##### 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 September 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




---



##### Table of Contents



Information Concerning Forward-Looking Statements
  2




---



##### 



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
    
    
    18ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    32ITEM 4. CONTROLS AND PROCEDURES
    
    
    32PART II  OTHER INFORMATION
    
    
    33ITEM 1. LEGAL PROCEEDINGS
    
    
    33ITEM 1A. RISK FACTORS
    
    
    33ITEM 6. EXHIBITS
    
    
    33SIGNATURES
    
    
    34EX-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




---



##### Table of Contents



PART I FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 GRAPHIC PACKAGING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    December 31,In millions, except share and per share amounts
    
    2007
    
    2006(Unaudited)ASSETSCurrent Assets:Cash and Equivalents
    
    $
    10.2
    
    
    $
    7.1Receivables, Net
    
    
    256.9
    
    
    
    219.2Inventories
    
    
    310.9
    
    
    
    287.7Other Current Assets
    
    
    25.2
    
    
    
    22.9Assets Held for Sale
    
    
    35.8
    
    
    
    60.8Total Current Assets
    
    
    639.0
    
    
    
    597.7Property, Plant and Equipment, Net
    
    
    1,385.9
    
    
    
    1,458.4Goodwill
    
    
    642.3
    
    
    
    642.3Intangible Assets, Net
    
    
    141.8
    
    
    
    148.5Deferred Tax Assets
    
    
    344.5
    
    
    
    344.9Other Assets
    
    
    34.2
    
    
    
    41.8Total Assets
    
    $
    3,187.7
    
    
    $
    3,233.6LIABILITIESCurrent Liabilities:Short Term Debt
    
    $
    18.8
    
    
    $
    10.9Accounts Payable
    
    
    204.5
    
    
    
    203.6Other Accrued Liabilities
    
    
    161.8
    
    
    
    187.8Liabilities Held for Sale
    
    
    27.2
    
    
    
    27.7Total Current Liabilities
    
    
    412.3
    
    
    
    430.0Long Term Debt
    
    
    1,930.9
    
    
    
    1,910.5Deferred Tax Liabilities
    
    
    480.3
    
    
    
    465.7Accrued Pension and Postretirement Benefits
    
    
    194.0
    
    
    
    206.7Other Noncurrent Liabilities
    
    
    44.9
    
    
    
    39.0Total Liabilities
    
    
    3,062.4
    
    
    
    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
September 30, 2007 and December 31, 2006, respectively
    
    
    2.0
    
    
    
    2.0Capital in Excess of Par Value
    
    
    1,191.0
    
    
    
    1,186.8Accumulated Deficit
    
    
    (975.0
    )
    
    
    (901.1
    )Accumulated Other Comprehensive Loss
    
    
    (92.7
    )
    
    
    (106.0
    )Total Shareholders Equity
    
    
    125.3
    
    
    
    181.7Total Liabilities and Shareholders Equity
    
    $
    3,187.7
    
    
    $
    3,233.6
  4




---



##### Table of Contents



GRAPHIC PACKAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,In millions, except per share amounts
    
    2007
    
    2006
    
    2007
    
    2006Net Sales
    
    $
    612.1
    
    
    $
    595.9
    
    
    $
    1,819.3
    
    
    $
    1,756.0Cost of Sales
    
    
    500.1
    
    
    
    500.5
    
    
    
    1,555.6
    
    
    
    1,521.5Selling, General and Administrative
    
    
    48.3
    
    
    
    48.7
    
    
    
    141.5
    
    
    
    147.4Research, Development and Engineering
    
    
    2.1
    
    
    
    2.6
    
    
    
    6.7
    
    
    
    8.3Other Expense, Net
    
    
    
    
    
    
    1.4
    
    
    
    2.1
    
    
    
    0.4Income from Operations
    
    
    61.6
    
    
    
    42.7
    
    
    
    113.4
    
    
    
    78.4Interest Income
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.5Interest Expense
    
    
    (41.4
    )
    
    
    (43.3
    )
    
    
    (127.8
    )
    
    
    (127.8
    )Loss on Early Extinguishment of Debt
    
    
    
    
    
    
    
    
    
    
    (9.5
    )
    
    
    Income (Loss) before Income Taxes and Equity in Net
Earnings of Affiliates
    
    
    20.3
    
    
    
    (0.5
    )
    
    
    (23.6
    )
    
    
    (48.9
    )Income Tax Expense
    
    
    (5.4
    )
    
    
    (5.2
    )
    
    
    (19.1
    )
    
    
    (15.3
    )Income (Loss) before Equity in Net Earnings of Affiliates
    
    
    14.9
    
    
    
    (5.7
    )
    
    
    (42.7
    )
    
    
    (64.2
    )Equity in Net Earnings of Affiliates
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.7
    
    
    
    0.8Income (Loss) from Continuing Operations
    
    
    15.1
    
    
    
    (5.4
    )
    
    
    (42.0
    )
    
    
    (63.4
    )(Loss) Income from Discontinued Operations, Net of Taxes
    
    
    (29.0
    )
    
    
    0.3
    
    
    
    (31.9
    )
    
    
    (1.2
    )Net Loss
    
    $
    (13.9
    )
    
    $
    (5.1
    )
    
    $
    (73.9
    )
    
    $
    (64.6
    )Income (Loss) Per Share  BasicContinuing Operations
    
    $
    0.07
    
    
    $
    (0.03
    )
    
    $
    (0.21
    )
    
    $
    (0.31
    )Discontinued Operations
    
    
    (0.14
    )
    
    
    
    
    
    
    (0.16
    )
    
    
    (0.01
    )Total
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.37
    )
    
    $
    (0.32
    )Income (Loss) Per Share  DilutedContinuing Operations
    
    $
    0.07
    
    
    $
    (0.03
    )
    
    $
    (0.21
    )
    
    $
    (0.31
    )Discontinued Operations
    
    
    (0.14
    )
    
    
    
    
    
    
    (0.16
    )
    
    
    (0.01
    )Total
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.37
    )
    
    $
    (0.32
    )Weighted Average Number of Shares Outstanding  Basic
    
    
    202.1
    
    
    
    200.5
    
    
    
    201.7
    
    
    
    200.5Weighted Average Number of Shares Outstanding  Diluted
    
    
    206.4
    
    
    
    200.5
    
    
    
    201.7
    
    
    
    200.5
  5




---



##### Table of Contents



GRAPHIC PACKAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months EndedSeptember 30,In millions
    
    2007
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net Loss
    
    $
    (73.9
    )
    
    $
    (64.6
    )Noncash Items Included in Net Loss:Depreciation and Amortization
    
    
    149.7
    
    
    
    146.6Loss on Early Extinguishment of Debt
    
    
    9.5
    
    
    
    Deferred Income Taxes
    
    
    14.1
    
    
    
    15.0Pension, Postemployment and Postretirement Benefits Expense, Net of Contributions
    
    
    (5.2
    )
    
    
    (3.0
    )Amortization of Deferred Debt Issuance Costs
    
    
    5.5
    
    
    
    6.6Impairment Charge
    
    
    25.2
    
    
    
    3.9Other, Net
    
    
    7.2
    
    
    
    1.3Changes in Operating Assets & Liabilities
    
    
    (86.7
    )
    
    
    (47.6
    )Net Cash Provided by Operating Activities
    
    
    45.4
    
    
    
    58.2CASH FLOWS FROM INVESTING ACTIVITIES:Capital Spending
    
    
    (61.6
    )
    
    
    (63.8
    )Other, Net
    
    
    (3.6
    )
    
    
    (0.4
    )Net Cash Used in Investing Activities
    
    
    (65.2
    )
    
    
    (64.2
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from Issuance of Debt
    
    
    1,135.0
    
    
    
    Payment on Debt
    
    
    (1,140.3
    )
    
    
    Borrowing under Revolving Credit Facilities
    
    
    681.2
    
    
    
    495.8Payments on Revolving Credit Facilities
    
    
    (644.0
    )
    
    
    (496.8
    )Increase in Debt Issuance Costs
    
    
    (7.0
    )
    
    
    Other, Net
    
    
    (0.2
    )
    
    
    (0.8
    )Net Cash Provided by (Used in) Financing Activities
    
    
    24.7
    
    
    
    (1.8
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    0.8
    
    
    
    Net Increase (Decrease) in Cash and Equivalents
    
    
    5.7
    
    
    
    (7.8
    )Cash and Equivalents at Beginning of Period (a)
    
    
    7.3
    
    
    
    12.7Cash and Equivalents at End of Period
    
    
    13.0
    
    
    
    4.9Less Cash and Equivalents of Assets Held for Sale at End of Period
    
    
    (2.8
    )
    
    
    (0.2
    )CASH AND EQUIVALENTS OF CONTINUING OPERATIONS AT END OF PERIOD
    
    $
    10.2
    
    
    $
    4.7
   6




---



##### Table of Contents



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,
 7




---



##### Table of Contents



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
 8




---



##### Table of Contents



Stock Options
  Stock Awards, Restricted Stock and Restricted Stock Units
   Weighted Avg.Grant Date FairIn thousands, except per share amounts
    
    Shares
    
    Value Per ShareRSUs  Employees
    
    
    2,501
    
    
    $
    4.76Stock Awards  Board of Directors
    
    
    50
    
    
    $
    4.83
     9




---



##### Table of Contents



NOTE 4  INVENTORIES
  September 30,
    
    December 31,In millions
    
    2007
    
    2006Finished goods
    
    $
    146.0
    
    
    $
    150.1Work in progress
    
    
    27.8
    
    
    
    21.8Raw materials
    
    
    85.3
    
    
    
    70.9Supplies
    
    
    57.7
    
    
    
    53.0316.8
    
    
    
    295.8Less, Allowance
    
    
    5.9
    
    
    
    8.1Total
    
    $
    310.9
    
    
    $
    287.7
 NOTE 5  ENVIRONMENTAL AND LEGAL MATTERS
 Environmental Matters
       10




---



##### Table of Contents



Legal Matters
  NOTE 6  BUSINESS SEGMENT INFORMATION
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,In millions
    
    2007
    
    2006
    
    2007
    
    2006NET SALES:Paperboard Packaging
    
    $
    586.1
    
    
    $
    569.8
    
    
    $
    1,747.0
    
    
    $
    1,685.8Containerboard/Other
    
    
    26.0
    
    
    
    26.1
    
    
    
    72.3
    
    
    
    70.2Total
    
    $
    612.1
    
    
    $
    595.9
    
    
    $
    1,819.3
    
    
    $
    1,756.0INCOME (LOSS) FROM OPERATIONS:Paperboard Packaging
    
    $
    73.8
    
    
    $
    51.4
    
    
    $
    150.6
    
    
    $
    113.5Containerboard/Other
    
    
    (3.7
    )
    
    
    (3.4
    )
    
    
    (10.5
    )
    
    
    (13.2
    )Corporate
    
    
    (8.5
    )
    
    
    (5.3
    )
    
    
    (26.7
    )
    
    
    (21.9
    )Total
    
    $
    61.6
    
    
    $
    42.7
    
    
    $
    113.4
    
    
    $
    78.4
 NOTE 7  PENSIONS AND OTHER POSTRETIREMENT BENEFITS
   11




---



##### Table of Contents



Pension and Postretirement Expense
  Pension Benefits
    
    Postretirement BenefitsThree Months
    
    Nine Months
    
    Three Months
    
    Nine MonthsEnded
    
    Ended
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,In millions
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006Service Cost
    
    $
    3.4
    
    
    $
    4.0
    
    
    $
    10.2
    
    
    $
    12.0
    
    
    $
    0.2
    
    
    $
    0.3
    
    
    $
    0.8
    
    
    $
    0.9Interest Cost
    
    
    8.8
    
    
    
    8.0
    
    
    
    26.2
    
    
    
    24.2
    
    
    
    0.8
    
    
    
    0.6
    
    
    
    2.0
    
    
    
    1.8Expected Return on Plan Assets
    
    
    (9.1
    )
    
    
    (7.4
    )
    
    
    (27.1
    )
    
    
    (23.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortizations:Prior Service Cost
    
    
    0.8
    
    
    
    0.6
    
    
    
    2.2
    
    
    
    1.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Actuarial Loss (Gain)
    
    
    0.5
    
    
    
    1.8
    
    
    
    1.7
    
    
    
    4.4
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )
    
    
    Net Periodic Cost
    
    $
    4.4
    
    
    $
    7.0
    
    
    $
    13.2
    
    
    $
    18.8
    
    
    $
    0.9
    
    
    $
    0.9
    
    
    $
    2.7
    
    
    $
    2.7
   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,
 12




---



##### Table of Contents



September 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 (7.45% at September 30, 2007) payable through 2014
    
    
    1,049.7
    
    
    
    Senior Secured Revolving Facility with interest payable at various dates
at floating rates (8.71% at September 30, 2007) payable in 2013
    
    
    40.0
    
    
    
    Other
    
    
    1.9
    
    
    
    2.11,941.6
    
    
    
    1,910.7Less, current portion
    
    
    10.7
    
    
    
    0.2Total
    
    $
    1,930.9
    
    
    $
    1,910.5
  Total Amount of
    
    Total Amount
    
    Total AmountIn millions
    
    Commitments
    
    Outstanding
    
    Available (a)Revolving Credit Facility
    
    $
    300.0
    
    
    $
    40.0
    
    
    $
    246.0International Facilities.
    
    
    21.3
    
    
    
    12.5
    
    
    
    8.8Total
    
    $
    321.3
    
    
    $
    52.5
    
    
    $
    254.8
  (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 $14.0 million as of September 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 2008 unless
extended.   13




---



##### 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.  
   Twelve Months EndedIn millions
    
    September 30, 2007Net Loss
    
    $
    (109.8
    )Income Tax Expense
    
    
    24.7Interest Expense, Net
    
    
    171.8Loss on Early Extinguishment of Debt
    
    
    9.5Depreciation and Amortization
    
    
    199.1Dividends Received, Net of Earnings of Equity Affiliates
    
    
    (0.2
    )Pension, Postemployment and Postretirement Benefits Expense
    
    
    24.2Merger Related Expenses
    
    
    1.5Write-Down of Assets
    
    
    26.1RSU Compensation Expense
    
    
    4.3Environmental Reserve
    
    
    3.0Credit Agreement EBITDA
    
    $
    354.2
 Twelve Months EndedIn millions
    
    September 30, 2007Interest Expense, Net
    
    $
    171.8Amortization of Deferred Debt Issuance Costs
    
    
    (7.7
    )Consolidated Interest Expense
    
    $
    164.1
 As ofIn millions
    
    September 30, 2007Short Term Debt
    
    $
    23.4Long Term Debt
    
    
    1,930.9Total Debt (b)
    
    $
    1,954.3
   14




---



##### Table of Contents



NOTE 9  COMPREHENSIVE (LOSS) INCOME
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,In millions
    
    2007
    
    2006
    
    2007
    
    2006Net Loss
    
    $
    (13.9
    )
    
    $
    (5.1
    )
    
    $
    (73.9
    )
    
    $
    (64.6
    )Other Comprehensive (Loss) Income:Derivative Instruments Loss
    
    
    (4.1
    )
    
    
    (7.6
    )
    
    
    (0.6
    )
    
    
    (15.0
    )Currency Translation Adjustments
    
    
    6.2
    
    
    
    (0.5
    )
    
    
    9.3
    
    
    
    9.5Amortization of Prior Service Cost
    
    
    0.8
    
    
    
    
    
    
    
    2.2
    
    
    
    Amortization of Net Actuarial Loss
    
    
    0.8
    
    
    
    
    
    
    
    2.4
    
    
    
    Comprehensive Loss
    
    $
    (10.2
    )
    
    $
    (13.2
    )
    
    $
    (60.6
    )
    
    $
    (70.1
    )
 NOTE 10  EARNINGS PER SHARE
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,In millions
    
    2007
    
    2006
    
    2007
    
    2006Weighted Average Number of Common Shares:Basic
    
    
    202.1
    
    
    
    200.5
    
    
    
    201.7
    
    
    
    200.5Dilutive effect of Stock Options
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    Dilutive effect of Restricted Stock Units
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    
    206.4
    
    
    
    200.5
    
    
    
    201.7
    
    
    
    200.5
  NOTE 11  IMPAIRMENT
 Accounting for the Impairment or Disposal of Long-Lived
Assets
  15




---



##### Table of Contents



NOTE 12  DISCONTINUED OPERATIONS
   September 30,
    
    December 31,In millions
    
    2007
    
    2006Cash and Equivalents
    
    $
    2.8
    
    
    $
    0.2Receivables, Net
    
    
    13.3
    
    
    
    11.7Inventories
    
    
    15.8
    
    
    
    13.6Other Current Assets
    
    
    1.0
    
    
    
    1.9Property, Plant and Equipment, Net
    
    
    
    
    
    
    30.3Other Assets
    
    
    2.9
    
    
    
    3.1Assets Held for Sale
    
    $
    35.8
    
    
    $
    60.8Short-Term Debt
    
    $
    4.6
    
    
    $
    1.2Accounts Payable
    
    
    11.7
    
    
    
    10.8Other Accrued Liabilities
    
    
    7.7
    
    
    
    6.1Long-Term Debt
    
    
    
    
    
    
    0.2Deferred Tax Liabilities
    
    
    3.2
    
    
    
    9.4Liabilities Held for Sale
    
    $
    27.2
    
    
    $
    27.7Net Assets Held for Sale
    
    $
    8.6
    
    
    $
    33.1
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,In millions
    
    2007
    
    2006
    
    2007
    
    2006Net Sales
    
    $
    25.2
    
    
    $
    23.9
    
    
    $
    78.1
    
    
    $
    73.4(Loss) Income before Income Taxes
    
    
    (35.5
    )
    
    
    0.1
    
    
    
    (38.5
    )
    
    
    (2.5
    )
  NOTE 13  SUBSEQUENT EVENT
   16




---



##### Table of Contents



17




---



##### Table of Contents



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
 18




---



##### Table of Contents



Impact of Inflation.
 Market Factors.
  OVERVIEW OF 2007 RESULTS
  
    
    Net Sales in the third quarter of 2007 increased by $16.2 million, or 2.7%, to $612.1
million from $595.9 million in the third quarter of 2006 due primarily to improved pricing
across the paperboard packaging segment. Also contributing to the increase was $5.3 million
relating to the favorable foreign currency exchange rates in Europe.
    
    Income from Operations in the third quarter of 2007 increased by $18.9 million, or 44.3%,
to $61.6 million from $42.7 million in the third quarter of 2006. The improved pricing and
worldwide continuous improvement programs and other cost reduction initiatives were
partially offset by higher inflation.
    
    Debt decreased by $13.3 million during the third quarter of 2007.
    
    On July 9, 2007, the Company entered into a Transaction Agreement and Agreement and Plan
of Merger (Transaction Agreement) by and among the Company, Bluegrass Container Holdings,
LLC (BCH), TPG Bluegrass IV, L.P. (TPG IV), TPG Bluegrass IV-AIV 2, L.P. (TPG IV-AIV),
TPG Bluegrass V, L.P. (TPG V), TPG Bluegrass V-AIV 2, L.P. (TPG V-AIV), Field Holdings,
Inc. (Field Holdings), TPG FOF V-A, L.P. (FOF V-A), TPG FOF V-B, L.P. (FOF V-B), BCH
Management, LLC (together with Field Holdings, TPG IV, TPG IV-AIV, TPG V, TPG V-AIV, FOF
V-A, FOF V-B and any transferee of their
 19




---



##### Table of Contents



interests in BCH, the Sellers), New Giant Corporation, a wholly-owned subsidiary of the
Company (Newco), and Giant Merger Sub, Inc., a wholly-owned subsidiary of Newco (Merger
Sub). The transactions contemplated by such Transaction Agreement are expected to be
completed in the fourth quarter of 2007, subject to customary shareholder and regulatory
approvals.The effect of the Transaction is that Newco will hold all of the equity interests of Graphic
Packaging Corporation and BCH, which in turn will hold all of the assets of Graphic Packaging
International, Inc. and Altivity Packaging, LLC. The Companys current stockholders will
initially own approximately 60% of the outstanding common stock of Newco, while the holders of
BCH equity interests will initially own approximately 40%.
 RESULTS OF OPERATIONS
 Segment Information
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,In millions
    
    2007
    
    2006
    
    2007
    
    2006NET SALES:Paperboard Packaging
    
    $
    586.1
    
    
    $
    569.8
    
    
    $
    1,747.0
    
    
    $
    1,685.8Containerboard/Other
    
    
    26.0
    
    
    
    26.1
    
    
    
    72.3
    
    
    
    70.2Total
    
    $
    612.1
    
    
    $
    595.9
    
    
    $
    1,819.3
    
    
    $
    1,756.0INCOME (LOSS) FROM OPERATIONS:Paperboard Packaging
    
    $
    73.8
    
    
    $
    51.4
    
    
    $
    150.6
    
    
    $
    113.5Containerboard/Other
    
    
    (3.7
    )
    
    
    (3.4
    )
    
    
    (10.5
    )
    
    
    (13.2
    )Corporate
    
    
    (8.5
    )
    
    
    (5.3
    )
    
    
    (26.7
    )
    
    
    (21.9
    )Total
    
    $
    61.6
    
    
    $
    42.7
    
    
    $
    113.4
    
    
    $
    78.4
 THIRD QUARTER 2007 COMPARED WITH THIRD QUARTER 2006
 Net Sales
 Three Months Ended September 30,PercentIn millions
    
    2007
    
    2006
    
    Increase
    
    ChangePaperboard Packaging
    
    $
    586.1
    
    
    $
    569.8
    
    
    $
    16.3
    
    
    
    2.9
    %Containerboard/Other
    
    
    26.0
    
    
    
    26.1
    
    
    
    (0.1
    )
    
    
    (0.4
    )Total
    
    $
    612.1
    
    
    $
    595.9
    
    
    $
    16.2
    
    
    
    2.7
    %
  Three Months Ended September 30,VariancesIn millions
    
    2006
    
    Price
    
    Volume/Mix
    
    Exchange
    
    Total
    
    2007Paperboard Packaging
    
    $
    569.8
    
    
    
    10.3
    
    
    
    0.7
    
    
    
    5.3
    
    
    
    16.3
    
    
    $
    586.1Containerboard/Other
    
    
    26.1
    
    
    
    (0.3
    )
    
    
    0.2
    
    
    
    
    
    
    
    (0.1
    )
    
    
    26.0Total
    
    $
    595.9
    
    
    
    10.0
    
    
    
    0.9
    
    
    
    5.3
    
    
    
    16.2
    
    
    $
    612.1
 Paperboard Packaging
  20




---



##### Table of Contents



Containerboard/Other
  Income (Loss) from Operations
 Three Months Ended September 30,Increase
    
    PercentIn millions
    
    2007
    
    2006
    
    (Decrease)
    
    ChangePaperboard Packaging
    
    $
    73.8
    
    
    $
    51.4
    
    
    $
    22.4
    
    
    
    43.6
    %Containerboard/Other
    
    
    (3.7
    )
    
    
    (3.4
    )
    
    
    (0.3
    )
    
    
    (8.8
    )Corporate
    
    
    (8.5
    )
    
    
    (5.3
    )
    
    
    (3.2
    )
    
    
    (60.4
    )Total
    
    $
    61.6
    
    
    $
    42.7
    
    
    $
    18.9
    
    
    
    44.3
    %
  Three Months Ended September 30,VariancesIn millions
    
    2006
    
    Price
    
    Volume/Mix
    
    Inflation
    
    Exchange
    
    Other (a)
    
    Total
    
    2007Paperboard Packaging
    
    $
    51.4
    
    
    
    10.3
    
    
    
    2.2
    
    
    
    (12.5
    )
    
    
    2.5
    
    
    
    19.9
    
    
    
    22.4
    
    
    $
    73.8Containerboard/Other
    
    
    (3.4
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (3.7
    )Corporate
    
    
    (5.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.2
    )
    
    
    (3.2
    )
    
    
    (8.5
    )Total
    
    $
    42.7
    
    
    
    10.0
    
    
    
    2.2
    
    
    
    (12.5
    )
    
    
    2.5
    
    
    
    16.7
    
    
    
    18.9
    
    
    $
    61.6
   Paperboard Packaging
  Containerboard/Other
  Corporate
  21




---



##### Table of Contents



FIRST NINE MONTHS OF 2007 COMPARED WITH FIRST NINE MONTHS OF 2006
 Net Sales
 Nine Months Ended September 30,PercentIn millions
    
    2007
    
    2006
    
    Increase
    
    ChangePaperboard Packaging
    
    $
    1,747.0
    
    
    $
    1,685.8
    
    
    $
    61.2
    
    
    
    3.6
    %Containerboard/Other
    
    
    72.3
    
    
    
    70.2
    
    
    
    2.1
    
    
    
    3.0Total
    
    $
    1,819.3
    
    
    $
    1,756.0
    
    
    $
    63.3
    
    
    
    3.6
    %
  Nine Months Ended September 30,VariancesIn millions
    
    2006
    
    Price
    
    Volume/Mix
    
    Exchange
    
    Total
    
    2007Paperboard Packaging
    
    $
    1,685.8
    
    
    
    29.8
    
    
    
    20.0
    
    
    
    11.4
    
    
    
    61.2
    
    
    $
    1,747.0Containerboard/Other
    
    
    70.2
    
    
    
    2.3
    
    
    
    (0.2
    )
    
    
    
    
    
    
    2.1
    
    
    
    72.3Total
    
    $
    1,756.0
    
    
    
    32.1
    
    
    
    19.8
    
    
    
    11.4
    
    
    
    63.3
    
    
    $
    1,819.3
 Paperboard Packaging
  Containerboard/Other
  Income (Loss) from Operations
 Nine Months Ended September 30,Increase
    
    PercentIn millions
    
    2007
    
    2006
    
    (Decrease)
    
    ChangePaperboard Packaging
    
    $
    150.6
    
    
    $
    113.5
    
    
    $
    37.1
    
    
    
    32.7
    %Containerboard/Other
    
    
    (10.5
    )
    
    
    (13.2
    )
    
    
    2.7
    
    
    
    20.5Corporate
    
    
    (26.7
    )
    
    
    (21.9
    )
    
    
    (4.8
    )
    
    
    (21.9
    )Total
    
    $
    113.4
    
    
    $
    78.4
    
    
    $
    35.0
    
    
    
    44.6
    %
 22




---



##### Table of Contents



Nine Months Ended September 30,VariancesIn millions
    
    2006
    
    Price
    
    Volume/Mix
    
    Inflation
    
    Exchange
    
    Other (a)
    
    Total
    
    2007Paperboard Packaging
    
    $
    113.5
    
    
    
    29.8
    
    
    
    4.4
    
    
    
    (28.4
    )
    
    
    5.8
    
    
    
    25.5
    
    
    
    37.1
    
    
    $
    150.6Containerboard/Other
    
    
    (13.2
    )
    
    
    2.3
    
    
    
    1.4
    
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    2.7
    
    
    
    (10.5
    )Corporate
    
    
    (21.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.8
    )
    
    
    (4.8
    )
    
    
    (26.7
    )Total
    
    $
    78.4
    
    
    
    32.1
    
    
    
    5.8
    
    
    
    (29.4
    )
    
    
    5.8
    
    
    
    20.7
    
    
    
    35.0
    
    
    $
    113.4
  (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
  23




---



##### 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
  DISCONTINUED OPERATIONS
   Accounting for the Impairment or Disposal of Long-Lived
Assets
 24




---



##### Table of Contents



25




---



##### 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,
 26




---



##### Table of Contents



September 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 (7.45% at September 30, 2007) payable through 2014
    
    
    1,049.7
    
    
    
    Senior Secured Revolving Facility with interest payable at various dates
at floating rates (8.71% at September 30, 2007) payable in 2013
    
    
    40.0
    
    
    
    Other
    
    
    1.9
    
    
    
    2.11,941.6
    
    
    
    1,910.7Less, current portion
    
    
    10.7
    
    
    
    0.2Total
    
    $
    1,930.9
    
    
    $
    1,910.5
  Total Amount of
    
    Total Amount
    
    Total AmountIn millions
    
    Commitments
    
    Outstanding
    
    Available (a)Revolving Credit Facility
    
    $
    300.0
    
    
    $
    40.0
    
    
    $
    246.0International Facilities
    
    
    21.3
    
    
    
    12.5
    
    
    
    8.8Total
    
    $
    321.3
    
    
    $
    52.5
    
    
    $
    254.8
  (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 $14 million as of September 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 2008 unless
extended.   Covenant Restrictions
  27




---



##### 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.     28




---



##### Table of Contents



Twelve Months EndedIn millions
    
    September 30, 2007Net Loss
    
    $
    (109.8
    )Income Tax Expense
    
    
    24.7Interest Expense, Net
    
    
    171.8Loss on Early Extinguishment of Debt
    
    
    9.5Depreciation and Amortization
    
    
    199.1Dividends Received, Net of Earnings of Equity Affiliates
    
    
    (0.2
    )Pension, Postemployment and Postretirement Benefits Expense
    
    
    24.2Merger Related Expenses
    
    
    1.5Write-Down of Assets
    
    
    26.1RSU Compensation Expense
    
    
    4.3Environmental Reserve
    
    
    3.0Credit Agreement EBITDA
    
    $
    354.2
 Twelve Months EndedIn millions
    
    September 30, 2007Interest Expense, Net
    
    $
    171.8Amortization of Deferred Debt Issuance Costs
    
    
    (7.7
    )Consolidated Interest Expense
    
    $
    164.1
 As ofIn millions
    
    September 30, 2007Short Term Debt
    
    $
    23.4Long Term Debt
    
    
    1,930.9Total Debt(a)
    
    $
    1,954.3
    Capital Investment
  Environmental Matters
  29




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   30




---



##### Table of Contents



NEW ACCOUNTING STANDARDS
  BUSINESS OUTLOOK
     
    
    Depreciation and amortization, excluding discontinued operations,
between $190 million and $200 million.
    
    Interest expense of $160 million to $170 million, including
approximately $8 million of non-cash interest expense associated with
amortization of debt issuance costs.
    
    Debt reduction of approximately $60 million.
    
    Pension plan contributions of $25 million to $30 million.
 31




---



##### 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
  32




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 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.
 33




---



##### Table of Contents



SIGNATURES
  GRAPHIC PACKAGING CORPORATION
 /s/ STEPHEN A. HELLRUNG

Stephen A. Hellrung
    
    Senior Vice President, General
Counsel and Secretary
    
    November 9, 2007/s/ DANIEL J. BLOUNT

Daniel J. Blount
    
    Senior Vice President and
Chief Financial Officer (Principal
Financial Officer)
    
    November 9, 2007/s/ DEBORAH R. FRANK

Deborah R. Frank
    
    Vice President and Controller
(Principal Accounting Officer)
    
    November 9, 2007
 34