Edgar Filing: BWAY CORP

10-Q

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 2, 2006

001-12415

(Commission File Number)

BWAY CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE

(State of incorporation)

36-3624491

(IRS Employer Identification No.)

8607 Roberts Drive, Suite 250

Atlanta, Georgia

(Address of principal executive offices)

30350-2237

(Zip Code)

(770) 645-4800

(Registrant’s telephone number)

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. 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.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x

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

As of August 10, 2006, there were 1,000 shares of BWAY Corporation’s Common Stock outstanding.

BWAY CORPORATION

Quarterly Report on Form 10-Q

For the quarterly period ended July 2, 2006

INDEX


		Page Number
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at July 2, 2006 and October 2, 2005 (Unaudited)	1

	Consolidated Statements of Operations for the Three and Nine Months Ended July 2, 2006 and July 3, 2005 (Unaudited)	2

	Consolidated Statements of Cash Flows for the Three and Nine Months Ended July 2, 2006 and July 3, 2005 (Unaudited)	3

	Notes to the Consolidated Financial Statements (Unaudited)	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3.	Defaults Upon Senior Securities	22

Item 4.	Submission of Matters to a Vote of Security Holders	22

Item 5.	Other Information	22

Item 6.	Exhibits	22

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

BWAY Corporation and Subsidiaries

Consolidated Balance Sheets (unaudited)


*(Dollars in thousands, except share data)*	July 2, 2006			October 2, 2005
Assets
Current assets
Cash and cash equivalents	$	22,608		$	51,889
Accounts receivable, net of allowance for doubtful accounts of $1,790 and $1,613		114,895			104,122
Inventories, net		76,549			71,965
Deferred tax assets		11,391			9,174
Other		5,556			3,750

Total current assets		230,999			240,900

Property, plant and equipment, net		141,926			142,476

Other assets
Goodwill		219,154			219,218
Other intangible assets, net		146,998			156,751
Deferred financing costs, net of accumulated amortization of $5,680 and $4,085		8,994			10,589
Other		4,046			2,060

Total other assets		379,192			388,618

Total Assets	$	752,117		$	771,994

Liabilities and Stockholder’s Equity
Current liabilities
Accounts payable	$	109,822		$	97,968
Accrued salaries and wages		11,705			13,786
Accrued interest		5,710			10,803
Accrued rebates		9,105			10,104
Income taxes payable		5,507			7,993
Current portion of long-term debt		—			30,000
Other		20,286			16,537

Total current liabilities		162,135			187,191

Long-term debt		365,300			365,300

Other long-term liabilities
Deferred tax liabilities		71,046			76,119
Other		20,579			19,948

Total other long-term liabilities		91,625			96,067

Commitments and contingencies (Note 7)

Stockholder’s equity
Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued		—			—
Common stock, $.01 par value, 24,000,000 shares authorized; 1,000 shares issued and outstanding		—			—
Additional paid-in capital		104,082			104,082
Retained earnings		29,322			19,701
Accumulated other comprehensive loss		(347	)		(347	)

Total stockholder’s equity		133,057			123,436

Total Liabilities and Stockholder’s Equity	$	752,117		$	771,994

The accompanying notes are an integral part of the Consolidated Financial Statements.

BWAY Corporation and Subsidiaries

Consolidated Statements of Operations (unaudited)


	Three Months Ended				Nine Months Ended
*(Dollars in thousands)*	July 2, 2006		July 3, 2005		July 2, 2006		July 3, 2005
Net sales	$	242,675	$	227,412	$	669,467	$	608,949

Costs, expenses and other:
Cost of products sold (excluding depreciation and amortization)		204,889		191,543		583,891		524,349
Depreciation and amortization		10,112		9,372		30,449		32,565
Selling and administrative		4,833		5,238		14,391		15,272
Restructuring and impairment charges		338		3,943		533		4,821
Interest, net		8,441		8,155		24,952		23,928
Financial advisory fees		123		123		371		371
Other expense (income), net		65		61		538		(592	)

Total costs, expenses and other		228,801		218,435		655,125		600,714

Income before income taxes		13,874		8,977		14,342		8,235

Provision for income taxes		4,564		2,965		4,721		2,692

Net income	$	9,310	$	6,012	$	9,621	$	5,543

The accompanying notes are an integral part of the Consolidated Financial Statements.

BWAY Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)


	Nine Months Ended
*(Dollars in thousands)*	July 2, 2006			July 3, 2005
Cash flows from operating activities:
Net income	$	9,621		$	5,543
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		20,696			23,669
Amortization of other intangible assets		9,753			8,896
Amortization of deferred financing costs		1,595			1,590
Provision for doubtful accounts		177			108
Impairment charge		—			775
Loss (gain) on disposition of property, plant and equipment		358			(715	)
Utilization of acquired deferred tax asset		1,659			—
Deferred income taxes		(7,290	)		(3,094	)
Stock-based compensation		914			1,286
Changes in assets and liabilities:
Accounts receivable		(10,950	)		(20,369	)
Inventories		(4,584	)		(11,128	)
Other assets		(4,333	)		10
Accounts payable		11,490			25,297
Accrued and other liabilities		(6,837	)		(52	)
Income taxes, net		(2,486	)		5,904

Net cash provided by operating activities		19,783			37,720

Cash flows from investing activities:
Capital expenditures		(20,342	)		(14,926	)
Business acquisitions		—			(268	)
Proceeds from disposition of property, plant and equipment and assets held for sale		725			1,243

Net cash used in investing activities		(19,617	)		(13,951	)

Cash flows from financing activities:
Repayments of term loan		(30,000	)		(19,700	)
Increase (decrease) in unpresented bank drafts in excess of cash available for offset		735			(623	)
Principal payments under capital leases		(182	)		(162	)

Net cash used in financing activities		(29,447	)		(20,485	)

Net (decrease) increase in cash and equivalents		(29,281	)		3,284

Cash and equivalents, beginning of period		51,889			27,325

Cash and equivalents, end of period	$	22,608		$	30,609

Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Interest	$	28,450		$	28,082

Income taxes	$	12,838		$	(118	)

Non-cash investing and financing activities:
Amounts owed for capital expenditures	$	1,261		$	791

Acquisition of property, plant and equipment utilizing capital leases	$	—		$	81

The accompanying notes are an integral part of the Consolidated Financial Statements.

BWAY Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

1.	GENERAL

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of BWAY Corporation (“BWAY”) and our subsidiaries (collectively, the “Company”, “we” or “our”) and have been prepared without audit. 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 our Annual Report on Form 10-K for the year ended October 2, 2005 (the “Annual Report”). The 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.

Results of operations for the three and nine months ended July 2, 2006 are not necessarily indicative of the results that may be expected for the entire fiscal year, particularly in view of the seasonality of the packaging business.

Business and Segment Information

We manufacture and distribute metal and rigid plastic containers primarily in the United States. We operate the company as two divisions. Our BWAY Packaging Division primarily sells and markets our metal packaging products and our NAMPAC Division primarily sells and markets our rigid plastic packaging products.

We are a wholly-owned subsidiary of BCO Holding Company (“BCO Holding”), an affiliate of Kelso & Company, L.P., a private equity firm, as a result of a merger transaction whereby all outstanding shares of BWAY’s common stock, with certain exceptions, were redeemed on February 7, 2003.

On July 7, 2004, we acquired all of the stock of North America Packaging Corporation (“NAMPAC”) from MVOC, LLC, a Delaware limited liability company and sole owner of the common shares of NAMPAC (the “NAMPAC Acquisition”). As a result of the acquisition, NAMPAC became a wholly owned subsidiary of BWAY.

We operate on a 52/53-week fiscal year ending on the Sunday closest to September 30. Our NAMPAC subsidiary reports its operations on a calendar month basis. There were no material transactions between the different period ends that required adjustment in the consolidated financial statements.

Stock-Based Compensation

We account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion 25, Accounting for Stock Issued to Employees, and related interpretations (“APB 25”). Accordingly, we are not required to record compensation expense when the exercise price of stock options granted to employees or directors is equal to or greater than the fair market value of the stock when the option is granted.

If we determined stock-based compensation based on the fair-value method, our net income would be as follows:


	Three Months Ended						Nine Months Ended
*(Dollars in thousands)*	July 2, 2006			July 3, 2005			July 2, 2006			July 3, 2005
Net income, as reported	$	9,310		$	6,012		$	9,621		$	5,543
Add: Stock-based compensation included in reported net income, net of related tax effects		277			416			616			866
Less: Pro forma stock-based compensation under SFAS 123, net of related tax effects		(656	)		(832	)		(2,021	)		(2,200	)

Pro forma net income	$	8,931		$	5,596		$	8,216		$	4,209

Recent Accounting Pronouncements

On May 18, 2006, the Texas Governor signed into law a Texas margin tax (H.B. No. 3) which restructures the state business tax by replacing the taxable capital and earned surplus components of the current franchise tax with a new “taxable margin” component. Because the tax base on the Texas margin tax is derived from an income-based measure, we believe the margin tax is an income tax and, therefore, the provisions of SFAS 109 regarding the recognition of deferred taxes apply to the new margin tax. In accordance with SFAS 109, the effect on deferred tax assets and liabilities of a change in tax law should be included in tax expense attributable to continuing operations in the period that includes the enactment date. The change did not have a material impact on deferred tax expense.

In July 2006, the Financial Accounting Standards Board (“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 in October 2007, at the beginning of our 2008 fiscal year. We are currently evaluating the impact the adoption of FIN 48 may have on our financial statements.

2.	INVENTORIES

Inventories consist of the following:


*(Dollars in thousands)*	July 2, 2006			October 2, 2005
Inventories at FIFO cost
Raw materials	$	28,258		$	28,999
Work-in-process		36,744			29,737
Finished goods		27,552			25,316

		92,554			84,052
LIFO reserve		(16,005	)		(12,087	)

Inventories, net	$	76,549		$	71,965

During the first nine months of fiscal 2006, the LIFO reserve increased $3.9 million primarily as a result of changes in the cost of plastic resin.

3.	GOODWILL AND OTHER INTANGIBLES

The following table sets forth the change in goodwill by reportable segment during the first nine months of fiscal 2006:


*(Dollars in thousands)*	Metal Packaging		Plastics Packaging			Total
Goodwill, October 2, 2005	$	112,556	$	106,662		$	219,218
Correction related to the NAMPAC Acquisition		—		667			667
Utilization of acquired deferred tax asset, net of contingency		—		(731	)		(731	)

Goodwill, July 2, 2006	$	112,556	$	106,598		$	219,154

During the implementation of an automated time keeping system in the first quarter of fiscal 2006 at facilities acquired in the NAMPAC Acquisition, we determined that the accrued vacation liability recorded as part of the purchase price allocation for the NAMPAC Acquisition was understated by approximately $0.7 million due to differences between actual pay practices and documentation provided and used to determine the purchase price allocation. We recorded an adjustment of $0.7 million to the accrued salaries and wages liability related to accrued vacation in the consolidated balance sheet as of January 1, 2006 with an offsetting increase to goodwill. Based on the amount of this adjustment and the impact on previously reported financial statements, management determined that such previously issued financial statements were not materially misstated.

In the third quarter of fiscal 2006, we reduced goodwill for approximately $1.7 million related to the utilization of a deferred tax asset associated with a net operating loss carryforward acquired in the NAMPAC Acquisition. However, a portion of the net operating loss carryforward is currently under review by the Internal Revenue Service. As such, we have established a contingent liability for approximately $1.0 million based on our estimate of net operating loss carry forwards that are probable of disallowance by the Internal Revenue Service.

The following table sets forth identifiable intangible assets by major asset class:


	July 2, 2006							October 2, 2005
*(Dollars in thousands)*	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Amortized intangible assets
Customer relationships (1)	$	158,060	$	(30,327	)		127,733	$	158,060	$	(21,924	)	$	136,136
Tradenames (2)		22,833		(4,366	)		18,467		22,833		(3,150	)		19,683
Non-compete agreements (3)		401		(216	)		185		401		(82	)		319

Total amortized intangible assets		181,294		(34,909	)		146,385		181,294		(25,156	)		156,138

Unamortized intangible assets
Technology		613		—			613		613		—			613

Total identifiable intangible assets	$	181,907	$	(34,909	)	$	146,998	$	181,907	$	(25,156	)	$	156,751

(1)

Useful lives range between 14 and 18 years.

(2)

Useful lives range between 10 and 15 years.

(3)

Useful lives range between 3 and 4 years.

We amortize finite-lived, identifiable intangible assets over their remaining useful lives, which range from 3 to 18 years. These finite-lived intangibles are amortized in proportion to the underlying cash flows that were used in determining their initial valuation. We periodically review the underlying cash flow assumptions to determine if they remain reasonable. The portion of these intangibles associated with the carryover basis from Predecessor (as defined in the Annual Report) continues to be amortized on a straight-line basis.

Expected amortization expense:


*(Dollars in thousands)*
Fiscal Year Ending
2006	$	13,003
2007		13,405
2008		12,900
2009		12,510
2010		12,398
Thereafter		91,922

	$	156,138

In the first nine months of fiscal 2006, we recorded $9.8 million of the $13.0 million of amortization expense expected for fiscal year 2006. In the first nine months of fiscal 2005, we recorded amortization expense of $8.9 million.

4.	LONG-TERM DEBT

Long-term debt consists of the following:


*(Dollars in thousands)*	July 2, 2006		October 2, 2005
10% Senior subordinated notes, due 2010	$	200,000	$	200,000
Senior credit facility: term loan		165,300		195,300

Total long-term debt		365,300		395,300
Less: current portion		—		(30,000	)

Long-term debt, net of current portion	$	365,300	$	365,300

The current portion of long-term debt at October 2, 2005 represented a voluntary prepayment on the Term Loan made in the first quarter of fiscal 2006. Prepayments on the Term Loan reduce future scheduled payments. As further discussed in Note 9, we refinanced the senior credit facility as of July 17, 2006 to facilitate the acquisition of assets and assumption of certain liabilities from Industrial Containers Ltd. As a result of this refinancing, scheduled payments on the new credit facility for the next twelve months consist of quarterly payments in the amount of $0.6 million beginning September 30, 2006.

Senior Subordinated Notes

10% Senior Notes Due 2010

The notes were issued on November 27, 2002 in a private offering of $200.0 million principal amount of 10% Senior Subordinated Notes due 2010. In December 2003, we exchanged the notes for new notes registered under the Securities Act in an equal principal amount (the “Senior Notes”). The Senior Notes mature on October 15, 2010. The Senior Notes are governed by an indenture dated as of November 27, 2002 between BWAY Finance Corp. and The Bank of New York, as trustee, as assumed by BWAY Corporation on February 7, 2003 and as amended from time to time (the “Indenture”).

The Senior Notes are unsecured senior subordinated obligations of the Company and are effectively subordinated to all senior debt obligations (as defined in the Indenture) of the Company. Interest on the notes is payable semi-annually in arrears on April 15 and October 15 of each year.

Except in certain cases following an equity offering, the Senior Notes cannot be redeemed until October 15, 2006. Thereafter, we may redeem some or all of these notes at the redemption prices specified in the Indenture (105.0% on October 15, 2006 declining annually to 100% on October 15, 2009), plus accrued and unpaid interest to the date of redemption. Upon the occurrence of a Change in Control (as defined in the Indenture) the holders of the Senior Notes could require us to repurchase the notes at 101% of the principal amount plus accrued and unpaid interest to the date of repurchase.

The Indenture contains covenants that, among other things, limit our ability (and 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, 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 2, 2006, we were in compliance with all applicable covenants contained in the Indenture.

Under the terms of the Indenture and in connection with its guarantee of our Credit Facility, NAMPAC and its subsidiaries have fully and unconditionally guaranteed the Senior Notes. The Indenture requires any current or future subsidiary of the Company that guarantees certain indebtedness of the Company to guarantee the Senior Notes (see Note 10).

We incurred and have deferred approximately $8.0 million in financing costs related to the underwriting and registration of the Senior Notes. We are amortizing these deferred costs to interest expense over the term of the notes. At July 2, 2006 and October 2, 2005, approximately $4.4 million and $5.2 million, respectively, of these deferred costs were unamortized.

Credit Facility

As of July 2, 2006, the credit facility consisted of (a) a $225.0 million term loan facility (the “Term Loan”) maturing June 30, 2011 (or April 15, 2010 under certain conditions) and (b) a $30.0 million revolving credit facility (the “Revolver”) maturing June 30, 2009 (the Term Loan and Revolver, collectively, the “Credit Facility”).

We made a voluntary prepayment on the Term Loan of $30.0 million in November 2005. As a result of prepayments, our next scheduled quarterly repayment becomes due in December 2009. Repayments permanently reduce the Term Loan.

Interest accrues on the Term Loan and the Revolver at an applicable margin plus either (a) a base rate (which is the higher of prime or 0.5% in excess of the overnight federal funds rate) or (b) a Eurodollar rate. For the Term Loan, the applicable margins were initially fixed at 1.25% for base rate loans and at 2.25% for Eurodollar rate loans, and can range down to 1.00% and 2.00%, respectively, based upon meeting specified consolidated leverage ratio targets. For the Revolver, the applicable margins were initially fixed at 1.75% for base rate loans and 2.75% for Eurodollar rate loans, and can range down to 1.00% and 2.00%, respectively, based upon meeting specified consolidated leverage ratio targets. Borrowing at the base rate or the Eurodollar rate is at our discretion. The effective borrowing rate on Term Loan borrowings outstanding at July 2, 2006 was approximately 7.3%.

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, create liens on our assets to secure debt, engage in transactions with affiliates, merge or consolidate with another company and transfer and sell assets. 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.

BCO Holding and each of our direct and indirect subsidiaries have guaranteed our obligations under the Credit Facility. The Credit Facility is secured by substantially all of our assets and the assets of BCO Holding. In addition, we have pledged as collateral all of the issued and outstanding stock of our subsidiaries, which are wholly-owned by BWAY.

At July 2, 2006, we had $8.0 million in standby letter of credit commitments that reduced our available borrowings under the Revolver to $22.0 million. At July 2, 2006, we did not have any outstanding Revolver borrowings.

We incurred and have deferred approximately $6.7 million in financing costs related to the underwriting of the Credit Facility. The costs are being amortized to interest expense over the term of the loan primarily in proportion to the outstanding principal. At July 2, 2006 and October 2, 2005, approximately $4.6 million and $5.4 million, respectively, of these deferred costs were unamortized.

5.	EMPLOYMENT BENEFIT OBLIGATIONS

The following table summarizes our employee benefit obligation liabilities:


*(Dollars in thousands)*	July 2, 2006		October 2, 2005
Defined benefit pension liability	$	3,188	$	3,475
Retiree medical and other postretirement benefits		4,978		5,024
Deferred compensation		6,428		6,200

	$	14,594	$	14,699

The following table summarizes the components of net periodic benefit cost. The defined benefit pension plan was frozen effective October 31, 2004.


	Defined Benefit Pension Plan												Other Postretirement Benefits
	Three Months Ended						Nine Months Ended						Three Months Ended				Nine Months Ended
*(Dollars in thousands)*	July 2, 2006			July 3, 2005			July 2, 2006			July 3, 2005			July 2, 2006		July 3, 2005		July 2, 2006		July 3, 2005
Components of net periodic benefit cost
Service cost	$	—		$	—		$	—		$	71		$	2	$	1	$	5	$	3
Interest cost		150			163			449			464			88		108		266		298
Expected return on plan assets		(151	)		(133	)		(452	)		(427	)		—		—		—		—
Recognized net actuarial loss		—			—			—			—			14		15		40		43

Net periodic benefit cost	$	(1	)	$	30		$	(3	)	$	108		$	104	$	124	$	311	$	344

6.	RESTRUCTURING LIABILITY

The following table sets forth changes in our restructuring liability from October 2, 2005 to July 2, 2006. The nature of the liability has not changed from that previously reported in the Annual Report. However, the “2005 Plastics Manufacturing Restructuring Plan” was revised during the quarter to include severance for five additional salaried employees. We recorded an additional charge of $0.3 million related to this change. The restructuring liability is included in other current liabilities and relates to the Plastic Packaging segment.


*(Dollars in millions)*	Balance October 2, 2005		Additions / (Adjustments)		Expenditures			Balance July 2, 2006
Restructuring liability
Severance costs	$	0.4	$	0.3	$	(0.5	)	$	0.2
Facility closure costs		1.5		0.2		(1.0	)		0.7

Total	$	1.9	$	0.5	$	(1.5	)	$	0.9

7.	CONTINGENCIES

Environmental

We are subject to a broad range of federal, state 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 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 and remediation resulting from the release of hazardous substances or the presence of other contaminants. While we do not believe that any investigation or identified remediation obligations will have a material adverse effect on our financial condition, 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 condition, results of operations or cash flows. However, except to the extent otherwise disclosed herein, we believe it is remote that any such material losses could result from environmental remediation matters or environmental investigations relating to our current or former facilities.

We have incurred approximately $1.1 million of the estimated $1.7 million in capital expenditures we expect to incur 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. We have until November 2006 to comply with the new regulations.

In the third quarter of fiscal 2005, we joined a potentially responsible party (“PRP”) group related to a waste disposal site in Georgia. Our status as a PRP was 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 jointed the PRP group in order to reduce our exposure, which we estimate 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 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 for environmental investigation and remediation obligations as of July 2, 2006 and October 2, 2005; however, future expenditures may exceed the amounts accrued.

Other

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 adverse effect on our financial condition, results of operations, or cash flows. At July 2, 2006 and October 2, 2005, we had accrued liabilities of approximately $0.4 million and $0.5 million, respectively, related to litigation matters.

In the third quarter of fiscal 2006, one of our customers notified us that it had initiated a voluntary product recall of certain of its products due to potential leaks in certain of the containers that we likely provided. At July 2, 2006, we had an accrued liability of approximately $0.7 million related to this matter.

Letters of Credit

At July 2, 2006, a bank had issued standby letters of credit on our behalf in the aggregate amount of $8.0 million primarily in favor of our workers’ compensation insurers and purchasing card vendor.

Commodity Risk

We are subject to various risks and uncertainties related to changing commodity prices for and the availability of the materials used in the manufacture of our products (primarily steel and resin).

8.	BUSINESS SEGMENTS

Our operations are organized and reviewed by management along our product lines in two reportable segments —Metal Packaging and Plastics Packaging. We operate these reportable segments as separate divisions and differentiate the segments based on the nature of the products and services 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, which include paint cans, aerosol containers, ammunition boxes and other general line containers made from steel. Metal Packaging is a separate division of the Company with management and production facilities and processes distinct from our Plastics Packaging Division.

Plastics Packaging. Plastics Packaging includes the plastics packaging products manufactured and distributed by NAMPAC. 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 division of the Company with management and production facilities and processes distinct from our Metal Packaging Division.

Corporate. Corporate includes 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. Consolidated total assets not allocated to the individual segments are included in the corporate services area. The accounting policies of our segments have not changed from those described in the Annual Report. There were no intersegment sales in the periods presented. Management’s evaluation of segment performance is principally based on a measure of segment earnings before interest, taxes, depreciation and amortization.

The following sets forth certain financial information attributable to our business segments for three and nine months ended July 2, 2006 and July 3, 2005.


	Three Months Ended				Nine Months Ended
*(Dollars in thousands)*	July 2, 2006		July 3, 2005		July 2, 2006		July 3, 2005
Net sales
Metal packaging	$	153,687	$	146,815	$	405,984	$	386,903
Plastics packaging		88,988		80,597		263,483		222,046

Consolidated net sales	$	242,675	$	227,412	$	669,467	$	608,949

Income before income taxes
Metal packaging	$	26,106	$	24,911	$	58,567	$	60,545
Plastics packaging		9,273		8,685		19,511		15,822

Segment earnings before interest, taxes, depreciation and amortization		35,379		33,596		78,078		76,367
Less:
Corporate undistributed expenses		2,549		3,088		7,264		7,410
Depreciation and amortization (see below)		10,112		9,372		30,449		32,565
Restructuring and impairment charges		338		3,943		533		4,821
Interest expense, net		8,441		8,155		24,952		23,928
Other expense (income), net		65		61		538		(592	)

Consolidated income before income taxes	$	13,874	$	8,977	$	14,342	$	8,235

Depreciation and amortization
Metal packaging	$	5,149	$	5,083	$	15,809	$	16,116
Plastics packaging		4,508		3,818		13,209		14,957

Segment depreciation and amortization		9,657		8,901		29,018		31,073
Corporate		455		471		1,431		1,492

Consolidated depreciation and amortization	$	10,112	$	9,372	$	30,449	$	32,565

The following table sets forth total assets attributable to our business segments and a reconciliation of segment assets to consolidated total assets as of July 2, 2006 and October 2, 2005.


*(Dollars in thousands)*	July 2, 2006		October 2, 2005
Total assets
Metal packaging	$	306,569	$	303,364
Plastics packaging		280,948		285,434

Segment assets		587,517		588,798
Corporate		164,600		183,196

Consolidated total assets	$	752,117	$	771,994

9.	SUBSEQUENT EVENTS

On July 17, 2006, we acquired substantially all of the assets and certain liabilities associated with the plastic and steel general line pail business of Industrial Containers Ltd. (“ICL”) for approximately $66.1 million, excluding approximately $1.5 million of transaction costs. In association with the transaction, we refinanced our existing credit facility. The new credit facility provides for a $190.0 million term loan, CDN$56.4 million term loan ($50.0 million U.S. dollar equivalent at closing), $50.0 million revolving credit facility and a $5.0 million revolving credit facility available in U.S. dollars or equivalent Canadian dollars. With certain exceptions, the revolving credit facilities expire on July 17, 2012 and the term loans expire on July 17, 2013. The term loans and revolving credit facilities will expire on April 15, 2010 if we have not refinanced our outstanding $200.0 million of senior subordinated notes. The covenants contained in the credit agreement related to the new credit facility are substantially similar to those in the previous credit agreement. We incurred approximately $3.5 million in costs associated with the new debt.

On July 17, 2006, we paid a $10.0 million dividend to BCO Holding to facilitate a repurchase of BCO Holding common stock from Jean-Pierre M. Ergas, our Chairman and Chief Executive Officer. The shares repurchased represented both shares held by Mr. Ergas prior to the repurchase as well as stock options contemporaneously exercised.

10.

SUPPLEMENTAL GUARANTOR SUBSIDIARIES INFORMATION

The Senior Notes and Term Loan are guaranteed on a full, unconditional joint and several basis by our wholly owned subsidiaries. The following condensed, consolidating financial information presents the consolidating financial statements of BWAY and its subsidiaries, all of which have guaranteed the Senior Notes and Term Loan, as of and for the three and nine months ended July 2, 2006. Separate financial statements of the guarantor subsidiaries are not presented because we have determined that they would not be material to investors.

BWAY is the sole borrower under the Credit Facility and each of its subsidiaries is a guarantor. In addition, each of the subsidiaries has guaranteed the Senior Notes.

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet Information

July 2, 2006


*(Dollars in thousands)*	BWAY Corporation			Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	22,019		$	589		$	—		$	22,608
Accounts receivable, net		68,883			46,012			—			114,895
Inventories, net		53,398			23,151			—			76,549
Deferred tax assets		8,227			3,164			—			11,391
Other		4,011			1,545			—			5,556

Total current assets		156,538			74,461			—			230,999

Property, plant and equipment, net		86,147			55,779			—			141,926

Other assets
Goodwill		120,259			98,895			—			219,154
Other intangible assets, net		53,122			93,876			—			146,998
Deferred financing costs, net		8,994			—			—			8,994
Other		3,124			922			—			4,046
Investment in subsidiaries		223,370			—			(223,370	)		—

Total other assets		408,869			193,693			(223,370	)		379,192

Total Assets	$	651,554		$	323,933		$	(223,370	)	$	752,117

Liabilities and Stockholder’s Equity
Current liabilities
Accounts payable	$	55,530		$	54,292		$	—		$	109,822
Accrued salaries and wages		6,571			5,134			—			11,705
Accrued interest		5,710			—			—			5,710
Accrued rebates		7,982			1,123			—			9,105
Income taxes payable		(2,800	)		8,307			—			5,507
Other		18,916			1,370			—			20,286

Total current liabilities		91,909			70,226			—			162,135

Long-term debt		365,300			—			—			365,300

Other long-term liabilities
Deferred tax liabilities		23,753			47,293			—			71,046
Intercompany		20,602			(20,602	)		—			–
Other		16,933			3,646			—			20,579

Total other long-term liabilities		61,288			30,337			—			91,625

Commitments and contingencies (Note 7)		—			—			—			—

Stockholder’s equity
Common stock		—			1			(1	)		—
Additional paid-in capital		104,082			214,107			(214,107	)		104,082
Retained earnings		29,322			9,609			(9,609	)		29,322
Accumulated other comprehensive loss		(347	)		(347	)		347			(347	)

Total stockholder’s equity		133,057			223,370			(223,370	)		133,057

Total Liabilities and Stockholder’s Equity	$	651,554		$	323,933		$	(223,370	)	$	752,117

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet Information

October 2, 2005


*(Dollars in thousands)*	BWAY Corporation			Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	50,161		$	1,728			—		$	51,889
Accounts receivable, net		61,900			42,222			—			104,122
Inventories, net		41,776			30,189			—			71,965
Deferred tax assets		8,226			948			—			9,174
Other		2,925			825			—			3,750

Total current assets		164,988			75,912			—			240,900

Property, plant and equipment, net		90,594			51,882			—			142,476
Other assets
Goodwill		120,259			98,959			—			219,218
Other intangible assets, net		58,042			98,709			—			156,751
Deferred financing costs, net		10,589			—			—			10,589
Other		1,138			922			—			2,060
Investment in subsidiaries		219,231			—			(219,231	)		—

Total other assets		409,259			198,590			(219,231	)		388,618

Total Assets	$	664,841		$	326,384		$	(219,231	)	$	771,994

Liabilities and Stockholder’s Equity
Current liabilities
Accounts payable	$	48,311		$	49,657			—		$	97,968
Accrued salaries and wages		12,233			1,553			—			13,786
Accrued interest		10,803			—			—			10,803
Accrued rebates		9,458			646			—			10,104
Income taxes payable		4,117			3,876			—			7,993
Current portion of long-term debt		30,000			—			—			30,000
Other		15,292			1,245			—			16,537

Total current liabilities		130,214			56,977			—			187,191

Long-term debt		365,300			—			—			365,300

Other long-term liabilities
Deferred tax liabilities		28,388			47,731			—			76,119
Intercompany		1,324			(1,324	)		—			—
Other		16,179			3,769			—			19,948

Total other long-term liabilities		45,891			50,176			—			96,067

Commitments and contingencies (Note 7)

Stockholder’s equity
Common stock		—			1			(1	)		—
Additional paid-in capital		104,082			214,107			(214,107	)		104,082
Retained earnings		19,701			5,470			(5,470	)		19,701
Accumulated other comprehensive loss		(347	)		(347	)		347			(347	)

Total stockholder’s equity		123,436			219,231			(219,231	)		123,436

Total Liabilities and Stockholder’s Equity	$	664,841		$	326,384		$	(219,231	)	$	771,994

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations

Three Months Ended July 2, 2006


*(Dollars in thousands)*	BWAY Corporation			Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	153,687		$	88,988		$	—		$	242,675

Costs, expenses and other
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		3,894			939			—			4,833
Restructuring charge		338			—			—			338
Interest, net		8,446			(5	)		—			8,441
Financial advisory fees		123			—			—			123
Other expense (income), net		65			(178	)		178			65

Total costs, expenses and other		144,595			84,206			—			228,801

Income before income taxes and equity in earnings of subsidiaries		9,092			4,782			—			13,874
Provision for income taxes		3,025			1,539			—			4,564
Equity in earnings 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 Three Months Ended July 3, 2005
*(Dollars in thousands)*	BWAY Corporation			Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	147,442		$	79,970		$	—		$	227,412

Costs, expenses and other
Cost of products sold (excluding depreciation and amortization)		121,567			70,154			(178	)		191,543
Depreciation and amortization		5,530			3,842			—			9,372
Selling and administrative		4,475			763			—			5,238
Restructuring and impairment charges		3,943			—			—			3,943
Interest, net		8,183			(28	)		—			8,155
Financial advisory fees		123			—			—			123
Other (income) expense, net		(134	)		17			178			61

Total costs, expenses and other		143,687			74,748			—			218,435

Income before income taxes and equity in earnings of subsidiaries		3,755			5,222			—			8,977
Provision for income taxes		1,313			1,652			—			2,965
Equity in earnings of subsidiaries		3,570			—			(3,570	)		—

Net income	$	6,012		$	3,570		$	(3,570	)	$	6,012

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations

Nine Months Ended July 2, 2006


*(Dollars in thousands)*	BWAY Corporation			Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	405,982		$	263,485		$	—		$	669,467

Costs, expenses and other
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		11,639			2,752			—			14,391
Restructuring charge		533			—			—			533
Interest, net		24,964			(12	)		—			24,952
Financial advisory fees		371			—			—			371
Other expense (income), net		294			(289	)		533			538

Total costs, expenses and other		397,741			257,384			—			655,125

Income before income taxes and equity in earnings of subsidiaries		8,241			6,101			—			14,342
Provision for income taxes		2,759			1,962			—			4,721
Equity in earnings 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 Operations Nine Months Ended July 3, 2005
*(Dollars in thousands)*	BWAY Corporation			Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	396,802		$	212,147		$	—		$	608,949

Costs, expenses and other
Cost of products sold (excluding depreciation and amortization)		332,567			192,315			(533	)		524,349
Depreciation and amortization		21,542			11,023			—			32,565
Selling and administrative		12,357			2,915			—			15,272
Restructuring and impairment charges		4,821			—			—			4,821
Interest, net		23,958			(30	)		—			23,928
Financial advisory fees		371			—			—			371
Other income, net		(566	)		(559	)		533			(592	)

Total costs, expenses and other		395,050			205,664			—			600,714

Income before income taxes and equity in earnings of subsidiaries		1,752			6,483			—			8,235
Provision for income taxes		572			2,120			—			2,692
Equity in earnings of subsidiaries		4,363			—			(4,363	)		—

Net income	$	5,543		$	4,363		$	(4,363	)	$	5,543

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Cash Flows

Nine Months Ended July 2, 2006


*(Dollars in thousands)*	BWAY Corporation			Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided by operating activities	$	8,633		$	11,150		$	—	$	19,783

Cash flows 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 flows 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


BWAY Corporation and Subsidiaries Supplemental Condensed Consolidating Statement of Cash Flows Nine Months Ended July 3, 2005
*(Dollars in thousands)*	BWAY Corporation			Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided by operating activities	$	33,350		$	4,370		$	—	$	37,720

Cash flows from investing activities
Capital expenditures		(7,158	)		(7,768	)		—		(14,926	)
Other		975			—			—		975

Net cash used in investing activities		(6,183	)		(7,768	)		—		(13,951	)

Cash flows from financing activities
Repayments of term loan		(19,700	)		—			—		(19,700	)
Other		(785	)		—			—		(785	)

Net cash used in financing activities		(20,485	)		—			—		(20,485	)

Net increase (decrease) in cash and cash equivalents		6,682			(3,398	)		—		3,284
Cash and cash equivalents, beginning of period		22,800			4,525			—		27,325

Cash and cash equivalents, end of period	$	29,482		$	1,127		$	—	$	30,609

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

Our 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 accounting 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 in Item 1 of this report.

Results of Operations

Our operations are organized and reviewed by management along our product lines in two reportable segments —Metal Packaging and Plastics Packaging. We operate these reportable segments as separate divisions and differentiate the segments based on the nature of the products and services they offer. The primary raw material and manufacturing process are unique for each segment. In addition to the business segments, we report certain items as “corporate,” which relate to corporate services including accounting and finance, information technology, payroll and human resources and various other overhead charges, each to the extent not allocated to the divisions.

Metal Packaging. Metal Packaging includes our metal packaging products, which include paint cans, aerosol containers, ammunition boxes and other general line containers made from steel. Metal Packaging is a separate division of the Company with management and production facilities and processes distinct from our Plastics Packaging Division.

Plastics Packaging. Plastics Packaging includes the plastics packaging products manufactured and distributed by NAMPAC. 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 division of the Company with management and production facilities and processes distinct from our Metal Packaging Division.

The following table sets forth changes in our statements of operations and line items as a percentage of net sales for the three months ended July 2, 2006 and July 3, 2005.


										As a % of Net Sales
	Three Months Ended				Change					Three Months Ended
*(Dollars in thousands)*	July 2, 2006		July 3, 2005		$			%		July 2, 2006		July 3, 2005
Net sales	$	242,675	$	227,412	$	15,263		6.7	%	100.0	%	100.0	%
Cost of products sold (excluding depreciation and amortization)		204,889		191,543		13,346		7.0	%	84.4	%	84.2	%

Gross margin		37,786		35,869		1,917		5.3	%	15.6	%	15.8	%

Depreciation and amortization		10,112		9,372		740		7.9	%	4.2	%	4.1	%
Selling and administrative expense		4,833		5,238		(405	)	(7.7	) %	2.0	%	2.3	%
Restructuring and impairment charges		338		3,943		(3,605	)	(91.4	) %	0.1	%	1.7	%
Interest expense, net		8,441		8,155		286		3.5	%	3.5	%	3.6	%
Financial advisory fees		123		123		—		—	%	0.1	%	0.1	%
Other expense, net		65		61		4		6.6	%	—	%	—	%

Income before income taxes		13,874		8,977		4,897		54.6	%	5.7	%	3.9	%
Provision for income taxes		4,564		2,965		1,599		53.9	%	1.9	%	1.3	%

Net income	$	9,310	$	6,012	$	3,298		54.9	%	3.8	%	2.6	%

The following table sets forth changes in our statements of operations and line items as a percentage of net sales for the nine months ended July 2, 2006 and July 3, 2005.


											As a % of Net Sales
	Nine Months Ended					Change					Nine Months Ended
*(Dollars in thousands)*	July 2, 2006		July 3, 2005			$			%		July 2, 2006		July 3, 2005
Net sales	$	669,467	$	608,949		$	60,518		9.9	%	100.0	%	100.0	%
Cost of products sold (excluding depreciation and amortization)		583,891		524,349			59,542		11.4	%	87.2	%	86.1	%

Gross margin		85,576		84,600			976		1.2	%	12.8	%	13.9	%

Depreciation and amortization		30,449		32,565			(2,116	)	(6.5	) %	4.5	%	5.3	%
Selling and administrative expense		14,391		15,272			(881	)	(5.8	) %	2.1	%	2.5	%
Restructuring and impairment charges		533		4,821			(4,288	)	(88.9	) %	0.1	%	0.8	%
Interest expense, net		24,952		23,928			1,024		4.3	%	3.7	%	3.9	%
Financial advisory fees		371		371			—		—	%	0.1	%	0.1	%
Other expense (income), net		538		(592	)		1,130		(190.9	) %	0.1	%	(0.1	) %

Income before income taxes		14,342		8,235			6,107		74.2	%	2.1	%	1.4	%
Provision for income taxes		4,721		2,692			2,029		75.4	%	0.7	%	0.4	%

Net income	$	9,621	$	5,543		$	4,078		73.6	%	1.4	%	0.9	%


Net Sales

Net Sales by Segment

											As a % of the Total
	Three Months Ended					Change					Three Months Ended
*(Dollars in thousands)*	July 2, 2006		July 3, 2005			$			%		July 2, 2006		July 3, 2005
Metal packaging	$	153,687	$	146,815		$	6,872		4.7	%	63.3	%	64.6	%
Plastics packaging		88,988		80,597			8,391		10.4	%	36.7	%	35.4	%

Consolidated net sales	$	242,675	$	227,412		$	15,263		6.7	%	100.0	%	100.0	%


	Nine Months Ended					Change					Nine Months Ended
*(Dollars in thousands)*	July 2, 2006		July 3, 2005			$			%		July 2, 2006		July 3, 2005
Metal packaging	$	405,984	$	386,903		$	19,081		4.9	%	60.6	%	63.5	%
Plastics packaging		263,483		222,046			41,437		18.7	%	39.4	%	36.5	%

Consolidated net sales	$	669,467	$	608,949		$	60,518		9.9	%	100.0	%	100.0	%


The increase in metal packaging segment net sales in the three and nine month periods ended July 2, 2006 over the comparable periods of fiscal 2005 is primarily related to both higher net volume and to higher selling prices.

The increase in plastics packaging segment net sales in the three and nine month periods ended July 2, 2006 over the comparable periods of fiscal 2005 is primarily related to higher selling prices associated with the cost of plastic resin and, to a lesser extent, net increases in volume.

Cost of Products Sold

Cost of Products Sold by Segment *(excluding depreciation and amortization)*
											As a % of the Total
	Three Months Ended					Change					Three Months Ended
*(Dollars in thousands)*	July 2, 2006		July 3, 2005			$			%		July 2, 2006		July 3, 2005
Metal packaging	$	126,045	$	120,350		$	5,695		4.7	%	61.5	%	62.8	%
Plastics packaging		78,769		71,086			7,683		10.8	%	38.5	%	37.1	%

Segment CPS		204,814		191,436			13,378		7.0	%	100.0	%	99.9	%
Corporate undistributed expenses		75		107			(32	)	(29.9	)%	—	%	0.1	%

Consolidated CPS	$	204,889	$	191,543		$	13,346		7.0	%	100.0	%	100.0	%


	Nine Months Ended				Change					Nine Months Ended
*(Dollars in thousands)*	July 2, 2006		July 3, 2005		$			%		July 2, 2006		July 3, 2005
Metal packaging	$	342,514	$	321,183	$	21,331		6.6	%	58.7	%	61.3	%
Plastics packaging		241,207		202,927		38,280		18.9	%	41.3	%	38.7	%

Segment CPS		583,721		524,110		59,611		11.4	%	100.0	%	100.0	%
Corporate undistributed expenses		170		239		(69	)	(28.9	) %	—	%	—	%

Consolidated CPS	$	583,891	$	524,349	$	59,542		11.4	%	100.0	%	100.0	%

The increase in cost of products sold, excluding depreciation and amortization, (“CPS”) for the metal packaging segment in each of the three and nine month periods ended July 2, 2006 over the comparable periods of fiscal 2005 is primarily due to the net volume increase in segment net sales, as discussed above, changes in the mix of products sold and higher material costs. Metal packaging segment CPS as a percentage of segment net sales was 82.0% in each of the third quarters of fiscal 2006 and fiscal 2005 and increased to 84.4% in the first nine months of fiscal 2006 from 83.0% in the first nine months of fiscal 2005, for the reasons previously discussed. In addition, segment CPS decreased approximately $1.8 million and $4.7 million in the three and nine month periods ended July 2, 2006, respectively, over the comparable periods of fiscal 2005 related to a decrease in inventory costs as a result of our LIFO method of accounting.

The increase in CPS for the plastics packaging segment in the three month period ended July 2, 2006 over the comparable period of fiscal 2005 is primarily due to higher plastic resin costs partially offset by lower overhead costs as a result of cost reduction efforts. Plastics packaging segment CPS as a percentage of segment net sales remained essentially unchanged at 88.5% in the third quarter of fiscal 2006 from 88.2% in the third quarter of fiscal 2005. The increase in CPS for the plastics packaging segment in the nine month period ended July 2, 2006 over the comparable period of fiscal 2005 is primarily due to higher plastic resin costs and the unfavorable LIFO adjustment discussed below partially offset by lower overhead costs as a result of cost reduction efforts. Plastics packaging segment CPS as a percentage of segment net sales remained essentially unchanged at 91.5% in the first nine months of fiscal 2006 from 91.4% in the first nine months of fiscal 2005. Segment CPS increased approximately $0.4 million in the third quarter of fiscal 2006 over the comparable period of fiscal 2005 and increased approximately $2.3 million for first nine months of fiscal 2006 over the comparable period of fiscal related to fluctuations in inventory costs as a result of our LIFO method of accounting.

Depreciation and Amortization

Depreciation and Amortization by Segment


										As a % of the Total
	Three Months Ended				Change					Three Months Ended
*(Dollars in thousands)*	July 2, 2006		July 3, 2005		$			%		July 2, 2006		July 3, 2005
Metal packaging	$	5,149	$	5,083	$	66		1.3	%	50.9	%	54.2	%
Plastics packaging		4,508		3,818		690		18.1	%	44.6	%	40.7	%

Segment depreciation and amortization		9,657		8,901		756		8.5	%	95.5	%	95.0	%
Corporate		455		471		(16	)	(3.4	) %	4.5	%	5.0	%

Consolidated depreciation and amortization	$	10,112	$	9,372		740		7.9	%	100.0	%	100.0	%


	Nine Months Ended				Change					Nine Months Ended
*(Dollars in thousands)*	July 2, 2006		July 3, 2005		$			%		July 2, 2006		July 3, 2005
Metal packaging	$	15,809	$	16,116	$	(307	)	(1.9	) %	51.9	%	49.5	%
Plastics packaging		13,209		14,957		(1,748	)	(11.7	) %	43.4	%	45.9	%

Segment depreciation and amortization		29,018		31,073		(2,055	)	(6.6	) %	95.3	%	95.4	%
Corporate		1,431		1,492		(61	)	(4.1	) %	4.7	%	4.6	%

Consolidated depreciation and amortization	$	30,449	$	32,565		(2,116	)	(6.5	) %	100.0	%	100.0	%

The decrease in metal packaging segment depreciation and amortization expense (“D&A”) for the first nine months of fiscal 2006 over the comparable period of fiscal 2005 relates partially due to lower amortization of intangible assets and to the timing of fixed asset capitalizations. The increase in metal packaging segment D&A in the third quarter of fiscal 2006 over the comparable period of fiscal 2005 relates the lower amortization offset by higher depreciation associated with timing of fixed asset capitalizations. We recorded additional depreciation of approximately $3.9 million in the first and second quarters of fiscal 2005 associated with the shortened useful lives on certain assets (primarily equipment), which were subsequently disposed of in connection with the closure of certain of our plastics manufacturing facilities. Net of this additional depreciation, plastics packaging segment D&A increased in the third quarter and first nine months of fiscal 2006 over the comparable periods of fiscal 2005 due to higher depreciation associated with capital expenditures and to higher amortization of intangibles.

Selling and Administrative Expenses

Selling and Administrative Expense by Segment


										As a % of the Total
	Three Months Ended				Change					Three Months Ended
*(Dollars in thousands)*	July 2, 2006		July 3, 2005		$			%		July 2, 2006		July 3, 2005
Metal packaging	$	1,536	$	1,554	$	(18	)	(1.2	) %	31.8	%	29.7	%
Plastics packaging		946		826		120		14.5	%	19.6	%	15.8	%

Segment selling and administrative expense		2,482		2,380		102		4.3	%	51.4	%	45.4	%
Corporate undistributed administrative expense		2,351		2,858		(507	)	(17.7	) %	48.6	%	54.6	%

Consolidated selling and administrative expense	$	4,833	$	5,238	$	(405	)	(7.7	) %	100.0	%	100.0	%


	Nine Months Ended				Change					Nine Months Ended
*(Dollars in thousands)*	July 2, 2006		July 3, 2005		$			%		July 2, 2006		July 3, 2005
Metal packaging	$	4,903	$	5,175	$	(272	)	(5.3	) %	34.1	%	33.9	%
Plastics packaging		2,765		3,297		(532	)	(16.1	) %	19.2	%	21.6	%

Segment selling and administrative expense		7,668		8,472		(804	)	(9.5	) %	53.3	%	55.5	%
Corporate undistributed administrative expense		6,723		6,800		(77	)	(1.1	) %	46.7	%	44.5	%

Consolidated selling and administrative expense	$	14,391	$	15,272	$	(881	)	(5.8	) %	100.0	%	100.0	%

The decrease in metal packaging segment selling and administrative expense (“S&A”) in the nine month period ended July 3, 2006 is primarily related to a lower bonus expense and to lower spending from the comparable period of fiscal 2005. Metal packaging segment S&A in the third quarter of fiscal 2006 is comparable with the third quarter of fiscal 2005.

The decrease in plastics packaging segment S&A in the nine month period ended July 3, 2006 is primarily related to lower wages and spending from the comparable period of fiscal 2005 as part of a cost reduction initiative. Plastics packaging segment S&A increased in the third quarter of fiscal 2006 over the comparable period of fiscal 2005 primarily due to an increase in bonus expense.

The decrease in corporate undistributed S&A in the third quarter of fiscal 2006 over the comparable period of fiscal 2005 is primarily due a decrease in accrued litigation, lower stock based compensation and lower bonus expense. The decrease in corporate undistributed administrative expenses for the first nine months of fiscal 2006 over the comparable period of fiscal 2005 is primarily due to a recovery of approximately $0.6 million in the first quarter of fiscal 2005 of a previously written-off note receivable offset by lower spending and the changes noted above for the third quarter of fiscal 2006.

Interest, Taxes and Other

Interest Expense, Net. Interest expense, net, increased $0.3 million and $1.0 million in the third quarter and first nine months of fiscal 2006, respectively, from the comparable periods of fiscal 2005 primarily as a result of higher interest rates on the variable rate Credit Facility partially offset by a decrease in average Credit Facility borrowings outstanding.

Provision for Income Taxes. The effective tax rate increased slightly to 32.9% for the first nine months of fiscal 2006 from 32.7% for the comparable period of fiscal 2005.

Other Expense (Income), Net. Other expense (income), net, for the first nine months of fiscal 2006 relates primarily to losses from the disposal of idled equipment in the second quarter. Other expense (income), net, in the first nine months of fiscal 2005 relates primarily to gains on the sale in the first quarter of idled equipment and a vacant manufacturing facility in Dallas, Texas.

Liquidity and Capital Resources

Our cash requirements for operations and capital expenditures during the first nine months of fiscal 2006 and the first nine months of fiscal 2005 were primarily financed through internally generated cash flows. During the first nine months of fiscal 2006, cash and cash equivalents decreased $29.3 million to $22.6 million primarily due to a $30.0 million repayment on the Term Loan during the period. During the first nine months of fiscal 2005, cash and cash equivalents increased $3.3 million to $30.6 million primarily due to cash from operations partially offset by a $19.7 million repayment on the Term Loan. Long-term debt outstanding at July 2, 2006 and July 3, 2005 was $365.3 million and $395.3 million, respectively. There were no Revolver borrowings outstanding at either date.

At July 2, 2006, we had $22.0 million in revolving credit available after taking into consideration $8.0 million in standby letters of credit, which reduce available borrowings under the $30.0 million Revolver.

Interest accrues on the Term Loan and the Revolver at an applicable margin plus either (a) a base rate (which is the higher of prime or 0.5% in excess of the overnight federal funds rate) or (b) a Eurodollar rate. For the Term Loan, the applicable margins were initially fixed at 1.25% for base rate loans and at 2.25% for Eurodollar rate loans and can range down to 1.00% and 2.00%, respectively, based upon meeting specified consolidated leverage ratio targets. For the Revolver, the applicable margins are initially fixed at 1.75% for base rate loans and 2.75% for Eurodollar rate loans and can range down to 1.00% and 2.00%, respectively, based upon meeting specified consolidated leverage ratio targets. Borrowing at the base rate or the Eurodollar rate is at our discretion. The rate margins are subject to quarterly change based on our ratio of Consolidated Indebtedness to Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization), each as defined in the underlying credit agreement. The weighted-average interest rate on outstanding Term Loan borrowings at July 2, 2006 was approximately 7.3%.

In July 2006, we refinanced our Credit Facility in connection with the acquisition of substantially all of the assets and certain liabilities of Industrial Containers Ltd. for approximately $66.1 million (see Note 9 to the unaudited consolidated financial statements in Item 1).

The following table presents financial information on our cash flows and changes in cash and cash equivalents for each of the nine months ended July 2, 2006 and July 3, 2005.


	Nine Months Ended						Change
*(Dollars in thousands)*	July 2, 2006			July 3, 2005			Change
Net cash provided by operating activities	$	19,783		$	37,720		$	(17,937	)
Net cash used in investing activities		(19,617	)		(13,951	)		(5,666	)
Net cash used in financing activities		(29,447	)		(20,485	)		(8,962	)

Net decrease in cash and cash equivalents	$	(29,281	)	$	3,284		$	(32,565	)

Cash and cash equivalents , end of period	$	22,608		$	30,609

Net income, adjusted for depreciation, amortization of other intangible assets and deferred financing costs, impairment charge, loss/gain on disposition of property, plant and equipment and stock-based compensation expense, provided cash from operating activities of $42.9 million and $41.0 million in the first nine months of fiscal 2006 and 2005, respectively. The net change in accounts receivable, inventories and accounts payable used operating cash of $4.0 million and $6.2 million in the first nine months of fiscal 2006 and 2005, respectively. An increase in other assets in the first nine months of fiscal 2006 used cash of $4.3 million. Accrued and other liabilities used cash of $6.8 million in the first nine months of fiscal 2006 primarily as a result of interest payments in excess of interest expense. Interest paid in the first nine months of fiscal 2006 and fiscal 2005 was $28.4 million and $28.1 million, respectively. The change in accrued income taxes, net of changes in deferred income taxes, used cash of $8.0 million in the first nine months of fiscal 2006 versus cash provided of $2.8 million in the fist nine months of fiscal 2005 primarily as a result of the difference between the provision for income taxes and tax payments or refunds. Income taxes paid in the first nine months of fiscal 2006 was $12.8 million compared to net income tax refunds of $(0.1) million in the first nine months of fiscal 2005.

Net cash used in investing activities for capital expenditures was $20.3 million and $14.9 million in the first nine months of fiscal 2006 and 2005, respectively. Net cash used in investing activities was partially offset in the first nine months of fiscal 2006 and 2005 by proceeds of $0.7 million and $1.2 million, respectively, from the sale of property, plant and equipment and assets held for sale. We expect total capital expenditures in fiscal 2006 to exceed fiscal 2005 capital expenditures by approximately $3.0 to $6.0 million due to certain manufacturing improvement initiatives and for improvements required to meet certain environmental standards.

Net cash used in financing activities related primarily to repayments on the Term Loan of $30.0 million and $19.7 million in the first nine months of fiscal 2006 and fiscal 2005, respectively.

The Indenture 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, 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 2, 2006, we were in compliance with all applicable covenants contained in the Indenture related to the Senior Notes.

We expect that cash provided from operations and available borrowings under our new credit facility (as discussed above) will provide sufficient working capital to operate our business, to make expected capital expenditures and to meet foreseeable liquidity requirements, including debt service on the Senior Notes in the next 12 months. However, we cannot provide assurance that our business will generate sufficient cash flows or that future borrowings will be available in an amount sufficient to enable us to service our debt, including the Senior Notes, or to fund our other liquidity needs in the long term.

Market Risk

Our cash flows and earnings are exposed to the market risk of interest rate changes resulting from variable rate borrowings under our Credit Facility. Borrowings under the Credit Facility bear interest on the outstanding Term Loan and the Revolver borrowings at an applicable margin (based on certain ratios contained in the credit agreement) plus a market rate of interest. At July 2, 2006, we had Term Loan borrowings of $165.0 million that were subject to interest rate risk. Each 100 basis point increase in interest rates relative to these borrowings would impact quarterly pretax earnings by approximately $0.4 million based on the July 2, 2006 debt level. There were no outstanding borrowings at July 2, 2006 under the Revolver.

The fair value of the Senior Notes is exposed to the market risk of interest rate changes.

Commodity Risk

We are subject to various risks and uncertainties related to changing commodity prices for and the availability of the materials used in the manufacture of our products (primarily steel and resin).

Critical Accounting Policies

For a summary of our critical accounting policies, see management’s discussion and analysis in Item 7 of the Annual Report. Our critical accounting policies have not changed since October 2, 2005.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Contractual Obligations

For a summary of our significant contractual obligations, see the “Contractual Obligations and Commercial Commitments” section of Item 7 in the Annual Report. As of July 2, 2006, the nature and timing of the obligations has not materially changed since October 2, 2005. However, we refinanced our credit facility on July 17, 2006 in association with the acquisition of substantially all of the assets and certain liabilities of Industrial Containers Ltd. (see Note 9 to the unaudited consolidated financial statements in Item 1). The terms of the new facility will impact the contractual obligations disclosure previously reported in the Annual Report.

Environmental Matters

Other

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We do not purchase, sell or hold derivatives or other market risk-sensitive instruments to hedge commodity price risk, interest rate risk or exchange rate risk or for trading purposes.

For a discussion of interest rate risk and its relation to our indebtedness, see “Liquidity and Capital Resources” in Item 2, which is incorporated herein by reference.

Our purchases from foreign suppliers in transactions denominated in foreign currencies are not significant and we do not believe we are exposed to a significant market risk of exchange rate changes related to fluctuations in the value of these foreign currencies in relation to the U.S. Dollar.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures: Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has concluded, based upon its evaluation as of the end of the period covered by this report, that our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control Over Financial Reporting: There have been no changes in our internal controls over financial reporting during the three months ended July 2, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

There are no events to report under this item for the quarter ended July 2, 2006.

Item 1A. Risk Factors.

There are no material changes to report under this item for the quarter ended July 2, 2006.

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

There are no events to report under this item for the quarter ended July 2, 2006.

Item 3. Defaults Upon Senior Securities.

There are no events to report under this item for the quarter ended July 2, 2006.

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

There are no events to report under this item for the quarter ended July 2, 2006.

Item 5. Other Information.

There is no information to report under this item for the quarter ended July 2, 2006.

Item 6. Exhibits.

See Index to Exhibits.

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements as encouraged by the Private Securities Litigation Reform Act of 1995. All statements contained in this document, other than historical information, are forward-looking statements. These statements represent management’s current judgment on what the future holds. A variety of factors could cause business conditions and the Company’s actual results to differ materially from those expected by the Company or expressed in the Company’s forward-looking statements. These factors include, without limitation, competitive risks from substitute products and other container manufacturers, termination of the Company’s customer contracts, loss or reduction of business from key customers, dependence on key personnel, changes in steel, resin and other raw material costs or availability, labor unrest, catastrophic loss of one of the Company’s manufacturing facilities, environmental exposures, management’s inability to identify or execute selective acquisitions, failures in the Company’s computer systems, unanticipated expenses, delays in implementing cost reduction initiatives, potential equipment malfunctions and the other factors discussed in the Company’s filings with the Securities and Exchange Commission. The Company takes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrences of unanticipated events or changes to future results of operations.

SIGNATURES

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


	BWAY Corporation
	(Registrant)

Date: August 11, 2006	By:	/s/ Jean-Pierre M. Ergas
		Jean-Pierre M. Ergas
		Chairman and
		Chief Executive Officer
		(Principal Executive Officer)

Date: August 11, 2006	By:	/s/ Kevin C. Kern
		Kevin C. Kern
		Vice President, Administration and Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)

INDEX TO EXHIBITS


Exhibit Number		Description of Document
31.1		Certification of Chief Executive Officer required by Rule 13a-14(a) (17 C.F.R. 240.13a-14(a)).

31.2		Certification of Chief Financial Officer required by Rule 13a-14(a) (17 C.F.R. 240.13a-14(a)).

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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