Berry Global Group Inc (BERY) 2009 Q1 法說會逐字稿

You may begin, sir.

Thank you. Good morning and welcome to Berry Plastics earnings conference call. With me today I have Ira Boots, our Chairman and CEO; and Jim Kratochvil, our CFO. This is Mark Miles, the Controller.

During this call we will be discussing some non-GAAP financial measures including bank compliance EBITDA and adjusted EBITDA. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our public filings.

An archived audio replay of this conference will also be available on the Company's website.

During this call we may make forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements concerning the Company's plans, objectives, goals, strategies, future events, future revenues, or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, business trends, and other information that is not historical information. Actual results in future periods may differ materially from forward-looking statements made today because of a number of risks and uncertainties including various economic and competitive factors, the Company's ability to pass through raw material price increases to its customers, its ability to service debt, the availability of plastic resin, the impact of changing environmental laws, changes in the level of the Company's capital investments, and the results in integration of acquired business.

Although Management believes it has the business strategy and resources needed for improved operations, future revenue margin trends cannot be reliably predicted.

Additional information about factors that could affect the Company's business is set forth in the Company's various filings with the Securities and Exchange Commission.

Now I would like to turn it over to Ira Boots, our CEO and Chairman.

Good morning. It is our privilege, and we thank you for joining us today for the Berry Plastics first-quarter 2009 earnings call. Throughout this call we will refer to the first quarter -- first fiscal quarter as the December quarter.

I would like to begin by providing an overview of the business climate for Berry Plastics during the quarter. The current recession has continued to have a mixed impact on our overall business as it relates to sales volume.

The rigid business, which historically has been the most resistant to inflation, actually recorded modest growth during the quarter supported by the continued increased demand for our thermoform drink cups. This having been said, it appears there is some consumer destocking or like buying in the marketplace which is affecting the overall demand for rigid package products.

The flexible business, as expected, continues to be the most affected by the economy. Supplier overcapacity in several sectors of the flexible business has resulted in strong competition for available volumes facilitating rapid declines in customer pricing.

Selling prices were up during the December quarter compared to the prior-year quarter with an increase in spread across most of our businesses. For the first time in several quarters, Berry -- with the help of our material reduction program -- did not see an under-recovery of material costs in the quarter as compared to the prior-year quarter.

As we progressed through the December quarter, the Company experienced a decline in the rate of shipments and outstanding orders for future shipments, reflecting decreased demand towards the end of the quarter in most of our businesses.

The December quarter experienced the largest decline of resin prices in history. Based on various FIFO accounting, most of the benefit of this decline will not be realized until higher cost of raw material and finished goods inventories have flowed through the operating statement. The severity of the decline during our seasonally softest volume time of the year will result in a longer than typical pass-through of the higher-priced resin in inventory to the income statement.

Per the terms of many of our escalator/de-escalator agreements, pricing begins to adjust January 1, 2009 for many of our customers. As can be observed in our cash-flow statement for the quarter, we are beginning to see improvements to cash from operations as resin-driven increases in working capital from earlier in the year are beginning to flow back to the Company.

Now I will report the highlights from the quarter. Berry Plastics is pleased to report that our sales were $865 million for the quarter, an increase of 13% from the $763 million of sales reported in the December quarter of 2007. These results include solid organic volume growth of 3% in the rigid business with the flexible business reporting a volume decline of 14%.

We are pleased to announce that adjusted EBITDA including unrealized synergies for the December quarter was $115 million, reflecting a 3% decline from the pro forma adjusted EBITDA of $118 million in the December quarter of 2007. The actual pro forma adjusted EBITDA results are very close to the guidance previously given when the 10-K was filed in December of last year. Specific detail on periodic changes to net sales and pro forma adjusted EBITDA will be provided in the financial review.

During the quarter Berry was very proactive in reducing expenses to compensate for the volume softness, particularly in the flexible business. Several plants scheduled downtime in December to efficiently match our workforce with production needs.

As announced in December, the consolidation of the former Captive Redlands, California facility into our Anaheim, California location is continuing as expected. We are also completing the outsourcing of yarn production from our Albertville, Alabama facility, which is used in the manufacturing of duct tape and other tape products. Most recently we announced a reduction in force at our East Hampton, Massachusetts tube manufacturing facility to match costs with demand requirements.

During calendar 2008 we converted 20 manufacturing facilities to Berry's base ERP platform. Already in 2009 we have installed our system in three former Captive plants with nine more installations scheduled before the end of the March quarter.

In spite of the recession, Berry is continuing to invest in expansion and cost reduction projects. Most recently, we announced an expansion in thermoforming operations based on customer-driven needs. Although a specific location has not yet been determined, we expect to spend approximately $80 million over three years, which has been considered in our budget.

Through continuous improvement to our process, innovation, and consistent investment in high-output technology, we have worked to establish what we believe to be a leadership position in the deep-draw polypropylene drink cups. As an example of our process improvement, the output of newly installed machines is almost 80% greater than the first thermoform cup machines we introduced in 2000.

We also announced in December that Berry was a successful bidder for certain assets of Erie County Plastics Corporation, a custom injection molder of plastic packaging who filed for bankruptcy protection on September 29, 2008. In conjunction with the purchase, Berry has been able to retain certain key customers and is continuing to relocate molding machines and equipment into other plants within our system. Several of the more modern Erie machines will replace older and less efficient machines across the Corporation.

With the uncertainty of the financing market continuing, the Company has elected to continue to maintain a high cash balance, which was approximately $171 million at the end of December. The Company is also beginning to receive an interest rate benefit from the current low LIBOR rates. Jim will comment on Company liquidity later in the call.

In summary, Berry continues to manage through enormous volatility in raw material costs, tough financing markets, and the impact from a very soft economy as a whole. The reversal of the environment of rapidly rising feedstocks has presented an entirely different set of management issues including downward pricing pressure from customers and inventory management.

Historically, the impact of economic downturns on our products, many of which are consumer-oriented, are less sensitive to economic downturn than durable goods or specialty items.

With this, I will turn it over to Jim Kratochvil for more details on the financial results.

Thank you, Ira. I would like to begin by reviewing key December quarter 2008 financial statistics.

As Ira mentioned previously, total net sales for the quarter were $865 million compared to $763 million for the net sales for the December quarter of 2007, an improvement of $102 million. Acquisition volume from Captive, MAC, and Erie represented $76 million of the increase. Increased selling prices of $75 million and a decrease in base volume of approximately $44 million accounted for most of the remaining change.

After considering unrealized synergies and the impact of acquisitions, adjusted EBITDA of $115 million for the quarter compared to $118 million in the prior-year quarter, a decrease of $3 million.

Major components of this year-on-year quarterly change include, first, the net impact of higher rigid volume and lower flexible volume resulting in a $4 million decrease in EBITDA; second, the impact of higher selling prices and higher raw material costs resulting in a net over-recovery of $8 million after considering the impact of our material cost reduction program; and third, the realization of $13 million of synergies plus other cost reduction initiatives and lower SG&A costs.

In spite of these improvements, the Company was still $7 million short of fully recovering the impact of lower-volume-driven plant productivity, higher freight and energy costs, and other inflation.

In the rigid side of the business, pro forma adjusted EBITDA, including the realization of synergies, improved approximately $9 million for the quarter.

Organic growth adjusted for changes in selling prices for the total rigid business was approximately 3%, led by our continued growth in thermoform polypropylene cups, which were up 27% from the prior quarter.

Houseware sales were also up 25%, and container sales saw a 1% decline. This net sales volume growth resulted in approximately $2 million of EBITDA improvement.

Higher selling prices and improvements from the resin reduction program yielded an $8 million improvement compared to material costs for the quarter.

Synergy realization and other improvements were offset by other inflation.

In the flexible business, adjusted EBITDA including realized synergies decreased approximately $12 million including a $5 million EBITDA impact from a 14% decline in sales volumes.

Growth in the tapes and coatings division's corrosion protection business of 5% was more than offset by substantial declines in building trade-related tapes and other various tape products. As a division, tapes and coatings recorded a volume decline of 7%.

Overall, the flexible film business was down 17%, driven in large part by the Company's decision to exit certain unprofitable businesses.

Flexible films division's retail and institutional bag business actually recorded an increase of 12% while other categories of film were negatively impacted by softness in building products.

For the first time in several quarters, the increased material costs of $34 million incurred during the quarter was entirely recovered through higher customer selling prices.

The flexible business did benefit from synergies realized by the Company in the quarter, which only partially offset higher freight, energy, and under-absorption of plant overhead.

A bright spot for the quarter was the improved liquidity generated from operating activities. Both accounts receivable and inventory improved substantially as a result of both lower resin prices and seasonality, which was partially offset by decreased accounts payable and other liabilities mainly resulting from vendors tightening terms.

Overall the Company generated almost $112 million in cash provided from operations.

Maintaining substantial liquidity continues to be a high priority of the Company. At quarter end our drawn revolving balance of approximately $181 million included borrowings in addition to our operational requirements due to the instability of lender banks and the turbulent capital markets.

Our cash balance of approximately $171 million at quarter end combined with remaining revolver availability of almost 170 -- $167 million -- after deducting letters of credit and the full Lehman Brothers' commitment -- provides more than adequate headroom to operate the business with total liquidity of approximately $338 million as of December 27, 2008.

Capital spending for the quarter was approximately $43 million, and the purchase of the assets of Erie County Plastics was another $4 million.

Including the expected spending for the thermoform expansion scheduled for fiscal 2009, the Company expects to spend approximately $195 million in capital projects for the current fiscal year.

As a reminder, the Company has no material maintenance covenants associated with our debt facilities. Also our debt amortization is approximately $20 million per year, and our first material debt maturity does not occur until 2013.

This concludes my financial review of the first quarter of 2009, and at this time I would like to turn it over to the operator to entertain questions from the participants.

Operator, if you would open the lines.

(Operator Instructions). Bruce Klein, Credit Suisse.

Could you just help a little bit more maybe, Ira, with the volumes in the various segments in terms of what you're seeing? And was there a change in the last few months? And sort of how much of that do you think is customer just inventory destocking or other issues? Or has there been any loss of customers or anything like that going on? Or do you think you're sort of maybe gaining share in certain segments? Or on each segment? It would be helpful if you had.

We will break it down by division, Bruce -- and first of all, good morning to you -- and speak in generality about those divisions. We really don't go to product segments inside.

But on our -- first of all, overall, all of our divisions -- we have not seen a material loss of customers, so the changes in volume are being based upon the customer usage more than the fact that we would have some losses -- again, in a material way. Certainly on any given day we have new customers that are joining us and we're losing some customers. But again, it's been pretty normal from that side.

Our open top side of our business continues to enjoy a pretty good normalized presence inside the marketplace in terms of volume. But even inside that area it tends to be historically one of our most stable areas. We're seeing changes that are happening. People are trading down such as from a high-end branded product down to a private-label product even though they would be the same type product. An example would be yogurt. We clearly are seeing some changes there.

The good thing for Berry -- we're on both sides of the aisle. We make the branded product and we make the private-label product. It's obviously gives us very good insight into what's happening inside the market, and yet at the same time there is clearly a trade-down. We see consumers moving from higher-end, more expensive type products down to lower type products, again, such as dry goods, cereals. We're seeing an increased usage in that particular area versus higher-end products that -- some energy bars or those type in nature.

So again, the business on the open top -- the rigid open top side of our business is pretty normal during this quarter that we're reporting, and yet even with that, again, we saw trends, and those trends were negative on the shipments and negative on the open orders, as I reported.

On the closed top it would be relatively similar to what I just spoke about. Our rigid closed top business, with some exceptions -- our flexible tubes, our squeezed tubes that are inside rigid closed top -- definitely a trend down on those particular type products. We think that the consumer may be bypassing some of the personal care needs in hand creams and suntan lotions and toners, and those are lost sales for people that are making those choices to spend their dollars in other areas.

So other type areas, the shampoos and more personal -- more daily required personal care needs -- not quite the changes that we're seeing on the ones that are more just optional.

The flexible business -- we have seen clearly a downturn in that particular business. Certainly any products that are associated with building-type products -- sheeting in particular -- are down.

On the flipside, some of our can liners and trash bags and -- again, some of that business is much more stable and not being as affected. Certainly the downturn on the economy with other manufacturers are affecting our stretch and shrink wrap. There's not many products being made out there. People are shutting plants down, and those are affecting our volumes as well for the wrapped type products that are coming on out of our flex.

Our tapes and coatings division -- very similar, as Jim just pointed out. Any products that are associated with building products certainly are clearly down and mostly in line of what the industry is doing with new housing starts.

And our automotive products that are coming out of tapes and coatings -- the same way. They are clearly being negatively affected with the new car builds that are going on inside the US. That's being offset in that particular division by our corrosion protection products that are going on pipelines. Those products are still in great demand, and we're seeing a much more normalized and aggressive turn in terms of open borders and shipments in that area.

That's helpful. Thanks. And the resin -- or Ira, maybe your latest thoughts. I know resin has sort of plunged in the December period and there are some initiatives to get them a little bit higher, maybe stem them from falling further. But do you have sort of a view on sort of resin trends? And you guys I know have some lags that you'll see I guess the benefit of when some of the higher-cost resin works out, but your lags are typically I think a few months. So has anything changed there, or do you expect to see some benefit as that stuff rolls through?

Our thoughts on the resin market itself -- obviously there was a huge declining change inside the pricing structure, and most probably there was an over-correction that has been observed and delivered during the fourth quarter. The resin companies are clearly trying to change and trying to pull their sale prices back up, trying to make up for the possible over-correction that was inside.

And when I say possible -- because obviously supply and demand still has a lot to do with what that price of that resin is going to be, and certainly the cost of the raw materials and the oil and natural gas both (inaudible) the inputs inside. So I guess the rest of the story is still going to be written, Bruce, regarding that.

The -- as far as our lag times, you are exactly right. We do have lag times due to our escalator/deescalators -- which are mostly on quarters -- that are sitting out there. That has been complicated by the slowness in volume that we can't feed and eliminate our finished goods inventory -- and in some cases even raw materials that are coming in -- as quick as what we would like, and that's affecting the lag time and our ability to recover as well.

Sandy Burns; Sterne, Agee.

In terms of the CapEx budget for the year, I don't know if you can share with us like how much of that amount is fully committed at this time? Or is some flexibility in delaying that or reducing it depending on how the economy and volumes work out throughout the year?

Yes. There's always a portion of that that remains uncommitted as we go through the year, which is one of the insurance policies we have because if there's a down [term] and it gives us the ability to reduce that spending, and in fact that happened last year. As we were faced with higher and higher resin prices, we actually spent less in the end than what we had originally thought we would spend. So we do have a certain amount of flexibility.

It is not all committed at this point in time. I don't have a firm number for you on what portion of that is committed. There are substantial commitments that are out there of this budget but clearly not all of it at this point in time.

Okay. And then also, whether looking at the thermoform CapEx plans over the next few years or even in some of the other businesses, when you mentioned that particularly in thermoform you're spending based on customer needs, do you actually work through some contracts or arrangements with some customers before you decide to take on substantial spending in this environment?

Sandy, we have sales agreements, and I want to be very careful about the definition of what a contract is, but we have a sales agreement in place with some of our customers that purchase drink cups -- and certainly not all of them.

And to answer your question, no, we make the observation and determination when to add capacity for us to be able to stay in a supply position for the marketplace. And most of the time, seldom would there be a sales agreement in place that would be contracted across that period of time that we're looking forward and saying we have to add expansion.

Okay. Fair enough. And just my last question is, in the rigid open top business, if I'm doing the calculations correctly, it looks like EBITDA margins were down sequentially on about a 3% revenue decline, although they were up slightly on a year-over-year basis. But it looks like it -- that sequential decline also happened in the 12/07 quarter. Is there anything inherent in that business where margins decline sequentially? And then why they would then pop back up as the year progresses away from obviously the resin movement?

Everything else being equal, resin being equal and -- volume is typically less in calendar Q4 in rigid open top. That's typically the slowest sales month. Spring and summer are typically higher-volume months. So you've got the holidays and all those things that effect in the fourth calendar quarter.

Right. Is there also some product mix in there? Because like I said, it looks like the revenue decline wasn't -- was only about 3% or so.

There is some product. I mean, we sell some of our products -- like our housewares business is the strongest in the spring, as an example. There is some product mix as well within open top.

Roger Spitz, Banc of America.

I wasn't sure if you said earlier on the call if you would or would not give any of this, so let me ask just in case you can. What was base unit volume growth in open top excluding thermoform drink cups, organic closed top volume growth excluding the acquisitions, and the flexible films portion of the flexibles volume growth excluding the low-margin businesses you elected to exit?

I got the -- sorry. I was looking for the answer, Roger -- this is Mark.

On the open top, excluding thermo cups, volume in open top was relatively flat. It was down slightly. But I don't even know if it's a full percentage point. It was basically flat (multiple speakers).

What was your next question?

The second was the closed top volume growth -- organic closed top volume growth excluding acquisitions.

The same answer. It's right at zero basically -- growth.

Great. And you gave us tapes of down seven -- tapes and coatings down 7% volume. On the other side of flexibles, the flexible films excluding the low-margin business you elected to exit, what was that sort of organic volume change?

I don't know that we have it excluding this -- we exited it. Wasn't it 17% (multiple speakers)

It's 17% on total, and as Ira mentioned, a big portion of that was driven by sheeting volumes tied to building product.

Yes. And that's also some of the volume we chose to exit.

Exactly.

So there's not a clear break.

Got it. Okay. We discussed it a little on the last call. I just wanted to make sure I understand it correctly. In legacy Berry you told us you have among your contracted sales two contracts with a four-month price reset, two contracts with a six-month, and then one with an annual price reset. My questions are, first, do all five of these particular contracts have the January 1 reset date?

And second, when you look at the reset date, whenever they are, because of the massive volatility in resin pricing, how will it particularly work? You're sitting here in January 1 or 2. Do you look at -- let's just say it's Chem Data. Do you look at Chem Data's December? Does the contract look to Chem Data's December publication and say, okay, and we're going to take the November number? Or a December publication and you're taking the December number? Or January publication where you're taking the December number? How does a contract -- sort of what is a contract looking for?

Roger, those numbers may change from any given quarter of which customers are on which kind of contracts, but the start dates on those particular contracts that you're speaking about are not all January 1. They are on various set dates throughout the year. And so you can't just say on January 1 what's going to happen with those particular ones.

What was your second part of your question?

The second part is is for the various contracts under escalator/deescalator, and you sort of look back using indices, either Chem Data or CMAI, presumably. And I was just trying to understand when you look back, do you -- let's assume a January reset for a particular contract. Do you typically look back and say, okay, it's January. Do I look back at say the Chem Data December publication and then within that look back to the November or the December price?

I'm trying to understand given -- in this -- the massive change in resin pricing, how we should think about -- or what the contracts typically look for, which publication date for say a January reset? And how far back in that particular publication, how many months back does it typically look? I know it changes from contract to contract, but I'm just getting some idea.

Most -- again, I think I've stated on previous, but I will restate this. Most of our escalator/deescalator contracts are quarterly, and they are set to an index of some type, whether it's CMAI or Plastics News or CDI, there are various publications that we're indexed to, and mostly due to customer choice. And most of the time they are set at the mid point of the quarter preceding, with the effective date.

So for a -- you asked, and for an example, January 1, 2009 would be set for most of those contracts at the mid point of November '08.

Got it. That's perfect. And lastly, the flexible films EBITDA as calculated directly from the segment data shows fiscal Q1 '09 up nicely from both fiscal Q1 '08 and even more from fiscal Q4 '08, presumably as a result of the -- during a time when resin prices were moving down rapidly, which as you mentioned would result in FIFO headwinds. Was this improvement manly related to the synergy capture as you talked about it in your MD&A, or were there other items helping this improvement within the flexible films EBITDA?

There's one other factor that I want to make sure you understand, Roger, and that is that the EBITDA that's in that segment note is operating income plus D&A, so it -- the one-time expenses that were incurred in flex films last year were significant. So that reduced those numbers last year. So part of the improvement is, we don't have all those one-time costs associated with the flexible film business.

That makes sense.

And the synergy realization certainly is also a benefit that we are receiving. But it was offset by the things that Jim mentioned, the volume declines as well as other inflation.

Sam Osceola, Guggenheim Partners.

Just one question with regard to liquidity and your ability to issue additional secured debt. I know in the past you had mentioned the four-time senior secured leverage test as a metric. I was wondering if there's some sort of carve-out under the existing credit agreement for an incremental term loan, and if so, how much?

I'm not aware of one either. We're not aware of one.

Okay. So I guess per your understanding, where are you in terms of your ability to issue additional secured debt at this point?

I think it would depend upon which part of the capital structure it went in. Whether or not it would be second-lien debt or subordinated debt, I think that the answer would be different.

I guess the first-lien is what I'm thinking of.

First lien and the four-times test would be the limitation, and so it would depend upon what -- it's a pro forma test, so for example if you are buying a business, you would have to add their EBITDA to our EBITDA in order to calculate the four-times limit. So it would depend on the pro forma items.

Right. Sam, before we would give you any finality with an answer to any of these type of questions, I want to preface, these documents, these loan documents are extremely complicated and require a lot of legal and analytical work, and so I don't want to give you any answer here that's absolute. You're asking two of these guys. Now, to Mark's and Jim's knowledge, they are giving you answers. But I don't want any absolute -- these documents are very complicated and require specific analytical capabilities to give us a final answer.

Aaron Rickles, Oppenheimer.

Can you guys talk a little bit more about the dynamics in the working capital accounts? Obviously inventory coming down nicely with lower resin; receivables, probably just with the seasonality; and payables I guess because you said that your suppliers were tightening terms. What do you see going forward? And I guess specifically with payables, do you think that they will loosen up a little bit, or are you going to be held to these levels?

Yes. Let me comment on that. First of all I think relative to further changes outside payables, to the extent that deescalators kick in, as we talked about, you know, January 1, that has a further impact on lower sales, which also has an impact on working capital. So like last year when sales went up because of inflation, we were hurt as sales come down. So there's further impact relative to resin as changes in prices happened.

Relative to accounts payable, in terms of vendors' lightening terms, I think the only thing that's going to cause vendors to lighten terms is to the extent that they have good competition. Okay? So to the extent that certain companies have taken a hard line to the extent they see softer volume because we have moved that volume to somebody else, that's the only thing I see that basically causes them to take a different position.

Mark, come you may have another comment on that as well, but (multiple speakers)

Yes. The only thing I would add is, on AR you are right. That was a seasonal -- it's a seasonal low point for us, December. And then finished goods, as we mentioned, we've still got some high-cost materials in our finished goods, so as those roll off, our working capital will be positively affected.

Is there any risk that your suppliers will continue to tighten terms further?

I'm not concerned that there is a substantial risk of further tightened terms. At some point in times you've paid everybody off, but at this point in time I think it's -- people are comfortable that are comfortable, and people are not comfortable that aren't comfortable. I think a lot of that has already washed through relative to our working capital position.

That's helpful. And I think maybe just to maybe take it a step further -- if you can answer it, great. If you were to take baseline assumptions I guess at current resin prices that that current demand trends would seem to be basically flat for a lot of business and growing in some, would you expect a lot of additional working capital to come out of the business? And is there any way to put a dollar sign around that for the course of the year?

I'm not sure I fully understand your question, but (multiple speakers)

I think -- you're saying if volumes remain flat, what would we expect with working capital?

Today's resin prices, today's business environment -- how much additional working capital comes out of the business through the course of the year?

I don't have a number for that.

No, I don't think any of us have a number at this point in time.

Is it fair to say that it would be a positive number?

If volumes were the same (multiple speakers) and resin was -- and we got -- yes, yes.

The trend should be positive, yes.

Any inclination to give guidance for the second quarter of EBITDA?

No, certainly not at this point in time. There's -- it's just too early in the quarter to do that. We typically don't do it. We tried to give some guidance last quarter in the K just because we felt like there was a lot of uncertainty, and by the time the K was out we had pretty good visibility into the quarter, and we wanted to put some certainty to it. But at this point in time, this is very early in the quarter for us.

Totally fair. And I guess the last question -- you were -- when you do report numbers for the second quarter, what will you report for Q2 '08, last year's adjusted EBITDA for the quarter? And then if you can also give us the adjustments for pro forma acquisitions and pro forma synergies within that?

You're going to have to give us a second here. Let's come back to that in just a minute. We'll give you that in just a minute.

Jeff Harlib, Barclays.

With respect to your comments on pricing in resin, you said you didn't under-recover resin. Could you just review the net impact to the overall Company on resin again? I might have missed it -- for the core Berry business and the flexibles in the December quarter.

Yes. Basically we were about $8 million to the good when you consider the impact of our cost reduction program specifically related to reducing the amount of resin that we used in the product. So -- and for several quarters before that we were lagging behind. So this was a quarter where we were basically -- we caught up and we actually had exceeded it because -- but really it's because of the resin program.

And Ira, you talked about pricing pressure in flexibles. Can you just talk about the core Berry business and any material pricing pressure beyond typical resin pass-throughs and what you're seeing there?

During this quarter, Jeff, yes. There was the pricing pressure with resin dropping, and as fast as it was dropping, the market was in turmoil -- the suppliers and the customers -- trying to understand the net impact of what resin and what it impacted inside of products, and so for the rigid, the flexible and tapes and coatings, there were some extraordinary pressures put on the business during the quarter in terms of pricing.

And then the overall slowness of the economy certainly has to be taken into consideration there. There's an oversupply of products for the amount of products that are being sold and shipped at this point, which further adds additional pricing pressures.

So that, you experienced in the December quarter? Because it doesn't look like it materially impacted your margins.

Well, those pricing pressures come through routes in another quarter, and obviously if they came on the last day of the quarter, there's not a lot of impact inside that quarter as compared if they were on the first day of the quarter. But during the quarter, resin was dropping and there was pricing pressure on all aspects of our business.

And the customer destocking, was that also something that occurred throughout the quarter, or is it something you are more seeing now?

Well, we can't speak about it now, but during the quarter -- during the December quarter we saw destocking and certainly in particular with the amount of shutdowns that happened over the holiday period an extra amount of customers were taking additional time off during the holiday period trying to true up their inventories by not producing or not filling in. So we saw pressure there. But again, it's hard to differentiate the overall slowness in the economy with the reduction of inventory inside our customers' warehouses.

And CapEx, just the 195 that you are looking to spend this year. Can you say about how much of that is the thermoform effort and just how you're looking at that in a weak economy? I might have thought -- what are some of the big areas of investment there in a tough economy where you are shutting down lines and flexibles are under pressure?

Yes. In the thermoforming expansion that we mentioned, a portion of it -- I think it's around $17 million of that number -- $17 million, $17.5 million of that number in the year.

That's the new thermoforming.

That's the new thermoforming. (multiple speakers)

There are other thermoforming projects -- because that's primarily related to a drink cup thermoforming expansion. We have other container thermoforming projects that are finishing through this year, as well as another drink cup line that we're putting in as well, that we announced earlier. So we've got a lot of that spent.

Now, what was the rest of your question? I'm sorry.

It was just, other than that I might have thought -- what are some of the other areas of CapEx investment? In a tough economy it seems like there are other areas of growth, that you are not just replacing equipment.

Yes. Well, our CapEx -- more than the majority of our CapEx is dedicated towards expansion and cost reduction. And really through our system and all our divisions, you will see projects where we're putting in -- continuing to put in new technology. If it's molds, new molds. If it's new lines in film, new lines. Different areas that we have identified as being able to take cost out as well as satisfy new business requirements.

So it's not in one specific area. Thermoforming certainly has the biggest piece if you look at one area, but it's not in one division. It's all through the Company.

Yes. And Jeff, we are bringing on technology that not only cost reduces inside the Company but also expands our product offerings, and we're doing that inside tapes and coatings and also inside our flexible portion of our business with capital that was committed in and spent in '08 with some of that equipment coming in in '09.

That's helpful. Lastly, just can you update us on restructuring actions, what is left to do to complete your restructuring, whether it's IT or other actions, and also remaining cash costs relating to that?

Yes. On -- first of all, on IT we have a number of Captive plants as well as the tapes division, the tapes portion of the tapes and coated products division, which is yet to convert. And there are some converging costs. Those are slowing down at this point in time, and as a result of those we are continually able to take costs out.

We also have mentioned here several plants that we have consolidated. For example, the Redlands facility was a Captive plant, and that's being done as well. Albertville outsourcing is part of that program as well. So there are a number of those kind of programs that are still ongoing that we have. We -- in East Hampton we had a substantial reduction of force that we announced I think a week or so ago.

So we still have those kinds of projects that are going on, and we are continuing to make improvements in those areas. So we haven't stopped. We are still identifying those things, but they are at a much lesser rate than we were doing for example when we merged with Covalence.

Okay. And the cash restructuring?

There was about -- as of the end of the quarter there was about $4 million that was still accrued, and we anticipate another $5 million that will come through expense still -- so $9 million.

Gary Madia, Broadpoint Capital.

I was wondering if you guys could give me a hand here in allocating some of the non-cash or other operating expenses along the segment so I could -- in an attempt to calculate an adjusted EBITDA per segment, in particular the $5.2 million of other operating expenses and about $11.6 million of non-cash comp expense?

Yes. If you allocate them pro rata based on the sales of the respective segments, you will get very close.

That works. Thank you very much.

(Operator Instructions). Sir, I'm showing no further questions.

Thank you, operator.

Aaron, at this time we're not able to recreate the numbers that you asked us on your previous -- on this call, so -- and we apologize for that. We're just not prepared to be able to answer that on this call.

So anyway, in closing, we appreciate your time. The economy -- obviously I think everybody is very aware -- very tough. And as this quarter proceeded, we could see the economy slowing, and we could see the net results with our customers as well.

So anyway, in a slow environment we are very proud of our earnings. We're very proud of our cash management and continue to be very proud to of this Company.

So we appreciate your time today. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.