Facility
with interest payable at various
dates at floating rates (10.25% at
December 31, 2006) payable in 2009
    
    
    
    
    
    
    3.6Senior Secured Term Loan Facility
with interest payable at various
dates at floating rates (7.36% at
June 30, 2007) payable through 2014
    
    
    1,055.0
    
    
    
    Senior Secured Revolving Facility
with interest payable at various
dates at floating rates (8.31% at
June 30, 2007) payable in 2013
    
    
    48.5
    
    
    
    Other
    
    
    2.1
    
    
    
    2.41,955.6
    
    
    
    1,911.0Less, current portion
    
    
    10.9
    
    
    
    0.3Total
    
    $
    1,944.7
    
    
    $
    1,910.7
  Total Amount of
    
    Total Amount
    
    Total AmountIn millions
    
    Commitments
    
    Outstanding
    
    Available(a)Revolving Credit Facility
    
    $
    300.0
    
    
    $
    48.5
    
    
    $
    222.4International Facilities
    
    
    16.4
    
    
    
    10.7
    
    
    
    5.7Total
    
    $
    316.4
    
    
    $
    59.2
    
    
    $
    228.1
  (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 $29.1 million as of June 30, 2007.
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.   Covenant Restrictions
  24




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##### Table of Contents



Minimum CreditMaximum Consolidated
    
    Agreement EBITDA toDebt to Credit Agreement
    
    Consolidated InterestEBITDA Leverage Ratio(a)
    
    Expense Ratio(a)2007
    
    
    6.75 to 1.00
    
    
    
    1.75 to 1.002008
    
    
    6.00 to 1.00
    
    
    
    1.75 to 1.002009
    
    
    5.25 to 1.00
    
    
    
    2.00 to 1.002010 and thereafter
    
    
    4.75 to 1.00
    
    
    
    2.25 to 1.00
  (a)
    
    Credit Agreement EBITDA is defined in the Credit Agreement as consolidated net income
before consolidated net interest expense, non-cash expenses and charges, total income tax
expense, depreciation expense, expense associated with amortization of intangibles and other
assets, non-cash provisions for reserves for discontinued operations, extraordinary, unusual
or non-recurring gains or losses or charges or credits, gain or loss associated with sale or
write-down of assets not in the ordinary course of business, and any income or loss
accounted for by the equity method of accounting.  
  25




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##### Table of Contents



Twelve Months EndedIn millions
    
    June 30, 2007Net Loss
    
    $
    (101.1
    )Income Tax Expense
    
    
    24.5Interest Expense, Net
    
    
    173.7Loss on Early Extinguishment of Debt
    
    
    9.5Depreciation and Amortization
    
    
    200.7Dividends Received, Net of Earnings of Equity Affiliates
    
    
    (0.3
    )Pension, Postemployment and Postretirement Benefits Expense
    
    
    27.4Merger Related Expenses
    
    
    0.1Write-Down of Assets
    
    
    4.4Credit Agreement EBITDA
    
    $
    338.9
 Twelve Months EndedIn millions
    
    June 30, 2007Interest Expense, Net
    
    $
    173.7Amortization of Deferred Debt Issuance Costs
    
    
    (8.7
    )Credit Agreement Interest Expense Adjustments (a)
    
    
    0.1Consolidated Interest Expense
    
    $

    165.1
 As ofIn millions
    
    June 30, 2007Short Term Debt
    
    $
    23.7Long Term Debt
    
    
    1,944.7Total Debt
    
    $
    1,968.4
  (a)
    
    Credit agreement interest expense adjustments include the discount from the financing of
certain receivables.  Capital Investment
  Environmental Matters
  26




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
    NEW ACCOUNTING STANDARDS
  BUSINESS OUTLOOK
  27




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##### Table of Contents




    
    Depreciation and amortization between $185 million and $195 million.
    
    Interest expense of $165 million to $175 million, including
approximately $8 million of non-cash interest expense associated
with amortization of debt issuance costs.
    
    Debt reduction of $60 million to $70 million.
    
    Pension plan contributions of $25 million to $30 million.
 28




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  29




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##### Table of Contents



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
    
    WithheldKevin J. Conway
    
    
    182,753,667
    
    
    
    9,073,112Jeffrey H. Coors
    
    
    182,496,323
    
    
    
    9,330,456Robert W. Tieken
    
    
    190,131,341
    
    
    
    1,505,438
  
 ITEM 6. EXHIBITS
  Exhibit Number
    
    Description31.1
    
    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
 /s/ STEPHEN A. HELLRUNG
    
    Senior Vice President, GeneralStephen A. Hellrung
    
    Counsel and Secretary
    
    August 7, 2007/s/ DANIEL J. BLOUNT
    
    Senior Vice President andDaniel J. Blount
    
    Chief Financial Officer (Principal
Financial Officer)
    
    August 7, 2007/s/ DEBORAH R. FRANK
    
    Vice President and ControllerDeborah R. Frank
    
    (Principal Accounting Officer)
    
    August 7, 2007
 31