Edgar Filing: BWAY Holding CO

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Form 10-Q

As Filed with the Securities and Exchange Commission on August 14, 2007

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended:

July 1, 2007


Commission File Number	Registrant, State of Incorporation, Address and Telephone Number	I.R.S. Employer Identification No.
001-33527	BWAY Holding Company (A Delaware Corporation) 8607 Roberts Drive Suite 250 Atlanta, Georgia 30350-2237 (770) 645-4800	55-0800054

001-12415	BWAY Corporation	36-3624491
	(A Delaware Corporation) 8607 Roberts Drive Suite 250 Atlanta, Georgia 30350-2237 (770) 645-4800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Registrant
BWAY Holding Company		Yes ¨ No x

BWAY Corporation		Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

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

(Response applicable to all registrants).


Registrant	Description of Common Stock	Shares Outstanding at August 10, 2007
BWAY Holding Company	Par Value $0.01 per share	21,593,856
BWAY Corporation	Par Value $0.01 per share	1,000

BWAY HOLDING COMPANY

BWAY CORPORATION

Quarterly Report on Form 10-Q

For the quarterly period ended July 1, 2007

INDEX


		Page Number
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements

	BWAY Holding Company

	Unaudited Consolidated Balance Sheets at July 1, 2007 and October 1, 2006	1

	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended July 1, 2007 and July 2, 2006	2

	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended July 1, 2007 and July 2, 2006	3

	BWAY Corporation

	Unaudited Consolidated Balance Sheets at July 1, 2007 and October 1, 2006	4

	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended July 1, 2007 and July 2, 2006	5

	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended July 1, 2007 and July 2, 2006	6

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults Upon Senior Securities	43

Item 4.	Submission of Matters to a Vote of Security Holders	44

Item 5.	Other Information	44

Item 6.	Exhibits	44

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

BWAY HOLDING COMPANY AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS


(Dollars in thousands, except share data)	July 1, 2007		October 1, 2006
Assets
CURRENT ASSETS
Cash and cash equivalents	$	10,048	$	50,979
Accounts receivable, net of allowance for doubtful accounts of $1,906 and $1,702		136,544		115,986
Inventories, net		93,349		80,441
Income taxes receivable		8,969		7,291
Deferred tax assets		2,772		4,038
Other		7,060		4,842

TOTAL CURRENT ASSETS		258,742		263,577

PROPERTY, PLANT AND EQUIPMENT, NET		138,775		142,944


OTHER ASSETS
Goodwill		251,585		248,687
Other intangible assets, net		161,405		166,201
Deferred financing costs, net of accumulated amortization of $5,611 and $4,029		9,527		10,952
Other		2,613		1,384

TOTAL OTHER ASSETS		425,130		427,224

TOTAL ASSETS	$	822,647	$	833,745


Liabilities and Stockholders’ Equity
CURRENT LIABILITIES
Accounts payable	$	122,558	$	118,939
Accrued salaries and wages		13,645		13,856
Accrued interest		5,845		9,837
Accrued rebates		10,252		11,091
Current portion of long-term debt		1,820		20,506
Other		18,153		18,360

TOTAL CURRENT LIABILITIES		172,273		192,589

LONG-TERM DEBT		427,396		419,495


OTHER LIABILITIES
Deferred tax liabilities		60,350		71,292
Other		22,851		22,886

TOTAL OTHER LIABILITIES		83,201		94,178

TOTAL LIABILITIES		682,870		706,262


COMMITMENTS AND CONTINGENCIES (NOTE 9)

STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value, 20,000,000 shares authorized at July 1, 2007; no shares issued		—		—
Common stock, $0.01 par value, 200,000,000 and 23,995,088 shares authorized; 21,589,242 and 20,524,708 shares issued and outstanding		216		205
Additional paid-in capital		119,000		106,151
Retained earnings		19,801		21,624
Accumulated other comprehensive income (loss)		760		(497	)

TOTAL STOCKHOLDERS’ EQUITY		139,777		127,483

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	822,647	$	833,745

The accompanying Notes to Unaudited Consolidated Financial Statements as they relate to BWAY Holding Company are an integral part of these statements.

BWAY HOLDING COMPANY AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended					Nine Months Ended
(Dollars in thousands, except per share data)	July 1, 2007			July 2, 2006		July 1, 2007			July 2, 2006
NET SALES	$	269,532		$	242,675	$	706,179		$	669,467


COSTS AND EXPENSES
Cost of products sold (excluding depreciation and amortization)		236,695			204,889		607,383			583,891
Depreciation and amortization		11,532			10,112		34,107			30,449
Selling and administrative expense		21,448			4,833		31,939			14,391
Public offering expense (Note 1)		9,210			—		9,527			—
Restructuring charge (adjustment)		29			338		(135	)		533
Interest expense, net		9,630			8,441		28,353			24,952
Other expense, net		369			188		956			909

TOTAL COSTS AND EXPENSES		288,913			228,801		712,130			655,125


(LOSS) INCOME BEFORE INCOME TAXES		(19,381	)		13,874		(5,951	)		14,342
(Benefit from) provision for income taxes		(9,744	)		4,564		(4,128	)		4,721

NET (LOSS) INCOME	$	(9,637	)	$	9,310	$	(1,823	)	$	9,621


NET (LOSS) INCOME PER SHARE (NOTE 7)
Basic	$	(0.46	)	$	0.45	$	(0.09	)	$	0.47

Diluted		(0.46	)		0.37		(0.09	)		0.38

The accompanying Notes to Unaudited Consolidated Financial Statements as they relate to BWAY Holding Company are an integral part of these statements.

BWAY HOLDING COMPANY AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended
(Dollars in thousands)	July 1, 2007			July 2, 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(1,823	)	$	9,621
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Depreciation		22,238			20,696
Amortization of other intangible assets		11,869			9,753
Amortization of deferred financing costs		1,585			1,595
Provision for doubtful accounts		209			177
Loss on disposition of property, plant and equipment		273			358
Utilization of acquired deferred tax asset		—			1,659
Deferred income taxes		(9,672	)		(7,290	)
Stock-based compensation expense		10,559			914
Changes in assets and liabilities, net of effects of business acquisitions
Accounts receivable		(17,593	)		(10,950	)
Inventories		(10,420	)		(4,584	)
Other assets		(3,464	)		(4,333	)
Accounts payable		2,012			11,490
Accrued and other liabilities		(8,929	)		(6,837	)
Income taxes		(2,808	)		(2,486	)

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(5,964	)		19,783


CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(18,088	)		(20,342	)
Business acquisitions		(6,014	)		—
Other		76			725

NET CASH USED IN INVESTING ACTIVITIES		(24,026	)		(19,617	)


CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving credit facility		7,000			—
Repayments of term loans		(20,402	)		(30,000	)
Proceeds from stock option exercises		2,839			—
Increase in unpresented bank drafts in excess of cash available for offset		—			735
Principal repayments under capital leases		(154	)		(182	)
Financing costs		(99	)		—

NET CASH USED IN FINANCING ACTIVITIES		(10,816	)		(29,447	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(125	)		—

NET DECREASE IN CASH AND CASH EQUIVALENTS		(40,931	)		(29,281	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		50,979			51,889

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	10,048		$	22,608


SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest	$	30,769		$	28,450
Income taxes		8,084			12,838
Detail of business acquisitions:
Fair value of assets acquired		10,850			—
Liabilities assumed		(4,836	)		—

Cash paid for business acquisitions		6,014			—

Non-cash investing and financing activities Amounts owed for capital expenditures		822			1,261

The accompanying Notes to Unaudited Consolidated Financial Statements as they relate to BWAY Holding Company are an integral part of these statements.

BWAY CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS


(Dollars in thousands, except share data)	July 1, 2007		October 1, 2006
Assets
CURRENT ASSETS
Cash and cash equivalents	$	10,048	$	50,979
Accounts receivable, net of allowance for doubtful accounts of $1,906 and $1,702		136,544		115,986
Inventories, net		93,349		80,441
Income taxes receivable		8,969		7,291
Deferred tax assets		2,772		4,038
Other		7,060		4,842

TOTAL CURRENT ASSETS		258,742		263,577

PROPERTY, PLANT AND EQUIPMENT, NET		138,775		142,944


OTHER ASSETS
Goodwill		251,585		248,687
Other intangible assets, net		161,405		166,201
Deferred financing costs, net of accumulated amortization of $5,611 and $4,029		9,527		10,952
Other		2,613		1,384

TOTAL OTHER ASSETS		425,130		427,224

TOTAL ASSETS	$	822,647	$	833,745


Liabilities and Stockholder’s Equity
CURRENT LIABILITIES
Accounts Payable	$	122,558	$	118,939
Accrued salaries and wages		13,645		13,856
Accrued interest		5,845		9,837
Accrued rebates		10,252		11,091
Current portion of long-term debt		1,820		20,506
Other		18,153		18,360

TOTAL CURRENT LIABILITIES		172,273		192,589

LONG-TERM DEBT		427,396		419,495


OTHER LIABILITIES
Deferred tax liabilities		60,350		71,292
Other		22,851		22,886

TOTAL OTHER LIABILITIES		83,201		94,178

TOTAL LIABILITIES		682,870		706,262


COMMITMENTS AND CONTINGENCIES (NOTE 9)

STOCKHOLDER’S EQUITY
Preferred stock, $0.01 par value, 500 and 5,000,000 shares authorized; no shares issued		—		—
Common stock, $0.01 par value, 2,500 and 24,000,000 shares authorized; 1,000 shares issued and outstanding		—		—
Additional paid-in capital		125,742		112,882
Retained earnings		13,275		15,098
Accumulated other comprehensive income (loss)		760		(497	)

TOTAL STOCKHOLDER’S EQUITY		139,777		127,483

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	822,647	$	833,745

The accompanying Notes to Unaudited Consolidated Financial Statements as they relate to BWAY Corporation are an integral part of these statements.

BWAY CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended					Nine Months Ended
(Dollars in thousands)	July 1, 2007			July 2, 2006		July 1, 2007			July 2, 2006
NET SALES	$	269,532		$	242,675	$	706,179		$	669,467

COSTS AND EXPENSES
Cost of products sold (excluding depreciation and amortization)		236,695			204,889		607,383			583,891
Depreciation and amortization		11,532			10,112		34,107			30,449
Selling and administrative expense		21,448			4,833		31,939			14,391
Public offering expense (Note 1)		9,210			—		9,527			—
Restructuring charge (adjustment)		29			338		(135	)		533
Interest expense, net		9,630			8,441		28,353			24,952
Other expense, net		369			188		956			909

TOTAL COSTS AND EXPENSES		288,913			228,801		712,130			655,125


(LOSS) INCOME BEFORE INCOME TAXES		(19,381	)		13,874		(5,951	)		14,342
(Benefit from) provision for income taxes		(9,744	)		4,564		(4,128	)		4,721

NET (LOSS) INCOME	$	(9,637	)	$	9,310	$	(1,823	)	$	9,621

The accompanying Notes to Unaudited Consolidated Financial Statements as they relate to BWAY Corporation are an integral part of these statements.

BWAY CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended
(Dollars in thousands)	July 1, 2007			July 2, 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(1,823	)	$	9,621
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Depreciation		22,238			20,696
Amortization of other intangible assets		11,869			9,753
Amortization of deferred financing costs		1,585			1,595
Provision for doubtful accounts		209			177
Loss on disposition of property, plant and equipment		273			358
Utilization of acquired deferred tax asset		—			1,659
Deferred income taxes		(9,672	)		(7,290	)
Stock-based compensation expense		10,559			914
Changes in assets and liabilities, net of effects of business acquisitions
Accounts receivable		(17,593	)		(10,950	)
Inventories		(10,420	)		(4,584	)
Other assets		(3,464	)		(4,333	)
Accounts payable		2,012			11,490
Accrued and other liabilities		(8,929	)		(6,837	)
Income taxes		(2,808	)		(2,486	)

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(5,964	)		19,783


CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(18,088	)		(20,342	)
Business acquisitions		(6,014	)		—
Other		76			725

NET CASH USED IN INVESTING ACTIVITIES		(24,026	)		(19,617	)


CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving credit facility		7,000			—
Repayments of term loans		(20,402	)		(30,000	)
Proceeds from stock option exercises		2,839			—
Increase in unpresented bank drafts in excess of cash available for offset		—			735
Principal repayments under capital leases		(154	)		(182	)
Financing costs		(99	)		—

NET CASH USED IN FINANCING ACTIVITIES		(10,816	)		(29,447	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(125	)		—

NET DECREASE IN CASH AND CASH EQUIVALENTS		(40,931	)		(29,281	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		50,979			51,889

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	10,048		$	22,608


SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest	$	30,769		$	28,450
Income taxes		8,084			12,838
Detail of business acquisitions:
Fair value of assets acquired		10,850			—
Liabilities assumed		(4,836	)		—

Cash paid for business acquisitions		6,014			—

Non-cash investing and financing activities
Amounts owed for capital expenditures		822			1,261

The accompanying Notes to Unaudited Consolidated Financial Statements as they relate to BWAY Corporation are an integral part of these statements.

BWAY HOLDING COMPANY AND SUBSIDIARIES

BWAY CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	GENERAL

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared without audit. The statements for BWAY Holding Company (“BWAY Holding”) include the accounts of BWAY Holding and its wholly owned subsidiary, BWAY Corporation and its subsidiaries (“BWAY”). The statements for BWAY include the accounts of BWAY and its subsidiaries (“BWAY”). In these notes, BWAY Holding and BWAY are collectively referred to as the “Company”, “we” or “our”.

BWAY Holding has registered equity securities and BWAY has registered debt securities, each registered with the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, including critical and significant accounting policies, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.

These statements and the accompanying notes should be read in conjunction with BWAY’s Annual Report on Form 10-K for the year ended October 1, 2006 (the “Annual Report”) and BWAY Holding’s Registration Statement on Form S-1 dated June 12, 2007 (the “Registration Statement”). The unaudited consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented.

These Notes to Unaudited Consolidated Financial Statements apply equally to BWAY Holding and BWAY with the exception of Notes 7 and 12, which are only applicable to BWAY Holding and BWAY, respectively.

Results of operations for the three and nine months ended July 1, 2007 are not necessarily indicative of the results that may be expected for the entire fiscal year.

Unless otherwise stated, references to years herein relate to fiscal years.

Initial Public Offering of BWAY Holding

In March 2007, BWAY Holding filed with the SEC a registration statement on Form S-1 under the Securities Act related to its common stock. The SEC declared the registration statement effective on June 12, 2007 and on June 13, 2007, BWAY Holding common stock began trading on the New York Stock Exchange under the ticker symbol “BWY”. In this initial public offering of BWAY Holding common stock, certain selling stockholders, including Kelso (as defined below), our executive chairman and another member of the board, offered 10,039,216 shares at an issue price of $15.00 per share to the public, which represented a portion of their BWAY Holding common stock (the “IPO” or the “public offering”). We did not receive any proceeds from the offering.

We paid approximately $2.5 million in offering costs related to the transaction, a $2.0 million fee to Deutsche Bank for advisory services, a $5.0 million fee to Kelso in consideration for termination of payment of annual financial advisory fees, a $10.0 million bonus to certain members of management and $0.5 million in taxes and benefits related to the management bonus. The selling stockholders paid the underwriting discounts and commissions.

As further described in Note 8, “Stock-Based Compensation”, we incurred a non-cash stock-based compensation charge of approximately $9.6 million related to the accelerated vesting of certain stock options concurrently with and contingent upon the IPO. In addition, we expect to incur additional non-cash stock-based compensation expense of $2.2 million, $7.0 million and $2.1 million in 2007, 2008 and 2009, respectively, related to other modifications to outstanding stock options concurrently with and contingent upon the IPO.

These expenses and the applicable line items are summarized as follows:


	Financial Statement Line Item						Total
For the nine months ended July 1, 2007 (Dollars in millions)	Cost of Products Sold(1)		Selling and Administrative Expense		Public Offering Expense		Total
IPO RELATED EXPENSES
Offering costs	$	—	$	—	$	2.5	$	2.5
Deutsche Bank advisory fee		—		—		2.0		2.0
Kelso fee termination payment		—		—		5.0		5.0
Management bonus(2)		2.5		8.0		—		10.5
Stock-based compensation related to accelerated vesting		1.8		7.8		—		9.6

TOTALS	$	4.3	$	15.8	$	9.5	$	29.6

(1)	excluding depreciation and amortization

(2)	including $0.5 million in related taxes and benefits

Of the total $29.6 million in expenses, $0.3 million and $29.3 million were recorded in the second quarter and third quarter of 2007, respectively.

Business and Segment Information

BWAY Holding is a holding company without independent operations that was created in 2002 to effectuate the Transaction (as defined below). BWAY is the operating subsidiary of BWAY Holding, and it manufactures and distributes metal and rigid plastic containers that are used primarily by manufacturers of industrial and consumer products for packaging. We have operations in the United States and Canada and sell primarily to customers located in these geographic markets. We report two segments—metal packaging and plastics packaging. See Note 10, “Business Segments”, for a discussion of our business segments.

Prior to the IPO, BWAY Holding common stock was privately held by affiliates of Kelso & Company, L.P. (“Kelso”), certain members of management and certain other parties, as a result of a leveraged buyout completed on February 7, 2003 (the “Transaction”). Pursuant to the Transaction, BWAY Holding purchased all of the issued and outstanding shares of BWAY, which, at the time, was publicly traded on the New York Stock Exchange. Any reference herein to “Predecessor” refers to BWAY prior to the Transaction. BWAY is a wholly-owned subsidiary of BWAY Holding.

Our fiscal year ends on the Sunday closest to September 30. Our North America Packaging Corporation (“NAMPAC”) and ICL Industrial Containers ULC (“ICL”) subsidiaries report their financial position and results of operations on a calendar month basis with fiscal years ending on September 30. There were no significant or unusual transactions between the calendar month and fiscal month ending dates that should have been considered in the consolidated financial statements.

Acquisitions

Industrial Containers

Vulcan Containers

On January 30, 2007, we acquired substantially all of the assets and assumed certain of the liabilities of Vulcan Containers, Ltd. (“Vulcan”) for a purchase price of approximately CDN$7.1 million, including transaction costs, (approximately $6.0 million U.S. dollars at the closing date) (the “Vulcan Acquisition”). We funded the acquisition using available cash on hand. Vulcan is headquartered in Toronto and produces steel pails for distribution primarily in Canada. The acquired business is included in our metal packaging segment.

The Vulcan acquisition further expands our presence in Canada, a market we believe will be important for our future growth, and provides an opportunity to leverage the manufacturing capacity of ICL. In February 2007, we committed to a plan to consolidate the Vulcan business with and into our ICL operations. As a result, we closed the Vulcan manufacturing facilities and terminated approximately 100 employees. In connection with the preliminary purchase price allocation pursuant to EITF Issue 95-3, Reorganization of Liabilities in Connection with a Purchase Business Combination (“EITF 95-3”), we recorded a reorganization liability of approximately $3.4 million, which consists of severance payments and facility closure costs.

The acquisition was accounted for as a purchase in accordance with Statement of Financial Accounting Standards (‘SFAS”) No. 141, Business Combinations (“SFAS No. 141”). As such, the assets and liabilities have been recorded at estimated fair value at the date of acquisition. We allocated the purchase price based on our estimates of fair value.

The following is a summary of the fair value of the assets acquired and liabilities assumed as of the date of acquisition based on a preliminary purchase price allocation. The finalization of certain transaction costs, among other things, could result in an adjustment to the allocation.


(Dollars in thousands)
Current assets	$	4,300
Intangible assets subject to amortization		5,391
Goodwill		1,104
Other		33

Total assets		10,828

Current liabilities		1,406
Reorganization liability		3,431

Total liabilities		4,837

PURCHASE PRICE	$	5,991

The life of the acquired intangible assets subject to amortization, which consist solely of customer relationships, is included in our metal packaging segment and is approximately 14 years. Goodwill resulting from this acquisition is not deductible for income tax purposes.

Stock Split and Shares Authorized—BWAY Holding Company

On May 23, 2007, the Board declared a stock split of BWAY Holding common stock by means of a stock dividend in the amount of 0.87081603410564 shares of common stock for each share of common stock issued and held by stockholders of record as of the close of business on May 23, 2007 payable on May 25, 2007. The Board also adjusted each outstanding option to purchase one share of common stock under our stock-based compensation plans as of the close of business on May 23, 2007 to be an option to purchase 1.87081603410564 shares of common stock at an exercise price equal to 53.452610078685% of the original exercise price for that option. All share and per share amounts (except par value) have been adjusted to reflect the effect of the stock split for all periods presented.

On May 25, 2007, we filed an amendment to BWAY Holding’s certificate of incorporation to increase its authorized share capital to 200,000,000 shares of common stock, par value $0.01 per share, and 20,000,000 shares of preferred stock, par value $0.01 per share. There was no preferred stock outstanding at July 1, 2007.

Shares Authorized—BWAY Corporation

On May 25, 2007, we filed an amendment to BWAY’s certificate of incorporation to decrease its authorized share capital to 2,500 shares of common stock, par value $0.01 per share, and 500 shares of preferred stock, par value $0.01 per share.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS 158”). This Statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability on its statement of financial position. SFAS 158 also requires an employer to recognize changes in that funded status in the year in which the changes occur through comprehensive income. In addition, this statement requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. SFAS 158 is effective for us at the end of fiscal 2007, which ends September 30, 2007. We are currently evaluating the impact of SFAS 158 on our consolidated financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”). This interpretation clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return and requires that we recognize in our financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure requirements for uncertain tax positions. The provisions of FIN 48 are effective for us at the beginning of 2008 (October 2007). We are currently evaluating the impact of FIN 48 on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for us at the beginning of fiscal 2009 (October 2008). We have not decided if we will early adopt SFAS No. 159 or if we will choose to measure any eligible financial assets and liabilities at fair value.

Income Taxes

Our effective tax rate for the third quarter and first nine months of fiscal 2007 has been impacted by the loss before income taxes as a result of the $29.6 million in IPO related expenses (as discussed above), the non-deductibility of a portion of such expenses and, in part, expiration at the end of 2006 of a federal tax credit for possession corporations, which provided a benefit related to our operations in Puerto Rico.

2.	INVENTORIES


(Dollars in thousands)	July 1, 2007			October 1, 2006
Raw materials	$	31,639		$	26,212
Work-in-progress		41,749			39,181
Finished goods		36,912			32,894

Inventories at FIFO cost		110,300			98,287
LIFO reserve		(16,951	)		(17,846	)

INVENTORIES	$	93,349		$	80,441

We intend to change our method of accounting for the cost of inventories for our U.S. subsidiaries from the last-in, first-out (LIFO) method of inventory valuation to the first-in, first-out (FIFO) method, effective upon the approval by the Internal Revenue Service (the “IRS”) of the FIFO method of accounting for income tax purposes, which we expect to receive in the fourth quarter of fiscal 2007. The inventories of our non-U.S. subsidiaries will continue to be valued using the FIFO method. After this change, all of our inventories will be valued using the FIFO method.

We believe that the FIFO method is preferable to the LIFO method because it (1) will better match revenues and expenses for financial and tax reporting purposes; (2) will provide a consistent valuation method for all of our inventories; (3) provides for period-end FIFO inventory values, which will be more current in rising price environments, and, as such, will better approximate replacement cost; and (4) will reduce the administrative burden of calculating LIFO reserve adjustments.

3.	GOODWILL AND OTHER INTANGIBLES

Change in the net carrying amount of goodwill by reportable segment during the first nine months of 2007:


(Dollars in thousands)	Metal Packaging		Plastics Packaging		Total
BALANCE, OCTOBER 1, 2006	$	120,328	$	128,359	$	248,687
Additions related to the Vulcan Acquisition		1,104		—		1,104
Adjustment to the NAMPAC Acquisition		—		113		113
Adjustment to the ICL Acquisition		5		18		23
Currency translation adjustment		530		1,128		1,658

BALANCE, JULY 1, 2007	$	121,967	$	129,618	$	251,585

During the second quarter of 2007, the IRS concluded an audit related to certain preacquisition net operating loss (“NOL”) carryforwards we acquired in the NAMPAC Acquisition. In the purchase price allocation for the NAMPAC Acquisition, we accrued a contingent liability of approximately $0.9 million as an estimate of NOL carryforwards that would be disallowed following the IRS audit. We recorded an adjustment to goodwill of $0.1 million in the second quarter of 2007 to adjust our estimate to the actual amount disallowed by the IRS.

Identifiable intangible assets by major asset class:


	July 1, 2007							October 1, 2006
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
AMORTIZABLE INTANGIBLE ASSETS
Customer relationships	$	184,911	$	(44,062	)	$	140,849	$	177,873	$	(33,601	)	$	144,272
Tradenames		26,147		(6,204	)		19,943		25,984		(4,809	)		21,175
Noncompetition agreements		401		(401	)		—		401		(260	)		141

		211,459		(50,067	)		160,792		204,258		(38,670	)		165,588

UNAMORTIZABLE INTANGIBLE ASSETS
Technology		613		—			613		613		—			613

TOTAL OTHER INTANGIBLE ASSETS	$	212,073	$	(50,067	)	$	161,405	$	204,871	$	(38,670	)	$	166,201

The useful lives of customer relationships, tradenames and noncompetition agreements range from 14 to 18 years, 10 to 15 years and 3 to 4 years, respectively.

Expected amortization expense is as follows:


(Dollars in thousands)
FISCAL YEAR ENDING
2007 (remaining quarter)	$	4,001
2008		15,696
2009		15,118
2010		15,020
2011		14,356
Thereafter		96,601

	$	160,792

4.	LONG-TERM DEBT


(Dollars in thousands)	July 1, 2007			October 1, 2006
LONG TERM DEBT
10% USD senior subordinated notes due October 2010	$	200,000		$	200,000
Variable rate USD term loan maturing July 2013		169,500			189,500
Variable rate CAD term loan maturing July 2013		52,716			50,501
Variable rate USD revolving loan maturing July 2012		7,000			—

		429,216			440,001
Less: Current portion		(1,820	)		(20,506	)

LONG TERM DEBT, NET OF CURRENT PORTION	$	427,396		$	419,495

The current portion of long-term debt at October 1, 2006 reflects a voluntary prepayment of the USD term loan of $20.0 million made in the first quarter of 2007. Prepayments on the term loan reduce future scheduled payments.

The weighted-average interest rate on variable rate credit facility borrowings at July 1, 2007 and October 1, 2006 was approximately 7.0%.

Scheduled maturities of long-term debt:


(Dollars in thousands)
FISCAL YEAR ENDING
2007 (remaining quarter)	$	133
2008		1,820
2009		2,678
2010		2,249
2011		202,249
Thereafter		220,087

	$	429,216

Of the $1.8 million current portion of long-term debt, $0.1 million is scheduled to be repaid in the last quarter of 2007 and the remaining $1.7 million is scheduled to be repaid in the first nine months of 2008.

Senior Subordinated Notes

10% Senior Notes Due 2010

The $200.0 million principal amount of 10% Senior Subordinated Notes due 2010 (the “Senior Notes”) are unsecured senior subordinated obligations of BWAY and are effectively subordinated to all senior debt obligations of BWAY. Interest on the Senior Notes is payable semi-annually in arrears on April 15 and October 15. The interest rate is fixed at 10% per annum. All of BWAY’s U.S. based subsidiaries have fully and unconditionally guaranteed the Senior Notes.

The Senior Notes are governed by an Indenture dated November 27, 2002 with The Bank of New York, as trustee, as assumed by BWAY on February 7, 2003 and as amended from time to time (the “Indenture”).

The Senior Notes are subject to covenants that, among other things, limit BWAY’s ability (and the ability of some or all of its subsidiaries) to: incur additional indebtedness, pay dividends or distributions on its capital stock or to repurchase its capital stock, make certain investments, create liens on our assets to secure debt, engage in transactions with affiliates, merge or consolidate with another company and transfer and sell assets. These covenants are subject to a number of important limitations and exceptions. At July 1, 2007, BWAY was in compliance with all applicable covenants related to the Senior Notes.

BWAY may redeem some or all of these notes at redemption prices specified in the Indenture (105% on October 15, 2006 declining annually to 100% on October 15, 2009). Upon the occurrence of a Change in Control, as defined in the Indenture, the holders of the Senior Notes could require BWAY to repurchase the notes at 101% of the principal amount.

We are amortizing approximately $8.0 million in deferred financing costs related to the underwriting and registration of these notes to interest expense over the term of the notes on a straight-line basis, which approximates the effective yield method. At July 1, 2007 and October 1, 2006, approximately $3.4 million and $4.2 million, respectively, of the deferred costs were unamortized.

Credit Facility

On July 17, 2006, in conjunction with the ICL Acquisition, we entered into a new credit facility with various lenders, Deutsche Bank Trust Company Americas, as administrative agent, LaSalle Bank, N.A., as documentation agent and Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc., as joint arrangers. The credit facility consists of a $190.0 million B Term Loan (the “US Term Loan”) and a $50.0 million revolving credit facility (the “US Revolver”) and a Cdn$56.41 million (US$50.0 million equivalent at the borrowing date) C Term Loan (the “Canadian Term Loan”) and a US$5.0 million equivalent revolving credit facility (the “Canadian Revolver”).

BWAY is the borrower of the US Term Loan and only BWAY can borrow on the US Revolver. ICL is the borrower of the Canadian Term Loan and only ICL can borrow on the Canadian Revolver.

The term loans mature July 17, 2013 and the revolving loans mature July 17, 2012. In the event the Senior Notes are not refinanced prior to April 15, 2010, the US Term Loan and the US and Canadian Revolvers mature April 15, 2010 and the Canadian Term Loan matures July 18, 2011.

The US Term Loan is denominated in U.S. dollars and, at the option of the borrower, may consist of a Base Rate Loan or a Eurodollar Loan, each as defined in the credit agreement. Interest accrues on Base Rate Loans at a fixed margin of 0.75% plus the greater of the federal funds rate plus .5% or the Prime Lending Rate and on Eurodollar Loans at a Eurodollar Rate (as defined in the credit agreement) plus a fixed margin of 1.75%. At July 1, 2007, the effective interest rate on outstanding US Term Loan borrowings was approximately 7.1%.

Due to a $20.0 million voluntary prepayment on the US Term Loan in December 2006, scheduled quarterly repayments of approximately $0.4 million do not resume until December 31, 2007 and will continue through March 31, 2013. The remaining unpaid balance is due on the maturity date. Once repaid, the term loan may not be reborrowed.

The US Revolver is denominated in U.S. dollars and, at the option of the borrower, may consist of a Base Rate Loan or a Eurodollar Loan, each as defined in the credit agreement. Any outstanding borrowings are due at maturity. Interest accrues on Base Rate Loans at a variable margin ranging from 0.25% to 1.00% plus the greater of either the federal funds rate plus .5% or the administrative agent’s “prime lending rate.” Interest accrues on Eurodollar Loans at a Eurodollar Rate plus a variable margin ranging from 1.25% to 2.00%. The applicable margin for either the Base Rate or Eurodollar loans is based on a Consolidated Total Leverage Ratio, as defined in the credit agreement. At July 1, 2007, the effective interest rate on outstanding US Revolver borrowings was approximately 9.3%.

The Canadian Term Loan is denominated in Canadian dollars and, at the option of the borrower, may consist of a Canadian Prime Rate Loan or a B/A Discount Rate Loan, each as defined in the credit agreement. Interest accrues on Canadian Prime Rate Loans at the greater of DB Canada’s “prime rate” or CDOR plus .75% plus a fixed margin of 1.0% and on B/A Discount Rate Loans at CDOR plus a fixed margin of 2.0%. At July 1, 2007, the effective interest rate on outstanding Canadian Term Loan borrowings was approximately 6.4%.

Scheduled quarterly repayments on the Canadian Term Loan of approximately Cdn$141 thousand (approximately US$133 thousand equivalent at July 1, 2007) began September 30, 2006 and will continue through March 31, 2013. The remaining unpaid balance is due on the maturity date. Once repaid, the term loan may not be reborrowed.

The Canadian Revolver can be drawn in either U.S. or Canadian dollars, at the option of the borrower, and, at the option of the borrower, may consist of a Base Rate Loan or a Eurodollar Loan for U.S. dollar denominated loans or Canadian Prime Rate Loan or a B/A Discount Rate Loan for Canadian dollar denominated loans, each as defined in the credit agreement. Any outstanding borrowings are due at maturity. Interest accrues on Base Rate Loans or Canadian Prime Rate Loans at the applicable base (as discussed above) plus a variable margin ranging from 0.25% to 1.00%. Interest accrues on Eurodollar Loans or B/A Discount Rate Loans at the applicable base (as discussed above) plus a variable margin ranging from 1.25% to 2.00%. The applicable margin for either the Base Rate or Eurodollar loans is based on a Consolidated Total Leverage Ratio, as defined in the credit agreement.

BWAY Holding and each of our U.S. subsidiaries have guaranteed the US Term Loan and US Revolver, each of which is secured by substantially all of our U.S. assets and the assets of BWAY Holding. In addition, we have pledged as collateral all of the issued and outstanding stock of our U.S. subsidiaries, which are wholly-owned, and, subject to certain limitations, the outstanding stock of ICL. ICL has guaranteed the Canadian Term Loan and Canadian Revolver, each of which is secured by all of the assets of ICL.

A portion of the term loan proceeds was used to finance the ICL Acquisition.

At July 1, 2007, we had $7.0 million in US Revolver borrowings and $6.6 million in standby letter of credit commitments that reduced our available borrowings under the US Revolver to $36.4 million. There were no outstanding Canadian Revolver borrowings at July 1, 2007.

The credit agreement contains covenants that, among other things, limit our ability (and the ability of some or all of our subsidiaries) to: incur additional debt, pay dividends or distributions on our capital stock or to repurchase our capital stock, make certain investments, loans or advances, create liens on our assets to secure debt, engage in transactions with affiliates, merge or consolidate with another company, transfer and sell assets and make acquisitions. We are also required to maintain a minimum Consolidated Interest Coverage Ratio and to not exceed a Maximum Consolidated Total Leverage Ratio (each as defined in the credit agreement). These covenants are subject to a number of important limitations and exceptions. At July 1, 2007, we were in compliance will all applicable covenants contained in the credit agreement.

We are amortizing approximately $5.9 million in deferred financing costs related to the Term Loans to interest expense over the term of the loans in proportion to the outstanding principal, which approximates the effective yield method. We are amortizing approximately $1.3 million in deferred financing costs related to the Revolvers on a straight-line basis over the term of the Revolvers,

which approximates the effective yield method. At July 1, 2007 and October 1, 2006, approximately $6.1 million and $6.8 million of deferred costs associated with the credit facility were unamortized.

The credit agreement was amended on May 10, 2007 to allow the IPO and related transactions. We paid approximately $0.1 million in fees associated with the amendment, which are deferred and will be amortized to interest expense over the term of the loans, as discussed above.

5.	EMPLOYMENT BENEFIT OBLIGATIONS

Employee benefit obligation liabilities:


(Dollars in thousands)	July 1, 2007		October 1, 2006
Defined benefit pension liability	$	3,136	$	3,730
Retiree medical and other postretirement benefits		4,966		5,006
Deferred compensation		6,796		6,570

EMPLOYEE BENEFIT OBLIGATION LIABILITIES	$	14,898	$	15,306

At July 1, 2007, approximately $0.7 million and $14.2 million of the employee benefit obligation liabilities were recorded in current liabilities and other long-term liabilities, respectively. At October 1, 2006, approximately $0.5 million and $14.8 million of the employee benefit obligation liabilities were recorded in current liabilities and other long-term liabilities, respectively.

Components of net periodic benefit cost:


	Defined Benefit Pension Plan												Other Postretirement Benefits
	Three Months Ended						Nine Months Ended						Three Months Ended				Nine Months Ended
(Dollars in thousands)	July 1, 2007			July 2, 2006			July 1, 2007			July 2, 2006			July 1, 2007		July 2, 2006		July 1, 2007		July 2, 2006
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost	$	—		$	—		$	—		$	—		$	2	$	2	$	5	$	5
Interest cost		169			150			506			449			99		88		297		266
Expected return on plan assets		(170	)		(151	)		(511	)		(452	)		—		—		—		—
Recognized net actuarial loss		1			—			4			—			18		14		53		40

NET PERIODIC BENEFIT COST	$	—		$	(1	)	$	(1	)	$	(3	)	$	119	$	104	$	355	$	311

6.	RESTRUCTURING AND REORGANIZATION LIABILITIES

The following table sets forth changes in our restructuring liability from October 1, 2006 to July 1, 2007. The nature of the liability has not changed from that previously reported in the Annual Report. The restructuring liability is included in other current liabilities and relates to the Plastics Packaging segment.


(Dollars in millions)	Balance October 1, 2006		Adjustments			Expenditures			Balance July 1, 2007
RESTRUCTURING LIABILITY
Severance costs	$	0.2	$	—		$	(0.2	)	$	—
Facility closure costs		1.4		(0.1	)		(0.6	)		0.7

TOTALS	$	1.6	$	(0.1	)	$	(0.8	)	$	0.7

In conjunction with the Vulcan Acquisition, we committed to a plan to consolidate the Vulcan business with and into our ICL operations. As a result, we closed the Vulcan manufacturing facilities and terminated approximately 100 employees. As part of the preliminary purchase price allocation, we recorded a reorganization liability pursuant to EITF 95-3 of approximately $3.4 million, which consists of severance payments and facility closure costs. The liability is included in other current liabilities and relates to the Metal Packaging segment.


(Dollars in millions)	Purchase Accounting January 30, 2007		Expenditures			Translation Adjustments		Balance July 1, 2007
REORGANIZATION LIABILITY
Severance costs	$	1.7	$	(1.9	)	$	0.2	$	—
Facility closure costs		1.7		(0.2	)		0.2		1.7

TOTALS	$	3.4	$	(2.1	)	$	0.4	$	1.7

7.	NET (LOSS) INCOME PER SHARE

The following table shows the computation of basic and diluted net (loss) income per share for the periods presented:


	Three Months Ended					Nine Months Ended
(Amounts in thousands except per share amounts)	July 1, 2007			July 2, 2006		July 1, 2007			July 2, 2006
BASIC NET (LOSS) INCOME PER SHARE
Net (loss) income	$	(9,637	)	$	9,310	$	(1,823	)	$	9,621

Weighted-average number of shares outstanding		20,733			20,610		20,594			20,610

BASIC NET (LOSS) INCOME PER SHARE	$	(0.46	)	$	0.45	$	(0.09	)	$	0.47


DILUTED NET (LOSS) INCOME PER SHARE
Net (loss) income	$	(9,637	)	$	9,310	$	(1,823	)	$	9,621

Weighted-average number of shares outstanding		20,733			20,610		20,594			20,610
Dilutive effect of stock options		—			4,855		—			4,841

Weighted-average number of shares outstanding assuming dilution		20,733			25,465		20,594			25,451

DILUTED NET (LOSS) INCOME PER SHARE	$	(0.46	)	$	0.37	$	(0.09	)	$	0.38

All common stock equivalents have been excluded in the computation of diluted earnings per share for the three and nine months ended July 1, 2007 because their effect would have been antidilutive. There were no shares that would have been antidilutive for the three and nine months ended July 2, 2006.

8.	STOCK-BASED COMPENSATION

We adopted SFAS No. 123 (revised 2004), Share-Based Payment, (“SFAS No. 123R”) as of October 2, 2006 using the “prospective transition” method. Under this method of adoption, compensation cost is recognized in the financial statements beginning with the effective date for all new awards and for awards outstanding at the effective date that are subsequently modified, repurchased or cancelled. As further discussed below, upon the consummation of the IPO, all awards, including those outstanding at the effective date of SFAS 123R, were modified. As such, we discontinued accounting for those awards outstanding as of October 2, 2006 using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion 25, Accounting for Stock Issued to Employees, and related interpretations ("APB 25"), which we used for such awards prior to the modification.

SFAS No. 123R amends SFAS No. 95, Statement of Cash Flows, requiring the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow as previously required.

For purposes of determining the grant date fair value of share-based payment awards, we use the Black-Scholes option-pricing model (the “Black-Scholes Model”) for options without market conditions and Monte Carlo simulation, a lattice model, for options with vesting criteria tied to the market price of BWAY Holding’s common stock. Each model requires the input of certain assumptions that involve judgment.

Stock-Based Compensation Expense

The following table summarizes non-cash stock-based compensation expense included in the statements of operations by line item. All amounts are reported as undistributed corporate expenses for segment disclosure (see Note 10).


	Three Months Ended				Nine Months Ended
(Amounts in thousands except per share amounts)	July 1, 2007		July 2, 2006		July 1, 2007		July 2, 2006
STOCK BASED COMPENSATION EXPENSE INCLUDED IN:
Cost of products sold (excluding depreciation and amortization)	$	1,910	$	75	$	1,999	$	170
Selling and administrative expense		8,172		329		8,560		744

	$	10,082		404		10,559		914

In the third quarter of fiscal 2007, we recorded stock-based compensation expense related to the accelerated vesting of certain stock options concurrently with the IPO (as discussed below). The expense related to the accelerated vesting included in cost of products sold (excluding depreciation and amortization) and selling and administrative expense is $1.8 million and $7.8 million, respectively. In addition, as further descried below, we recorded approximately $0.3 million in the three months ended July 1, 2007 related to certain exit options as a result of vesting condition modifications as a result of the public offering.

Summary of Stock-Based Compensation Plans

BWAY Holding Company 2007 Annual Incentive Plan. On May 23, 2007, the Board approved, upon the recommendation of the Compensation Committee, the BWAY Holding Company 2007 Annual Incentive Plan (the “Annual Incentive Plan”). The plan provides for awards of up to 2,057,898 shares of BWAY Holding common stock. The plan allows for stock options, stock appreciation rights, performance-based awards, restricted stock, restricted stock units and deferred stock. There have been no grants under the plan, and there were no awards outstanding under the Annual Incentive Plan at July 1, 2007.

BCO Holding Company Stock Incentive Plan. In February 2000, Predecessor adopted the Fourth Amendment and Restatement of BWAY’s 1995 Long-Term Incentive Plan (the "Predecessor Incentive Plan"). As a result of the Transaction, which was a change in control event under the plan, all outstanding options immediately vested and became exercisable. Certain members of management entered into Exchange Agreements with BWAY Holding whereby their Predecessor Incentive Plan options were exchanged for new options to acquire BWAY Holding common stock (the “Exchange Options”). The Exchange Options were fully vested as of the closing of the Transaction and were issued with substantially the same terms and conditions in effect immediately before the exchange.

Effective with the closing of the Transaction, BWAY Holding assumed the Predecessor Incentive Plan, which was replaced in July 2004 with the Amended and Restated BCO Holding Stock Incentive Plan (the “Holding Incentive Plan”). Under the Holding Incentive Plan, 4,480,797 shares of BWAY Holding’s common stock is subject to options.

There are currently three types of stock options outstanding under the Holding Incentive Plan: Service Options, Performance Options and Exit Options. Prior to the IPO, service options generally became exercisable in three annual installments, performance options generally became exercisable in five annual installments if certain performance benchmarks were achieved, and exit options generally became exercisable upon a change in equity control event (as defined in the plan and subject to certain limitations).

On May 23, 2007, the Board amended the Holding Incentive Plan to provide that all outstanding unvested Service Options and Performance Options and 43% of Exit Options became fully vested concurrently with the completion of the IPO. In addition, the Board amended the vesting criteria for the remaining 57% of Exit Options to become vested in three equal tranches based on an average per share closing price of BWAY Holding Company common stock over a consecutive 45 day period with a minimum closing price on the 45th day for each tranche, as follows:

•

¹/3 will vest if the average per share closing price of BWAY Holding’s common stock over any consecutive 45 days during which the stock trades is at least $19.26 and the closing price on the 45th such day is at least $16.37;

•

¹/3 would vest if the average per share closing price of BWAY Holding’s common stock over any consecutive 45 days during which the stock trades is at least $21.52 and the closing price on the 45th such day is at least $18.29; and

•

¹/3 would vest if the average per share closing price of BWAY Holding’s common stock over any consecutive 45 days during which the stock trades is at least $23.78 and the closing price on the 45th such day is at least $20.21.

The accelerated vesting of options concurrently with the public offering, as discussed below, constituted a modification of previously issued awards. As such, we recognized stock-based compensation expense in the third quarter of fiscal 2007 of approximately $9.6 million. The charge represents the unrecognized stock-based compensation as determined under APB 25 related to the modified options and any incremental fair value as a result of the modification as determined under SFAS 123R using a Black-Scholes option-pricing model.

In addition, the modification of exit options to enable vesting based on certain market conditions, as discussed above, required us to determine the fair value of such options on the modification date using the guidance of SFAS 123R. The fair value will be recognized as stock-based compensation expense over the derived service period from the date of the modification.

Because the vesting of the unvested exit options is based on certain market conditions, the fair value of the options was determined using a Monte Carlo simulation model. The derived service period for these exit options is the median period of time until the market condition is met, as determined by the simulation model. We determined a modification date fair value of approximately $11.3 million and expect to recognize non-cash stock-based compensation expense of $11.3 million as follows:


(Dollars in millions)	Fiscal 2007		Fiscal 2008		Fiscal 2009
Quarter 1	$	—	$	1.9	$	1.0
Quarter 2		—		1.9		0.7
Quarter 3		0.3		1.8		0.4
Quarter 4		1.9		1.4		—

TOTALS	$	2.2	$	7.0	$	2.1

The following inputs were used in the Monte Carlo simulation model to determine fair value: risk-free interest rate ranging from 4.6% to 5.4%%, no dividends, and expected volatility ranging from 38.5% to 49.1%.

The following table presents the changes in our stock-based compensation plans from October 1, 2006 to July 1, 2007:


	Exchange Options		Service Options		Performance Options		Exit Options		Total Options
EMPLOYEE STOCK OPTIONS
Options outstanding at October 1, 2006	2,319,055		1,679,114		419,006		2,105,628		6,522,803
Options granted	—		70,982		17,745		88,727		177,454
Options exercised	(1,015,818	)	—		—		—		(1,015,818	)
Options forfeited	—		(14,860	)	(3,714	)	(18,572	)	(37,146	)

OPTIONS OUTSTANDING AT JULY 1, 2007	1,303,237		1,735,236		433,037		2,175,783		5,647,293

VESTED OR EXPECTED TO VEST AT JULY 1, 2007	1,303,237		1,735,236		433,037		935,557		4,407,067
EXERCISABLE AT JULY 1, 2007	1,303,237		1,735,236		433,037		935,557		4,407,067

The following table summarizes information about stock options outstanding and exercisable at July 1, 2007:


	Options Outstanding				Options Exercisable
	Number of Options	Weighted- Average Remaining Term	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
RANGE OF EXERCISE PRICES
$1.19 to 2.96	1,303,237	4.4 years	$	2.79	1,303,237	$	2.79
$5.35	3,116,411	5.6 years		5.35	2,226,087		5.35
$8.82 to 11.76	826,153	7.2 years		9.20	590,687		9.20
$14.10 to 16.68	401,492	9.1 years		15.54	287,056		15.54

	5,647,293	5.8 years	$	6.05	4,407,067	$	5.77

At July 1, 2007, the weighted-average remaining contractual life of options outstanding and exercisable was 5.8 years and 5.7 years, respectively. At July 1, 2007, the aggregate intrinsic value of options outstanding and exercisable was approximately $49.9 million and $40.1 million, respectively. The weighted-average fair value at the grant date for options granted during the first nine months of 2007 was $19.50 per option, which was estimated utilizing the Black-Scholes Model with the following weighted-average assumptions: (1) no dividend yield on BWAY Holding’s common stock, (2) expected stock price volatility of 55.5%, (3) a risk-free interest rate of 4.5%, and (4) an expected option term of 8.1 years.

9.	COMMITMENTS AND CONTINGENCIES

Environmental

We are subject to a broad range of federal, state, provincial and local environmental, health and safety laws, including those governing discharges to air, soil and water, the handling and disposal of hazardous substances and the investigation and remediation of contamination resulting from the release of hazardous substances. We believe that we are currently in material compliance with all applicable environmental, health and safety laws, though future expenditures may be necessary in order to maintain such compliance, including compliance with air emission control requirements for volatile organic compounds. In addition, in the course of our operations we use, store and dispose of hazardous substances. Some of our current and former facilities are currently involved in environmental investigations, remediations and claims resulting from the release of hazardous substances or the presence of other contaminants. Except to the extent otherwise disclosed herein, we believe it is remote that any material losses may have resulted from identified environmental remediation matters or environmental investigations relating to our current or former facilities. While we do not believe that any identified investigation or remediation obligations will have a material adverse effect on our financial position, results of operations or cash flows, there are no assurances that such obligations will not arise in the future. Many of our facilities have a history of industrial usage for which investigation and remediation obligations could arise in the future and which could have a material adverse effect on our financial position, results of operations or cash flows.

We incurred capital expenditures of approximately $0.8 million in the nine months of 2007 to comply with federal Maximum Achievable Control Technology (“MACT”) regulations related to air emission control requirements for Hazardous Air Pollutants (“HAP”) and volatile organic compounds. In addition, we expect to incur approximately $1.3 million in capital expenditures in the remainder of 2007 to comply with certain environmental laws at a facility related to the ICL Acquisition.

We received a letter dated March 14, 2007 from the EPA stating that corrective action is required at our Cincinnati facility to address documented releases of hazardous substances at the site. The releases referenced by the EPA occurred prior to our ownership of the site. The EPA has

requested that we enter into an Administrative Order on Consent under the Resource Conservation and Recovery Act with respect to corrective action obligations. We are working with the EPA to address their concerns and have notified a former owner of the site that we believe has indemnity obligations to us with respect to the EPA’s claim.

We are a member of a potentially responsible party (“PRP”) group related to a waste disposal site in Georgia. Our status as a PRP is based on documents indicating that waste materials were transported to the site from our Homerville, Georgia facility prior to our acquisition of the facility in 1989. We estimate our exposure related to this site will approximate $0.1 million.

From time to time, we receive requests for information or are identified as a PRP pursuant to the Federal Comprehensive Environmental Response, Compensation and Liability Act or analogous state laws with respect to off-site waste disposal sites utilized by our current or former facilities or our predecessors in interest. We do not believe that any of these identified matters will have a material adverse effect on our financial condition, results of operations or cash flows. We cannot, however, provide assurance that such obligations will not arise in the future.

We record reserves for environmental liabilities when environmental investigation and remediation obligations are probable and related costs are reasonably estimable. We had accrued liabilities of approximately $0.3 million at July 1, 2007 and October 1, 2006. However, our future expenditures related to these matters may exceed the amounts accrued.

Self-Insurance

The majority of our medical and workers’ compensation benefits are under high-deductible plans with certain stop loss arrangements. We determine our liability related to workers’ compensation using actuarial data based on filed claims, and we determine our liability related to medical claims based on our analysis of actual claims. The amounts related to these claims are included in other current liabilities and were approximately $7.2 million and $7.0 million at July 1, 2007 and October 1, 2006, respectively.

Litigation

We are involved in legal proceedings from time to time in the ordinary course of business. We believe that the outcome of these proceedings will not have a material effect on our financial condition, results of operations or cash flows. We had an accrued liability of approximately $0.3 million at July 1, 2007 and October 1, 2006 related to pending litigation matters, other than as discussed below.

Lead Paint Litigation

Our Armstrong Containers, Inc. subsidiary (“Armstrong”) has been named as a defendant in various complaints related to the sale of lead pigment for use in lead-based paint based on the grounds that Armstrong is an alleged successor in interest to the John R. MacGregor Company and/or the MacGregor Lead Company (collectively, “MacGregor”). MacGregor was involved in the manufacture and sale of lead pigment until mid-1971, when MacGregor sold its lead and lead-paint businesses to third parties.

The allegations in these cases are similar to those that have been made against leading paint manufacturers in the United States. Plaintiffs in certain of the cases, based upon theories of public nuisance, indemnity, unjust enrichment and concert of action, seek compensatory and punitive damages, including the cost of abating the alleged nuisance. Plaintiffs in certain of the cases, based upon a theory of personal injury, seek unspecified monetary damages in excess of the statutory minimum for personal injuries due to alleged exposure to lead paint. We expect that additional lead pigment/lead-based paint litigation may be filed against Armstrong (or that Armstrong may be added to existing litigation against other defendants) in the future asserting similar or different claims and seeking similar or different types of damages or relief.

While we believe that we have valid defenses to the personal injury and public nuisance cases and plan to vigorously defend them, we can neither predict the outcome at this time due to the uncertainties involved nor can we reasonably determine the scope or amount of the potential costs and liabilities related to these matters. We have, therefore, not reserved any amounts in respect of potential payments of damages. Any potential liability arising out of these matters may have a material adverse effect on our financial position, results of operations and/or cash flows. At October 1, 2006, we had accrued approximately $0.5 million in legal fees and expenses related to these matters. There was no accrual for legal fees and expenses related to these matters at July 1, 2007. We have notified our general liability insurers, some of whom are participating in the defense of the claims, subject to reservations of rights.

One of these insurers, Liberty Mutual Insurance Company (“Liberty”), filed a declaratory judgment action against BWAY and Armstrong in state court in Wisconsin on May 21, 2007. That case is styled as Liberty Mutual Insurance Company v. BWAY Corporation, et al., Circuit of Milwaukee County, State of Wisconsin, Case No. 07-CV-005625 (“Wisconsin Declaratory Judgment Action). In the Wisconsin Declaratory Judgment Action, Liberty seeks a declaration that Liberty is not required to defend or indemnify BWAY or Armstrong, under two insurance policies that Liberty issued to BWAY, in connection with the following three personal injury lead paint lawsuits: (1) Anthony Johnson v. SJM Properties, LLC, et al., Case No. 07-CV-0000343, in the Circuit Court of Milwaukee County, Wisconsin; (2) Demond’Dre Myers v. Brenda Scott, et al., Case No. 06-CV-012658, in the Circuit Court of Milwaukee County, Wisconsin; and (3) Perrion Ruffin, et al. v. Perry Gladney, et al., Case No. 06-CV-012650, in the Circuit Court of Milwaukee County, Wisconsin. The policy period for the Liberty Mutual policies at issue begins on October 1, 2004 and ends on

October 1, 2006, and those policies may represent our only potentially available coverage for that period. At this time, Liberty continues to participate in the defense of the other personal injury cases. Our current insurance policy for the 2006-2007 policy year, also issued by Liberty, contains a lead exclusion that may exclude coverage for claims arising from the sale of lead pigment and/or lead-based paint.

In its complaint, Liberty argues that there are a number of reasons why it is not obligated to defend or indemnify BWAY or Armstrong under the subject policies, including on the ground that the “pollution exclusion” clause contained in these policies bars coverage for lead paint claims under Wisconsin law. The courts in Wisconsin have held in other cases that certain “pollution exclusion” clauses do bar coverage for lead paint claims. We believe, however, that these cases do not apply to our insurance policies. The other insurance policies pursuant to which our insurers currently are participating in the defense of lead paint-related personal injury cases against us contain “pollution exclusion” clauses.

Armstrong and BWAY have removed the Wisconsin Declaratory Judgment Action to federal court. Liberty has filed a motion to remand, seeking to have this case returned to state court. The parties have briefed the motion to remand. Armstrong and BWAY also have filed a motion to dismiss this action due to lack of personal jurisdiction over Armstrong and BWAY.

In addition, Armstrong filed a declaratory judgment action against Liberty and certain individuals on or about June 6, 2007 in the Superior Court for Gwinnett County, State of Georgia (“Georgia Declaratory Judgment Action”). Armstrong is seeking a determination that there is coverage under its 2004-2005 and 2005-2006 policies with Liberty and that Liberty be required to indemnify it for any losses and reimburse it for defense costs, in accordance with the terms of such policies. In the Georgia Declaratory Judgment Action. Liberty Mutual has answered the Complaint, asserting numerous defenses. Liberty Mutual has filed a motion to stay discovery based upon the pendency of the Wisconsin Declaratory Judgment Action. Liberty Mutual also has filed a motion seeking to dismiss the Georgia Declaratory Judgment Action on the ground that the Georgia Court lacks subject matter jurisdiction over this matter. Armstrong is in the process of responding to these motions.

Armstrong intends to litigate these actions vigorously. However, given that these actions are in a very early stage, Armstrong cannot at this time predict the outcome of this litigation or what the impact of an adverse judgment might be with respect to these policies, or any other policies issued by Liberty or our other insurers that may potentially provide for coverage for the claims asserted in the personal injury lead paint cases referenced above, the other personal injury lawsuits pending against Armstrong in Wisconsin, or any other current or future lead paint related claims against Armstrong.

Letters of Credit

At July 1, 2007, a bank had issued standby letters of credit on our behalf in the aggregate amount of $6.6 million primarily in favor of our workers’ compensation insurers.

Commodity Risk

We are subject to various risks and uncertainties related to changing commodity prices for, and the availability of, the raw materials we use in our manufacturing processes (primarily steel and resin), as well as for unfavorable changes in energy costs (primarily electricity and natural gas).

Other

At October 1, 2006, we had accrued approximately $1.2 million related to a voluntary product recall by one of our customers due to potential leaks in certain of the containers that we likely manufactured. The accrual was reduced in the first quarter of 2007 to $0.7 million and we settled for and paid this amount in the third quarter of fiscal 2007.

10.

BUSINESS SEGMENTS

Our operations are organized and reviewed by management along our product lines in two reportable segments —Metal Packaging and Plastics Packaging. We differentiate the segments based on the nature of the products they offer. The primary raw material and manufacturing process are unique for each segment. A further description of each business segment and of our Corporate services area follows:

Metal Packaging. Metal Packaging includes our metal packaging products, such as paint cans, aerosol containers, ammunition boxes and other general line containers made from steel. Metal Packaging is a separate reportable segment of the Company with production facilities and processes distinct from our Plastics Packaging segment.

Plastics Packaging. Plastics Packaging includes the plastics packaging products manufactured and distributed by NAMPAC and ICL. Principal products in this segment include open- and tight-head pails and drums and other multi-purpose rigid industrial plastic packaging. Plastics Packaging is a separate reportable segment of the Company with production facilities and processes distinct from our Metal Packaging segment.

Corporate. Corporate includes executive management, accounting and finance, information technology, payroll and human resources and various other overhead charges, each to the extent not allocated to the divisions.

Segment assets include, among other things, inventories, property, plant and equipment, goodwill and other intangible assets. The accounting policies of our segments have not changed from those described in the Annual Report. There were no inter-segment sales reported in the periods presented. Management’s evaluation of segment performance is principally based on a measure of segment earnings, which we calculate as segment gross profit (excluding depreciation and amortization) less selling expenses (“Segment Earnings”).

The following sets forth certain financial information attributable to our business segments for the three and nine months ended July 1, 2007 and July 2, 2006:


	Three Months Ended						Nine Months Ended
(Dollars in thousands)	July 1, 2007			July 2, 2006			July 1, 2007			July 2, 2006
NET SALES
Metal packaging	$	162,626		$	153,687		$	422,061		$	405,984
Plastics packaging		106,906			88,988			284,118			263,483

CONSOLIDATED NET SALES		269,532			242,675			706,179			669,467


(LOSS) INCOME BEFORE INCOME TAXES
Metal packaging		19,405			26,106			52,310			58,567
Plastics packaging		15,223			9,273			43,186			19,511

SEGMENT EARNINGS		34,628			35,379			95,496			78,078

Corporate undistributed expense		(23,239	)		(2,426	)		(28,639	)		(6,893	)
Public offering expense		(9,210	)		—			(9,527	)		—
Depreciation and amortization (see below)		(11,532	)		(10,112	)		(34,107	)		(30,449	)
Restructuring (charge) adjustment		(29	)		(338	)		135			(533	)
Interest expense, net		(9,630	)		(8,441	)		(28,353	)		(24,952	)
Other expense, net		(369	)		(188	)		(956	)		(909	)

CONSOLIDATED (LOSS) INCOME BEFORE INCOME TAXES	$	(19,381	)	$	13,874		$	(5,951	)	$	14,342


DEPRECIATION AND AMORTIZATION
Metal packaging	$	5,700		$	5,149		$	16,818		$	15,809
Plastics packaging		5,666			4,508			16,442			13,209

Segment depreciation and amortization		11,366			9,657			33,260			29,018
Corporate depreciation and amortization		166			455			847			1,431

CONSOLIDATED DEPRECIATION AND AMORTIZATION	$	11,532		$	10,112		$	34,107		$	30,449

The following table sets forth total assets attributable to our business segments at July 1, 2007 and October 1, 2006.


(Dollars in thousands)	July 1, 2007		October 1, 2006
TOTAL ASSETS
Metal packaging assets	$	324,803	$	318,699
Plastics packaging assets		322,494		322,540

Segment assets		647,297		641,239
Corporate		175,350		192,506

CONSOLIDATED TOTAL ASSETS	$	822,647	$	833,745

In the third quarter and first nine months of 2007, approximately 90% of our net sales were in the United States, approximately 9% of our net sales were in Canada and the remaining 1% was to other foreign countries. In the third quarter and first nine months of 2006, net sales outside the United States were less than 5%. In the third quarter and first nine months of 2007, approximately 92% and 87% of our metal packaging net sales and plastics packaging net sales, respectively, were in the United States with the remainder for each primarily in Canada (non-Canadian foreign sales were less than 1.0%). Geographic net sales information is based on the destination of our shipments.

Long-lived assets located in Canada at July 1, 2007 and October 1, 2006 were approximately $5.1 million and $4.0 million, respectively. At July 1, 2007 and October 1, 2006, all other long-lived assets were located in the United States.

11.

COMPREHENSIVE INCOME (LOSS) INFORMATION

During the first nine months of 2007, our comprehensive income was comprised of net income and adjustments for foreign currency translation.

The components of accumulated other comprehensive income (loss): are as follows:


(Dollars in thousands)	Minimum Pension Liability Adjustment (net of tax)			Foreign Currency Translation Adjustments		Total Accumulated Other Comprehensive Income (Loss)
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Balance, October 1, 2006	$	(748	)	$	251	$	(497	)
Change		—			1,257		1,257

BALANCE, JULY 1, 2007	$	(748	)	$	1,508	$	760

The components of total comprehensive (loss) income are as follows:


	Three Months Ended					Nine Months Ended
(Dollars in thousands)	July 1, 2007			July 2, 2006		July 1, 2007			July 2, 2006
COMPREHENSIVE (LOSS) INCOME
Net (loss) income	$	(9,637	)	$	9,310	$	(1,823	)	$	9,621
Foreign currency translation adjustment		1,982			—		1,257			—

TOTAL COMPREHENSIVE (LOSS) INCOME	$	(7,655	)	$	9,310	$	(566	)	$	9,621

12.

SUPPLEMENTAL GUARANTOR SUBSIDIARIES INFORMATION

The Senior Notes are guaranteed on a full, unconditional joint and several basis by BWAY’s U.S. based subsidiaries, each of which is wholly owned. The following condensed, consolidating financial information presents the unaudited consolidating financial statements of BWAY and its subsidiaries. We have not presented separate guarantor subsidiary financial statements because we do not believe they would provide materially useful information to investors.

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet Information (unaudited)

July 1, 2007


(Dollars in thousands)	BWAY Corporation			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidated
Assets
CURRENT ASSETS
Cash and cash equivalents	$	5,147		$	936		$	3,965		$	—		$	10,048
Accounts receivable, net		71,519			49,219			15,806			—			136,544
Inventories		59,319			25,855			8,175			—			93,349
Income taxes receivable		32,091			(22,783	)		(339	)		—			8,969
Deferred tax assets		(1,165	)		3,937			—			—			2,772
Other		5,505			1,198			357			—			7,060

TOTAL CURRENT ASSETS		172,416			58,362			27,964			—			258,742

PROPERTY, PLANT AND EQUIPMENT, NET		80,811			52,818			5,146			—			138,775


OTHER ASSETS
Goodwill		120,259			99,008			32,318			—			251,585
Other intangible assets, net		46,793			86,867			27,745			—			161,405
Deferred financing costs, net		8,410			—			1,117			—			9,527
Other		2,288			325			—			—			2,613
Investment in subsidiaries		261,905			22,110			5,739			(289,754	)		—

TOTAL OTHER ASSETS		439,655			208,310			66,919			(289,754	)		425,130

TOTAL ASSETS	$	692,882		$	319,490		$	100,029		$	(289,754	)	$	822,647


Liabilities and Stockholder’s Equity
CURRENT LIABILITIES
Accounts payable	$	58,460		$	52,232		$	11,866		$	—		$	122,558
Accrued salaries and wages		6,051			6,497			1,097			—			13,645
Accrued interest		5,480			—			365			—			5,845
Accrued rebates		8,597			1,458			197			—			10,252
Current portion of long-term debt		1,287			—			533			—			1,820
Other		14,946			1,175			2,032			—			18,153

TOTAL CURRENT LIABILITIES		94,821			61,362			16,090			—			172,273

LONG-TERM DEBT		375,213			—			52,183			—			427,396


OTHER LIABILITIES
Deferred tax liabilities		16,822			42,551			977			—			60,350
Intercompany		47,018			(47,775	)		757			—			—
Other		19,231			3,557			63			—			22,851

TOTAL OTHER LIABILITIES		83,071			(1,667	)		1,797			—			83,201

TOTAL LIABILITIES		553,105			59,695			70,070			—			682,870


COMMITMENTS AND CONTINGENCIES

STOCKHOLDER’S EQUITY
Preferred stock		—			—			—			—			—
Common stock		—			1			—			(1	)		—
Additional paid-in capital		125,742			233,190			25,699			(258,889	)		125,742
Retained earnings		13,275			27,352			2,752			(30,104	)		13,275
Accumulated other comprehensive income		760			(748	)		1,508			(760	)		760

TOTAL STOCKHOLDER’S EQUITY		139,777			259,795			29,959			(289,754	)		139,777

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	692,882		$	319,490		$	100,029		$	(289,754	)	$	822,647

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet Information (unaudited)

October 1, 2006


(Dollars in thousands)	BWAY Corporation			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidated
Assets
CURRENT ASSETS
Cash and cash equivalents	$	43,617		$	1,458		$	5,904		$	—		$	50,979
Accounts receivable, net		61,279			44,520			10,187			—			115,986
Inventories		53,426			19,944			7,071			—			80,441
Income taxes receivable		18,757			(11,201	)		(265	)		—			7,291
Deferred tax assets		451			3,587			—			—			4,038
Other		3,420			1,291			131			—			4,842

TOTAL CURRENT ASSETS		180,950			59,599			23,028			—			263,577

PROPERTY, PLANT AND EQUIPMENT, NET		83,955			54,952			4,037			—			142,944


OTHER ASSETS
Goodwill		120,259			98,895			29,533			—			248,687
Other intangible assets, net		51,483			92,265			22,453			—			166,201
Deferred financing costs, net		9,774			—			1,178			—			10,952
Other		1,026			358			—			—			1,384
Investment in subsidiaries		244,960			19,557			—			(264,517	)		—

TOTAL OTHER ASSETS		427,502			211,075			53,164			(264,517	)		427,224

TOTAL ASSETS	$	692,407		$	325,626		$	80,229		$	(264,517	)	$	833,745


Liabilities and Stockholder’s Equity
CURRENT LIABILITIES
Accounts payable	$	56,027		$	54,805		$	8,107		$	—		$	118,939
Accrued salaries and wages		10,233			3,096			527			—			13,856
Accrued interest		9,748			—			89			—			9,837
Accrued rebates		9,453			1,537			101			—			11,091
Current portion of long-term debt		20,000			—			506			—			20,506
Other		16,616			1,264			480			—			18,360

TOTAL CURRENT LIABILITIES		122,077			60,702			9,810			—			192,589

LONG-TERM DEBT		369,500			—			49,995			—			419,495


OTHER LIABILITIES
Deferred tax liabilities		24,984			46,308			—			—			71,292
Intercompany		29,593			(29,658	)		65			—			—
Other		18,770			4,116			—			—			22,886

TOTAL OTHER LIABILITIES		73,347			20,766			65			—			94,178

TOTAL LIABILITIES		564,924			81,468			59,870			—			706,262


COMMITMENTS AND CONTINGENCIES

STOCKHOLDER’S EQUITY
Preferred stock		—			—			—			—			—
Common stock		—			1			—			(1	)		—
Additional paid-in capital		112,882			233,190			19,634			(252,824	)		112,882
Retained earnings		15,098			11,715			474			(12,189	)		15,098
Accumulated other comprehensive loss		(497	)		(748	)		251			497			(497	)

TOTAL STOCKHOLDER’S EQUITY		127,483			244,158			20,359			(264,517	)		127,483

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	692,407		$	325,626		$	80,229		$	(264,517	)	$	833,745

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations Information (unaudited)

Three Months Ended July 1, 2007


(Dollars in thousands)	BWAY Corporation			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidated
NET SALES	$	153,006		$	93,425		$	23,101		$	—		$	269,532


COSTS AND EXPENSES
Cost of products sold (excluding depreciation and amortization)		137,901			79,648			19,324			(178	)		236,695
Depreciation and amortization		5,384			5,366			782			—			11,532
Selling and administrative expense		20,201			845			402			—			21,448
Public offering expense		9,210			—			—			—			9,210
Restructuring charge		29			—			—			—			29
Interest expense, net		8,769			(3	)		864			—			9,630
Other expense (income), net		190			(148	)		149			178			369

TOTAL COSTS AND EXPENSES		181,684			85,708			21,521			—			288,913


(LOSS) INCOME BEFORE INCOME TAXES		(28,678	)		7,717			1,580			—			(19,381	)

(Benefit from) provision for income taxes		(13,153	)		2,886			523			—			(9,744	)
Equity in income (loss) of subsidiaries		5,888			1,057			(175	)		(6,770	)		—

NET (LOSS) INCOME	$	(9,637	)	$	5,888		$	882		$	(6,770	)	$	(9,637	)

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations Information (unaudited)

Three Months Ended July 2, 2006


(Dollars in thousands)	BWAY Corporation		Guarantor Subsidiaries			Other Subsidiaries		Eliminations			Consolidated
NET SALES	$	153,687	$	88,988		$	—	$	—		$	242,675


COSTS AND EXPENSES
Cost of products sold (excluding depreciation and amortization)		126,298		78,769			—		(178	)		204,889
Depreciation and amortization		5,431		4,681			—		—			10,112
Selling and administrative expense		3,894		939			—		—			4,833
Restructuring charge		338		—			—		—			338
Interest expense, net		8,446		(5	)		—		—			8,441
Other expense, net		188		(178	)		—		178			188

TOTAL COSTS AND EXPENSES		144,595		84,206			—		—			228,801


INCOME BEFORE INCOME TAXES		9,092		4,782			—		—			13,874

Provision for income taxes		3,025		1,539			—		—			4,564
Equity in income of subsidiaries		3,243		—			—		(3,243	)		—

NET INCOME	$	9,310	$	3,243		$	—	$	(3,243	)	$	9,310

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations Information (unaudited)

Nine Months Ended July 1, 2007


(Dollars in thousands)	BWAY Corporation			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidated
NET SALES	$	401,712		$	248,527		$	55,940		$	—		$	706,179


COSTS AND EXPENSES
Cost of products sold (excluding depreciation and amortization)		352,251			209,523			46,143			(534	)		607,383
Depreciation and amortization		16,430			15,557			2,120			—			34,107
Selling and administrative expense		28,344			2,250			1,345			—			31,939
Public offering expense		9,527			—			—			—			9,527
Restructuring adjustment		(135	)		—			—			—			(135	)
Interest expense, net		25,905			(3	)		2,451			—			28,353
Other expense (income), net		819			(390	)		(7	)		534			956

TOTAL COSTS AND EXPENSES		433,141			226,937			52,052			—			712,130


(LOSS) INCOME BEFORE INCOME TAXES		(31,429	)		21,590			3,888			—			(5,951	)

(Benefit from) provision for income taxes		(13,969	)		8,483			1,358			—			(4,128	)
Equity in income (loss) of subsidiaries		15,637			2,530			(252	)		(17,915	)		—

NET (LOSS) INCOME	$	(1,823	)	$	15,637		$	2,278		$	(17,915	)	$	(1,823	)

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations Information (unaudited)

Nine Months Ended July 2, 2006


(Dollars in thousands)	BWAY Corporation		Guarantor Subsidiaries			Other Subsidiaries		Eliminations			Consolidated
NET SALES	$	405,982	$	263,485		$	—	$	—		$	669,467


COSTS AND EXPENSES
Cost of products sold (excluding depreciation and amortization)		343,219		241,205			—		(533	)		583,891
Depreciation and amortization		16,721		13,728			—		—			30,449
Selling and administrative expense		11,639		2,752			—		—			14,391
Restructuring charge		533		—			—		—			533
Interest expense, net		24,964		(12	)		—		—			24,952
Other expense (income), net		665		(289	)		—		533			909

TOTAL COSTS AND EXPENSES		397,741		257,384			—		—			655,125


INCOME BEFORE INCOME TAXES		8,241		6,101			—		—			14,342

Provision for income taxes		2,759		1,962			—		—			4,721
Equity in income of subsidiaries		4,139		—			—		(4,139	)		—

NET INCOME	$	9,621	$	4,139		$	—	$	(4,139	)	$	9,621

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Cash Flows Information (unaudited)

Nine Months Ended July 1, 2007


(Dollars in thousands)	BWAY Corporation			Guarantor Subsidiaries			Other Subsidiaries			Eliminations		Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	$	(19,418	)	$	7,577		$	5,877		$	—	$	(5,964	)


CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures		(8,715	)		(8,075	)		(1,298	)		—		(18,088	)
Business acquisitions		(23	)		—			(5,991	)		—		(6,014	)
Other		76			—			—			—		76

NET CASH USED IN INVESTING ACTIVITIES		(8,662	)		(8,075	)		(7,289	)		—		(24,026	)


CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings under revolving credit facility		7,000			—			—			—		7,000
Repayments of term loan		(20,000	)		—			(402	)		—		(20,402	)
Proceeds from stock option exercise		2,839			—			—			—		2,839
Other		(229	)		(24	)		—			—		(253	)

NET CASH USED IN FINANCING ACTIVITIES		(10,390	)		(24	)		(402	)		—		(10,816	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		—			—			(125	)		—		(125	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(38,470	)		(522	)		(1,939	)		—		(40,931	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		43,617			1,458			5,904			—		50,979

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	5,147		$	936		$	3,965		$	—	$	10,048

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Cash Flows Information (unaudited)

Nine Months Ended July 2, 2006


(Dollars in thousands)	BWAY Corporation			Guarantor Subsidiaries			Other Subsidiaries		Eliminations		Consolidated
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	8,633		$	11,150		$	—	$	—	$	19,783


CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures		(7,318	)		(13,024	)		—		—		(20,342	)
Other		725			—			—		—		725

NET CASH USED IN INVESTING ACTIVITIES		(6,593	)		(13,024	)		—		—		(19,617	)


CASH FLOW FROM FINANCING ACTIVITIES
Repayments of term loan		(30,000	)		—			—		—		(30,000	)
Other		(182	)		735			—		—		553

NET CASH USED IN FINANCING ACTIVITIES		(30,182	)		735			—		—		(29,447	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(28,142	)		(1,139	)		—		—		(29,281	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		50,161			1,728			—		—		51,889

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	22,019		$	589		$	—	$	—	$	22,608

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, which often require the judgment of management in the selection and application of certain accounting principles and methods. We believe that the quality and reasonableness of our most critical policies enable the fair presentation of our financial position and results of operations. However, investors are cautioned that the sensitivity of financial statements to these methods, assumptions and estimates could create materially different results under different conditions or using different assumptions. The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes included under Part I, Item 1, of this report.

Unless otherwise indicated, references to years in our discussion and analysis relate to fiscal years.

Segments

We report our results of operations in two segments: metal packaging and plastics packaging. Our products within each of these segments include:

Metal packaging: general line rigid metal containers made from steel, including paint cans and components, aerosol cans, ammunition boxes, steel pails, oblong cans and a variety of other specialty cans that our customers use to package paint, household and personal care products, automotive after-market products, paint thinners, driveway and deck sealants and other end-use products.

Plastics packaging: injection-molded plastic pails and blow-molded tight-head containers, bottles and drums that our customers use to package petroleum, oils, lubricants, pharmaceuticals, agricultural chemicals, other chemical applications, paint, ink, edible oils, high-tech coatings, high-solid coatings, roofing mastic and adhesives and driveway sealants.

Factors Affecting Our Results of Operations

Net Sales

“Net Sales” are our revenues generated from the sales of general line rigid metal and plastic containers, reduced for customer credits, sales returns and allowances, and earned quantity discounts.

Our net sales depend in large part on the varying economic and other conditions of the end-markets that we serve. Demand for our products correlates positively with the overall U.S. economy. Most of the end-markets we serve, including our largest market, the home improvement and repair market, have historically shown steady growth. Demand for our products may change due to changes in general and regional economic conditions, consumer confidence, weather, commodity prices, employment and personal income growth, each of which is beyond our control.

Metal segment pricing is based on the cost of steel, coatings, inks, labor, rent, freight, utilities and operating supplies, volume, order size, length of production runs and competition. Pricing for our metal segment products generally changes around January 1 of each year. Typically, the price of our manufactured metal segment products is higher for larger, more complex products.

Plastics segment pricing is based on the cost of resin, colorant, fittings, labeling, labor, rent, freight, utilities and operating supplies, volume, order size, length of production runs and competition. Pricing for our plastic segment fluctuates periodically as the cost of resin fluctuates. Typically, the price of our manufactured plastic segment products is higher for larger, more complex products.

Revenues in each of our segments are seasonal, reflecting a general pattern of lower sales and earnings in the metal and plastics packaging industry during the first quarter of our fiscal year when activity in several of our end markets, most notably the home improvement and repair sector, is generally slower. These seasonal patterns cause our quarterly operating results and working capital requirements to fluctuate.

Our net sales are also impacted by the pass-through of price changes for steel and plastic resin as permitted in our sales agreements. Our metal segment selling prices generally increase around January 1st of each year. Our plastics segment selling prices change periodically throughout the year based on fluctuations in the cost of resin. We have generally been able to recover raw material price increases through pass-through mechanisms in our sales agreements.

The general line rigid metal and plastics industries have historically exhibited growth in volume as the markets for our products have expanded.

Expenses

Our expenses primarily consist of:

Cost of products sold (excluding depreciation and amortization), which includes raw materials, labor, rent, freight, utilities and operating supplies. Cost of products sold is primarily driven by the preceding conversion costs, production volume and the mix of the products that we manufacture. Moreover, we account for our inventories on a last-in-first out, or LIFO, basis and as a result our cost of products sold can vary significantly by period if there are fluctuations in the cost of our key raw materials, steel and plastic resin.

Depreciation and amortization, which includes depreciation of property, plant and equipment and amortization of identifiable intangible assets. Depreciation expense is primarily driven by capital expenditures, offset by the reduction of assets that become fully depreciated and disposals of equipment. Amortization expense is primarily driven by the valuation of intangible assets resulting from acquisitions.

Restructuring (adjustment) charge, which includes costs related to closing previously acquired facilities. Restructuring charges are typically driven by our initiatives to reduce our overall operating costs through consolidation of facilities and headcount reductions and include severance, rent on vacated facilities and equipment removal costs. Impairment charges result whenever the carrying amount of an asset may not be recoverable.

Selling and administrative expense, which includes corporate and sales salaries and incentive compensation, professional fees, insurance, stock based compensation, rent, bad debt expense and other corporate administrative costs. The primary drivers for selling and administrative expense are wage increases, inflation, regulatory compliance costs, changes to stock based compensation based on stock valuation and changes in incentive compensation expense.

Interest expense, net, which includes interest payments on our indebtedness. Changes in the amount of our indebtedness and fluctuations in interest rates can drive changes in these costs.

Other expense (income), net, includes foreign currency transaction gains and losses, gains and losses on sales of fixed assets, Kelso financial advisory fees and other non-operating costs.

Raw materials for the metal segment include tinplate, blackplate and cold rolled steel, various fittings, coatings, inks and compounds. Steel producers have historically raised prices annually around January 1st of each year. Over the last four years there has been consolidation in the steel industry, and as a result our steel raw material purchases have been concentrated with the largest suppliers. In fiscal 2004, steel pricing increased more than historical levels due to increases in our steel producers’ cost of raw materials, primarily coke used to produce iron ore, and strong global demand. We have historically been able to secure steel to meet our customers’ requirements even during periods of high demand.

Raw materials for the plastics segment include resins, fittings and inks. Resin prices fluctuate periodically throughout the year and have increased approximately 68% over the last three years. We have generally been able to recover these raw material price increases through pass-through mechanisms in our sales agreements. We have historically been able to secure resin to meet our customers’ requirements even during periods of tight supply.

To reduce our overall cost of raw materials, we have periodically supplemented our steel and resin raw material supply with purchases on the spot market and additional purchases in advance of price increases.

Initial Public Offering

Included in the nine months ended July 1, 2007, is approximately $29.6 million in expenses related to the IPO. The $29.6 million consists of approximately $2.5 million in offering costs, a $2.0 million fee to Deutsche Bank for advisory services, a $5.0 million fee to Kelso in consideration for termination of payment of annual financial advisory fees, a $10.0 million bonus to certain members of management , $0.5 million in taxes and benefits related to the management bonus and non-cash stock-based compensation of $9.6 million related to the accelerated vesting of certain stock options concurrently with the IPO.

Accounting for Inventory

We currently use the last-in, first-out method of accounting (“LIFO”) for the cost of inventories for our U.S. subsidiaries. We intend to change from LIFO to the first-in, first-out method of accounting (“FIFO”), upon the approval by the Internal Revenue Service (the “IRS”) of the FIFO method of accounting for income tax purposes, which we expect to receive in the fourth quarter of fiscal 2007. The inventories of our non-U.S. subsidiaries will continue to be valued using FIFO. After this change, all of our inventories will be valued using FIFO

Under the book-tax conformity rules of the Internal Revenue Code, the method of accounting for inventories for U.S. tax purposes must conform to the method of accounting used for financial reporting purposes. The election to change methods for tax purposes will result in additional taxes due of approximately $10.0 million, the majority of which is payable over four years. The additional tax is a result of accumulated tax deferrals.

We believe FIFO is preferable to LIFO because it (1) will better match revenues and expenses for financial and tax reporting purposes; (2) will provide a consistent valuation method for all of our inventories; (3) provides for period-end FIFO inventory values which will be more current in rising price environments, and, as such, will better approximate replacement cost; and (4) will reduce the administrative burden of calculating LIFO reserve adjustments.

The change in accounting method from LIFO to FIFO will be accounted for using the guidance of SFAS No. 154, Accounting Changes and Error Corrections (“SFAS No. 154”), as a change in accounting principle. Under SFAS No. 154, a change in accounting principle is reported through retrospective application to all prior periods as if that principle had always been used. The cumulative effect of the change in accounting principle on periods prior to those presented is recorded as an adjustment to retained earnings as of the beginning of the first period presented. In addition, the impact of the change shall be reflected in each statement of operations and statement of cash flows presented for the applicable period impact on those statements.

The following table summarizes the expected effect of the proposed change in accounting principle on the consolidated statements of operations for the three and nine months ended July 1, 2007 and July 2, 2006, on the consolidated statements of cash flows for the nine months ended July 1, 2007 and July 2, 2006, and the expected effect on the consolidated balance sheets as of July 1, 2007 and October 1, 2006:


	Three Months Ended										Nine Months Ended
	July 1, 2007						July 2, 2006				July 1, 2007						July 2, 2006
(Dollars in thousands)	As Reported			As Adjusted for Accounting Change			As Reported		As Adjusted for Accounting Change		As Reported			As Adjusted for Accounting Change			As Reported			As Adjusted for Accounting Change
CONSOLIDATED STATEMENTS OF OPERATIONS:
Cost of products sold (excluding depreciation and amortization)	$	236,695		$	232,679		$	204,889	$	206,650	$	607,383		$	608,278		$	583,891		$	579,973
(Benefit from) provision for income taxes		(9,744	)		(8,975	)		4,564		4,564		(4,128	)		(1,654	)		4,721			3,986
Net (loss) income		(9,637	)		(6,390	)		9,310		7,549		(1,823	)		(5,192	)		9,621			14,274

Basic (loss) earnings per share		(0.46	)		(0.31	)		0.45		0.37		(0.09	)		(0.25	)		0.47			0.69

Diluted (loss) earnings per share		(0.46	)		(0.31	)		0.37		0.30		(0.09	)		(0.25	)		0.38			0.56

CONSOLIDATED STATEMENTS OF CASH FLOWS:
Adjustment for deferred income taxes												(9,672	)		(7,198	)		(7,290	)		(8,025	)
Change in inventories												(10,420	)		(9,525	)		(4,584	)		327


	July 1, 2007				October 1, 2006
(Dollars in thousands)	As Reported		As Adjusted for Accounting Change		As Reported		As Adjusted for Accounting Change
CONSOLIDATED BALANCE SHEETS:
Inventories, net	$	93,349	$	110,300	$	80,441	$	98,287
Deferred tax assets		2,772		5,711		4,038		6,977
Goodwill		251,585		249,681		248,687		246,783
Deferred tax liabilities		60,350		62,824		71,292		71,292
Retained earnings		19,801		35,313		21,624		40,505

Acquisitions

On July 17, 2006, we acquired substantially all of the assets and assumed certain of the liabilities of Industrial Containers, Ltd., (“ICL Ltd.”) a Toronto based manufacturer of rigid plastic containers and steel pails for industrial packaging markets (the “ICL Acquisition”). We paid approximately $68.4 million in cash for the acquisition, which was funded by $50.0 million in term loan borrowings by ICL and from a portion of the proceeds of additional term loan borrowings by BWAY. The results of operations related to this acquisition are included from the acquisition date. The acquired business is included in our metal and plastics packaging segments.

On January 30, 2007, we acquired substantially all of the assets and assumed certain liabilities of Vulcan Containers, Ltd. (“Vulcan”) for a purchase price of approximately CDN$7.1 million, including

transaction costs, (approximately $6.0 million U.S. dollars at the closing date) (the “Vulcan Acquisition”). We funded the acquisition using available cash on hand. The acquired business is included in our metal packaging segment. In February 2007, we committed to a plan to consolidate the Vulcan business with and into our ICL operations. As a result, we intend to close the Vulcan manufacturing facilities and terminate approximately 100 employees. In connection with the preliminary purchase price allocation, pursuant to EITF Issue 95-3, Reorganization of Liabilities in Connection with a Purchase Business Combination, we recorded a reorganization liability of approximately $3.4 million, which consists of severance payments, facility holding costs and facility closure costs. Of the $3.4 million liability, we expended $2.0 million through July 1, 2007 and expect to expend $0.4 million in the fourth quarter and the remainder in the first half of fiscal 2008.

The ICL and Vulcan Acquisitions are referred to in this discussion collectively as the “Canadian Acquisitions.”

Overview

The following highlights changes in our results of operations in the third quarter of 2007 from the third quarter of 2006. References to gross margin refer to net sales less cost of products sold (excluding depreciation and amortization).

•

The Canadian Acquisitions contributed $23.1 million to net sales and $3.8 million to gross margin.

•

Gross margin was negatively impacted by $2.5 million related to the Management IPO Bonus and by $1.8 million in stock-based compensation expense related to the accelerated vesting of stock options concurrently with the IPO. These costs are included in the corporate undistributed expenses in the discussion of cost of products sold (excluding depreciation and amortization) below.

•

Excluding the impact of the Canadian Acquisitions and the IPO related events, net sales increased $3.8 million (1.5%) and gross margin decreased $4.4 million (11.7%). The change in LIFO negatively impacted gross margin by $5.8 million. Excluding the additional impact of LIFO, gross margin increased $1.4 million (3.8%).

•

Excluding the impact of the Canadian Acquisitions, IPO related events and LIFO gross margin as a percent of net sales increased to 15.2% from 14.8%.

•

Selling and administrative expense includes $8.0 million related to the Management IPO Bonus and $7.8 million in stock-based compensation related to the accelerated vesting of stock options concurrently with the IPO. These costs are included in the corporate undistributed expenses in the discussion below.

•

As noted under “Initial Public Offering” above, total expenses of approximately $29.3 million related to the IPO are included in the results for the third quarter of 2007 and approximately $29.6 million are included in the results for the nine months ended July 1, 2007.

Results of Operations

Our operations are organized and reviewed by management along our products lines in two reportable segments–Metal Packaging and Plastics Packaging. See Note 10, “Business Segments,” to the unaudited consolidated financial statements under Part 1, Item 1, of this report for a discussion of our business segments.

The following tables set forth changes in our statements of operations for the each of the three and nine months ended July 1, 2007 and July 2, 2006.


	Three Months Ended					Change					As a % of Net Sales
(Dollars in thousands)	July 1, 2007			July 2, 2006		$			%		July 1, 2007		July 2, 2006
Net sales	$	269,532		$	242,675	$	26,857		11.1	%	100.0	%	100.0	%
Cost of products sold (excluding depreciation and amortization)		236,695			204,889		31,806		15.5		87.8		84.4

Gross margin (excluding depreciation and amortization)		32,837			37,786		(4,949	)	(13.1	)	12.2		15.6

Depreciation and amortization		11,532			10,112		1,420		14.0		4.3		4.2
Selling and administrative expense		21,448			4,833		16,615		NM		8.0		2.0
Public offering expense		9,210			—		9,210		NM		3.4		—
Restructuring charge		29			338		(309	)	(91.4	)	—		0.1
Interest expense, net		9,630			8,441		1,189		14.1		3.6		3.5
Other expense, net		369			188		181		96.3		0.1		0.1

(Loss) Income before income taxes		(19,381	)		13,874		(33,255	)	NM		(7.2	)	5.7
(Benefit from) provision for income taxes		(9,744	)		4,564		(14,308	)	NM		(3.6	)	1.9

NET (LOSS) INCOME	$	(9,637	)	$	9,310	$	(18,947	)	NM	%	(3.6	)%	3.8	%

NM—NOT MEANINGFUL


	Nine Months Ended					Change					As a % of Net Sales
(Dollars in thousands)	July 1, 2007			July 2, 2006		$			%		July 1, 2007		July 2, 2006
Net sales	$	706,179		$	669,467	$	36,712		5.5	%	100.0	%	100.0	%
Cost of products sold (excluding depreciation and amortization)		607,383			583,891		23,492		4.0		86.0		87.2

Gross margin (excluding depreciation and amortization)		98,796			85,576		13,220		15.4		14.0		12.8

Depreciation and amortization		34,107			30,449		3,658		12.0		4.8		4.5
Selling and administrative expense		31,939			14,391		17,548		NM		4.5		2.1
Public offering expense		9,527			—		9,527		NM		1.3		—
Restructuring (adjustment) charge		(135	)		533		(668	)	NM		—		0.1
Interest expense, net		28,353			24,952		3,401		13.6		4.0		3.7
Other expense, net		956			909		47		5.2		0.1		0.1

(Loss) income before income taxes		(5,951	)		14,342		(20,293	)	NM		(0.8	)	2.1
(Benefit from) provision for income taxes		(4,128	)		4,721		(8,849	)	NM		(0.6	)	0.7

NET (LOSS) INCOME	$	(1,823	)	$	9,621	$	(11,444	)	NM		(0.3	)%	1.4	%

NM—NOT MEANINGFUL

Second Quarter and First Nine Months of 2007 versus Second Quarter and First Nine Months of 2006

Net Sales.


	Three Months Ended				Change				As a % of the Total
(Dollars in thousands)	July 1, 2007		July 2, 2006		$		%		July 1, 2007		July 2, 2006
NET SALES BY SEGMENT
Metal packaging	$	162,626	$	153,687	$	8,939	5.8	%	60.3	%	63.3	%
Plastics packaging		106,906		88,988		17,918	20.1		39.7		36.7

CONSOLIDATED NET SALES	$	269,532	$	242,675	$	26,857	11.1	%	100.0	%	100.0	%


	Nine Months Ended				Change				As a % of the Total
(Dollars in thousands)	July 1, 2007		July 2, 2006		$		%		July 1, 2007		July 2, 2006
NET SALES BY SEGMENT
Metal packaging	$	422,061	$	405,984	$	16,077	4.0	%	59.8	%	60.6	%
Plastics packaging		284,118		263,483		20,635	7.8		40.2		39.4

CONSOLIDATED NET SALES	$	706,179	$	669,467	$	36,712	5.5	%	100.0	%	100.0	%

Included in net sales for the third quarter and first nine months of 2007 is approximately $23.1 million and $55.9 million, respectively, in net sales related to the Canadian Acquisitions. Net of this impact, net sales increased $3.8 million in the third quarter of fiscal 2007 and decreased $19.2 million in the first nine months of 2007 from comparable periods in 2006.

Metal packaging segment net sales increased due to sales attributable to the Canadian Acquisitions. Excluding the impact of the Canadian Acquisitions, net sales decreased due to a net decrease in volume. Demand for architectural paint and coatings, our largest end market segment for the metal packaging segment, weakened during the third quarter due to continued slowness in the housing market, primarily for both new single family homes and sales of existing single family homes.

Plastics packaging segment net sales increased due to sales attributable to

Registrant

Large
Accelerated
Filer

Accelerated
Filer

Non-accelerated
Filer

BWAY Holding Company

BWAY Corporation