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" includes revenues generated from 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 of our customers. Approximately one-third of our sales are to customers that package products for housing related markets, the largest of which is architectural paint and coatings. Our sales to these customers are affected by changes in those markets. Approximately two-thirds of our sales are to customers that serve a relatively broad range of products and markets, which have historically exhibited steady growth. Demand for our products may change due to changes in general economic conditions, the housing market, consumer confidence, weather, commodity prices, employment and personal income growth, each of which is beyond our control.

The current economic conditions affecting the home building and improvement sector and general economic conditions have negatively impacted our net sales.

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. Historically, we have adjusted selling prices in the metal packaging segment annually around the beginning of each calendar year primarily in conjunction with negotiated changes in raw material costs. However, as our steel suppliers have moved from annual pricing to more periodic pricing, either through price increases or surcharges, we have begun to adjust our selling prices more frequently in response to this change in the industry. 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. Generally, selling prices in the plastic packaging segment are periodically adjusted 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 sales agreements with our customers. These sales agreements generally contain pass-through mechanisms by which we may recover raw material price increases, although the timing of the recovery may not coincide with when we incur the raw material cost and the amount of the recovery may not equal the increase in raw material costs.

Expenses

Our expenses primarily consist of:

Cost of products sold (excluding depreciation and amortization), which includes raw materials, labor and benefits, rent, freight, utilities and operating supplies. Cost of products sold is primarily driven by the cost of these items, production volume and the mix of products manufactured. Moreover, we account for our inventories on a first-in-first out ("FIFO") basis; 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. Depreciation expense may also be affected by additional depreciation due to the shortening of useful lives in association with restructuring plans. Amortization expense is primarily driven by the valuation of intangible assets resulting from acquisitions.

Restructuring charge (adjustment), which includes costs related to closing redundant facilities and eliminating redundant positions. Restructuring charges are typically driven by our initiatives to reduce our overall operating costs through consolidation or closure of facilities and headcount reductions and include severance and termination benefits, rent and other holding costs on vacated facilities and costs associated with the removal of equipment. Restructuring charge (adjustment) may also include pension withdrawal liabilities related to the termination of employees participating in multi-employer pension plans.

Selling and administrative expense, which includes salaries and incentive compensation for corporate and sales personnel, 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, stock-based compensation, performance-based incentive compensation and legal, accounting and other professional fees.

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

Other expense (income), net, which includes foreign currency transaction gains and losses, gains and losses on the disposition of property, plant and equipment, Kelso financial advisory fees (which were discontinued concurrent with the public offering in 2007) and other non-operating expenses.

Raw Materials

Raw materials for the metal segment include tinplate, blackplate and cold rolled steel, various fittings, coatings, inks and compounds. Historically, steel producers implemented annual price changes, generally at the beginning of the calendar year. However, as the cost to produce steel has become more volatile, our suppliers have begun to adjust their prices more frequently, either through price increases or surcharges. 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. Over the past several years, steel pricing has increased more than historical levels due to increases in our steel producers' cost of raw materials and strong global demand.

In the third quarter of 2008, certain steel producers imposed surcharges on negotiated prices in existing contracts. During the third quarter of 2008, we have passed such cost increases through to our customers.

Raw materials for the plastics segment include resin, colorant and fittings. Resin prices fluctuate periodically throughout the year, but have increased steadily over the past several years. We have generally been able to recover these raw material price increases through pass-through mechanisms in our sales agreements, although the timing of the recovery may not coincide with when we incur the raw material cost and the amount of the recovery may not equal the increase in raw material costs.

We have historically been able to procure sufficient quantities of steel and resin to meet our customers' requirements even during periods of tightened supply. However, we cannot assure that we may be able to do so in the future.

To reduce our overall cost of raw materials, we may periodically purchase steel and resin on the spot market or purchase additional quantities in advance of price increases, each as may be available.

Overview

The following highlights changes in our results of operations for the three and nine months ended June 29, 2008 as compared to the three and nine months ended July 1, 2007. References to gross margin refer to net sales less cost of products sold (excluding depreciation and amortization).

• Net sales increased $4.5 million (1.7%) and $28.8 million (4.1%) for the three and nine months ended June 29, 2008, respectively, and gross margin increased $3.2 million (8.8%) and decreased $5.1 million (5.2%) in the three and nine months ended June 29, 2008, respectively, as compared to the three and nine months ended July 1, 2007.

• Metal segment gross margin increased 4.9% from $24.3 million and decreased 5.7% from $62.4 million in the three and nine months ended July 1, 2007, respectively, to $25.5 million and $58.8 million in the three and nine months ended June 29, 2008, respectively.

• Plastic segment gross margin decreased 13.5% from $17.4 million and 12.3% from $40.4 million in the three and nine months ended July 1, 2007, respectively, to $15.0 million and $35.4 million in the three and nine months ended June 29, 2008, respectively.

• The increase in net sales for the three and nine months ended June 29, 2008 compared to the three and nine months ended July 1, 2007 is primarily due to higher selling prices in response to increased raw material costs, partially offset by lower volume.

• Gross margin as a percentage of net sales increased to 14.6% and decreased to 12.6% in the three and nine months ended June 29, 2008, respectively, from 13.7% and 13.9% in the three and nine months ended July 1, 2007, respectively. The increase for the three months ended June 29, 2008 is primarily due to the increase in selling prices relative to higher resin and steel costs and a favorable mix of products sold, partially offset by higher spending. The decrease for the nine months ended June 29, 2008 is primarily due to higher selling prices relative to higher resin and steel costs, partially offset by an unfavorable mix of products sold, higher spending and lower productivity.

• Corporate undistributed expense included in cost of products sold and selling and administrative expense included approximately $0.4 million and $1.3 million, respectively, in the three months ended June 29, 2008, and $1.4 million and $3.9 million, respectively, in the nine months ended June 29, 2008 in non-cash stock-based compensation expense related to certain stock options with performance-based vesting criteria modified in the third quarter of 2007 related to the initial public offering.

• In the three and nine months ended June 29, 2008, corporate undistributed expense included a $1.0 million adjustment related to a change in our estimate of allowance for doubtful accounts resulting from improved collection efforts.

Results of Operations

Our operations are organized and reviewed by management along our product lines in two reportable segments, Metal Packaging and Plastic Packaging. For a discussion of our business segments, see Note 10, Business Segments, in Notes to Consolidated Financial Statements, included in Item 1.

The following table set forth changes in the Company's statements of operations and presents line items as a percentage of net sales for the three months ended June 29, 2008 and July 1, 2007.

                                           Three Months Ended              Change             As a % of Net Sales
                                          June 29,     July 1,                               June 29,       July 1,
(Dollars in thousands)                      2008        2007            $           %          2008          2007
Net sales                                $  274,009   $ 269,532     $   4,477        1.7 %       100.0 %      100.0 %
Cost of products sold (excluding
depreciation and amortization)              233,930     232,679         1,251        0.5          85.4         86.3

Gross margin (excluding depreciation
and amortization)                            40,079      36,853         3,226        8.8          14.6         13.7

Depreciation and amortization                12,103      11,532           571        5.0           4.4          4.3
Selling and administrative expense            6,710      21,448       (14,738 )    (68.7 )         2.4          8.0
Public offering expense                          -        9,210        (9,210 )   (100.0 )         0.0          3.4
Restructuring charge                          1,398          29         1,369         NM           0.5          0.0
Interest expense, net                         8,277       9,630        (1,353 )    (14.0 )         3.0          3.6
Other expense, net                              363         369            (6 )     (1.6 )         0.1          0.1
Income (loss) before income taxes            11,228     (15,365 )      26,593         NM           4.1         (5.7 )
Provision for (benefit from) income
taxes                                         3,119      (8,782 )      11,901         NM           1.1         (3.3 )

Net income (loss)                        $    8,109   $  (6,583 )   $  14,692         NM           3.0 %       (2.4 )%

NM-NOT MEANINGFUL

The following table set forth changes in the Company's statements of operations
and presents line items as a percentage of net sales for the nine months ended
June 29, 2008 and July 1, 2007.



                                           Nine Months Ended              Change             As a % of Net Sales
                                         June 29,     July 1,                               June 29,       July 1,
(Dollars in thousands)                     2008        2007            $           %          2008          2007
Net sales                                $ 734,972   $ 706,179     $  28,793        4.1 %       100.0 %      100.0 %
Cost of products sold (excluding
depreciation and amortization)             642,183     608,278        33,905        5.6          87.4         86.1

Gross margin (excluding depreciation
and amortization)                           92,789      97,901        (5,112 )     (5.2 )        12.6         13.9

Depreciation and amortization               34,720      34,107           613        1.8           4.7          4.8
Selling and administrative expense          18,251      31,939       (13,688 )    (42.9 )         2.5          4.5
Public offering expense                         -        9,527        (9,527 )   (100.0 )         0.0          1.3
Restructuring charge (adjustment)            5,612        (135 )       5,747         NM           0.8          0.0
Interest expense, net                       27,066      28,353        (1,287 )     (4.5 )         3.7          4.0
Other expense, net                             485         956          (471 )    (49.3 )         0.1          0.1
Income (loss) before income taxes            6,655      (6,846 )      13,501         NM           0.9         (1.0 )
Provision for (benefit from) income
taxes                                        1,326      (5,096 )       6,422         NM           0.2         (0.7 )

Net income (loss)                        $   5,329   $  (1,750 )   $   7,079         NM           0.7 %       (0.2 )%

NM-NOT MEANINGFUL

Net Sales



                            Three Months Ended          Change             As a % of the Total
                           June 29,     July 1,                           June 29,       July 1,
 (Dollars in thousands)      2008        2007         $          %          2008          2007
 NET SALES BY SEGMENT
 Metal packaging          $  156,583   $ 162,626   $ (6,043 )   (3.7 )%        57.1 %       60.3 %
 Plastic packaging           117,426     106,906     10,520      9.8           42.9         39.7

 CONSOLIDATED NET SALES   $  274,009   $ 269,532   $  4,477      1.7 %        100.0 %      100.0 %


                            Nine Months Ended           Change             As a % of the Total
                           June 29,     July 1,                           June 29,       July 1,
 (Dollars in thousands)      2008        2007         $          %          2008          2007
 NET SALES BY SEGMENT
 Metal packaging          $  421,462   $ 422,061   $   (599 )   (0.1 )%        57.3 %       59.8 %
 Plastic packaging           313,510     284,118     29,392     10.3           42.7         40.2

 CONSOLIDATED NET SALES   $  734,972   $ 706,179   $ 28,793      4.1 %        100.0 %      100.0 %

Metal packaging segment net sales declined in the third quarter of 2008 compared to the third quarter of 2007 as selling price increases that were implemented in response to our higher raw material costs were offset by lower volumes of certain products. Overall volume decreased primarily due to lower volumes in paint and aerosol, partially offset by higher volumes in specialty containers. Demand for architectural paint and coatings, the largest end use market segment for the Company's metal packaging containers, remained weak during the quarter due to continued weakness in the home construction and improvement sector and in the overall general economy.

The decrease in metal packaging segment net sales in the first nine months of 2008 compared to the first nine months of 2007 is a result of lower volumes of certain products, partially offset by higher selling prices resulting from the pass-through of increases in raw material costs.

The increase in plastics packaging segment net sales in the third quarter of 2008 compared to the third quarter of 2007 is attributable to higher selling prices resulting from the pass-through of increases in raw material costs.

The increase in plastics packaging segment net sales in the first nine months of 2008 compared to the first nine months of 2007 is attributable to higher selling prices resulting from the pass-through of increases in raw material costs and increased volumes.

Cost of Products Sold (excluding depreciation and amortization)



                                              Three Months Ended          Change             As a % of the Total
                                             June 29,     July 1,                           June 29,       July 1,
(Dollars in thousands)                         2008        2007         $          %          2008          2007
COST OF PRODUCTS SOLD BY SEGMENT
(excluding depreciation and amortization)
Metal packaging                             $  131,064   $ 138,296   $ (7,232 )   (5.2 )%        56.0 %       59.4 %
Plastic packaging                              102,407      89,534     12,873     14.4           43.8         38.5

Segment CPS                                    233,471     227,830      5,641      2.5           99.8         97.9
Corporate undistributed expense                    459       4,849     (4,390 )     NM            0.2          2.1

CONSOLIDATED CPS                            $  233,930   $ 232,679   $  1,251      0.5 %        100.0 %      100.0 %

                                              Nine Months Ended          Change            As a % of the Total
                                            June 29,     July 1,                          June 29,       July 1,
(Dollars in thousands)                        2008        2007         $          %         2008          2007
COST OF PRODUCTS SOLD BY SEGMENT
(excluding depreciation and amortization)
Metal packaging                             $ 362,663   $ 359,697   $  2,966      0.8 %        56.5 %       59.1 %
Plastic packaging                             278,094     243,714     34,380     14.1          43.3         40.1

Segment CPS                                   640,757     603,411     37,346      6.2          99.8         99.2
Corporate undistributed expense                 1,426       4,867     (3,441 )     NM           0.2          0.8

CONSOLIDATED CPS                            $ 642,183   $ 608,278   $ 33,905      5.6 %       100.0 %      100.0 %

Metal packaging segment cost of products sold, excluding depreciation and amortization, ("CPS") decreased in the third quarter of 2008 compared to the third quarter of 2007 due primarily to lower volume and higher productivity, partially offset by higher raw material costs. Metal packaging segment CPS increased in the first nine months of 2008 compared to the first nine months of 2007 due primarily to higher raw material costs and lower productivity, partially offset by lower volumes.

Metal packaging segment CPS as a percentage of segment net sales decreased to 83.7% in the third quarter of 2008 from 85.0% in the third quarter of 2007 and increased to 86.0% in the first nine months of 2008 from 85.2% in the first nine months of 2007. The decrease in metal packaging segment CPS as a percentage of net sales in the third quarter of 2008 was affected by higher selling prices resulting from the pass-through of higher steel costs. The increase in metal packaging segment CPS as a percentage of net sales in the first nine months of 2008 was negatively affected by higher material costs, lower volume and an unfavorable customer mix driven by weakness in the home construction and improvement sector and in the overall general economy.

In third quarter of 2008 compared to the third quarter of 2007, plastic packaging segment CPS increased primarily due to higher raw material costs and lower productivity, partially offset by lower sales volume. In the first nine months of 2008 compared to the first nine months of 2007, plastic packaging CPS increased as a result of higher sales volume, higher resin costs and lower productivity.

Plastic packaging segment CPS as a percentage of segment net sales increased to 87.2% in the third quarter of 2008 from 83.8% in the third quarter of fiscal 2007 and to 88.7% in the first nine months of 2008 from 85.2% in the first nine months of 2007 primarily as a result of higher raw material costs relative to selling price pass-through and lower productivity.

Corporate undistributed expense for the third quarter and first nine months of 2008 consists primarily of stock-based compensation. Corporate undistributed expense for the third quarter and first nine months of 2007 includes approximately $4.3 million in expenses associated with the public offering. See Note 8, Stock-Based Compensation, in Notes to Consolidated Financial Statements in Item 1.

Depreciation and Amortization



                                               Three Months Ended         Change           As a % of the Total
                                              June 29,     July 1,                        June 29,       July 1,
(Dollars in thousands)                          2008         2007       $        %          2008          2007
DEPRECIATION AND AMORTIZATION BY SEGMENT
Metal packaging                              $     5,652   $  5,700   $ (48 )   (0.8 )%        46.7 %       49.4 %
Plastic packaging                                  5,918      5,666     252      4.4           48.9         49.1

Segment D&A                                       11,570     11,366     204      1.8           95.6         98.6
Corporate undistributed expense                      533        166     367       NM            4.4          1.4

CONSOLIDATED D&A                             $    12,103   $ 11,532   $ 571      5.0 %        100.0 %      100.0 %

                                               Nine Months Ended          Change           As a % of the Total
                                              June 29,     July 1,                        June 29,       July 1,
(Dollars in thousands)                          2008         2007       $        %          2008          2007
DEPRECIATION AND AMORTIZATION BY SEGMENT
Metal packaging                              $    17,185   $ 16,818   $ 367      2.2 %         49.5 %       49.3 %
Plastic packaging                                 16,570     16,442     128      0.8           47.7         48.2

Segment D&A                                       33,755     33,260     495      1.5           97.2         97.5
Corporate undistributed expense                      965        847     118     13.9            2.8          2.5

CONSOLIDATED D&A                             $    34,720   $ 34,107   $ 613      1.8 %        100.0 %      100.0 %

Metal packaging segment depreciation and amortization expense ("D&A") in the third quarter and first nine months of 2008 include approximately $0.4 million and $0.9 million, respectively, of additional depreciation related to the planned closure of our Franklin Park facility. Plastic packaging segment D&A in the third quarter and first nine months of 2008 included $0.4 million of additional depreciation related to the planned closure of our Cleveland facility. For further information on these closures, see Note 6, Restructuring and Reorganization Liabilities, in Notes to Consolidated Financial Statements, included in Item 1. Amortization expense was relatively unchanged in the third quarter and first nine months of 2008 compared to the third quarter and first nine months of 2007.

Selling and Administrative Expense



                                           Three Months Ended           Change              As a % of the Total
                                          June 29,     July 1,                             June 29,       July 1,
(Dollars in thousands)                      2008         2007         $           %          2008          2007
SELLING AND ADMINISTRATIVE EXPENSE BY
SEGMENT
Metal packaging                          $     1,484   $  1,606   $    (122 )    (7.6 )%        22.2 %        7.5 %
Plastic packaging                              1,074      1,452        (378 )   (26.0 )         16.0          6.8

Segment S&A                                    2,558      3,058        (500 )   (16.4 )         38.2         14.3
Corporate undistributed expense                4,152     18,390     (14,238 )   (77.4 )         61.8         85.7

CONSOLIDATED S&A                         $     6,710   $ 21,448   $ (14,738 )   (68.7 )%       100.0 %      100.0 %

. . .