Berry Global Group Inc (BERY) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Berry Plastics earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, , Mr. Mark Miles. Mr. Miles, you may begin your conference.

Thank you. Good morning and welcome to Berry Plastics earnings conference call. With me I have Ira Boots, our Chairman and CEO; and Jim Kratochvil CFO.

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 conference will also be available on the Company's website. During this conference call we may make forward-looking statements within the meanings 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 investment and the result and integration of acquired business. Although management believes it has the business strategy and resources needed for improved operations future revenue and 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 and now I'd like to turn it over to Mr. Ira Boots, our CEO and Chairman.

Good morning. As always it's a privilege to be with you today. Thank you for joining us today for the Berry Plastics second quarter 2009 earnings call. Throughout this call we will refer to the second fiscal quarter as the March quarter.

I would like to begin by providing an overview of the business climate for Berry Plastics during the quarter. Berry's financial performance in the quarter was influenced by the continuing deep recession which has affected sales volume mainly in certain construction-related categories. The timing of the dramatic decline in the price of our primary raw material plastic resin in the December quarter of 2008 also impacted earnings for the quarter. As sales volumes softened in November and December of last year, the flow-through of both raw material and finished goods inventory slowed substantially.

A combination of price declines to customers from both fee escalator contracts on January 1, and market selling prices -- price changes resulted in high priced inventory sold to customers at lower prices. The debt financial effect was poor performance early in the quarter with substantial improvement throughout the quarter as the higher priced inventory was exhausted. Now I will report the highlights from the quarter.

Berry Plastics sales were $758 million for the quarter, a decrease of 10% from the $844 million of sales reported in the March quarter of 2008. These results include an overall decline in price adjusted volume of 8%. Selling prices decreased 4% in response to lower resin prices and this was partially offset by 2% growth from acquisitions. Adjusted EBITDA including unrealized energies for the quarter, for the March quarter, was $120 million, down slightly from the adjusted EBITDA of $123 million in the March quarter of 2008. These results are consistent with the estimated earnings press release issued last month. Specific detail and periodic changes to net sales and adjusted EBITDA will be provided in the financial review.

Overall, Company volumes remain mixed. In the rigid side of the business the growth in thermoform cups partially offset softness in the tube, aerosol overcap and houseware businesses. In the flexible side of the business modest growth in institutional bags and stretch films was not enough to offset the softness in building products which continued to dampen sales of construction tapes, sheeting, structural board and house wrap.

With the outlook for softer sales which began in late 2008 continuing into 2009, Berry's management proactively took substantial steps in addition to the Company's normal cost reduction programs to reduce operating expenses. We began to see the benefit of these cost savings during the month of March and expect this to continue throughout the year. Somehow the plan includes a reduction of G&A staffing, a decrease of salaried wages, a reduction of travel and trade show expenses, the elimination of 401K matching and plant downsizing and closings. In addition to the cost cutting measures mentioned above, the Company was quick to adjust direct labor staffing to current requirements and, in fact, was able to reduce finished goods inventory during this period. We are also beginning to realize more costs in raw materials other than resin and freight savings from the lower cost of diesel fuel.

With the exception of plants affected by soft volume, the Company operating performance continues to be positive for the Company. With process improvements continuing at many of our locations Berry will be well positioned to take advantage of increased volume as the recession's impact diminishes. During calendar 2008 we converted 20 manufacturing facilities to Berry's base ERP platform. Already in 2009 we've installed our systems in all of the former captive plants with those that don't get disruptions to either customers or our operations.

During the quarter we sold our European facility in Milan, Italy. This operation was considered to be nonstrategic for the Company. In spite of the recession areas continue to invest in expansion and cost reduction projects. We have already commenced construction of a recently announced expansion and thermoforming operations at our Evansville location. We are currently -- we are continuing to make major investments in expansion and cost reduction projects in many areas throughout the Company. The Company liquidity continued to improve throughout the quarter with contributions from both operations and working capital. As discussed in our recent press release, we have announced our intention to invest in Company debt instruments. Jim will comment on this later in the call.

In summary, the trends for Berry improved as the quarter progressed. High cost inventories were eventually consumed and cost reduction programs began to have a positive effect impact on earnings. Sales volume was lower than we desire, but the Company made adjustments in costs to offset the decline. To date the diversity of Berry Plastics' product and markets has mitigated the severity of the economic downturn to our Company. With this I will turn it over to Jim Kratochvil for more details on the financial results.

Thanks, Ira. I would like to begin by reviewing key March quarter 2009 financial statistics. As Ira mentioned previously, total net sales for the quarter were $758 million compared to $844 million of net sales for the March quarter of 2008, a reduction of $86 million.

Acquisition volume from Captive, MAC, and Erie represented $20 million of the increase. Decreased selling prices were $37 million a reduction in base volume of approximately $65 million accounted for most of the remaining change. After considering unrealized synergies, cost reductions and the impact of acquisitions adjusted EBITDA was $120 million for the quarter compared to 123 million in the prior year quarter, a decrease of $3 million. Adjusted EBITDA excluding unrealized synergies in a pro forma cost reduction was $112 million for the quarter reflecting an an improvement from $103 million in the prior year quarter.

The following comparisons will focus on major components of this year on year quarterly change of $9 million which includes first the net impact of both lower rigid volume and lower flexible volume resulting in a $13 million decrease in EBITDA. Second, the impact of lower selling prices and raw material costs resulting in an improvement of $20 million. And third, a $2 million net improvement in operations and G&A. In the rigid side of the business the open top division realized net price adjusted volume growth of 2% led by continued strong growth in thermoform cups. This was partially offset by softer volumes and injection drink cups and housewares. Containers were up slightly during the quarter.

The closed off division reported a 9% price adjusted decline in sales led by lower volumes in aerosol caps and tubes, bottles, closures and precipitation vials were all relatively flat in price adjusted volume for the quarter. Adjusted EBITDA for this business improved approximately $20 million per quarter. The EBITDA impact of the net decreased price adjusted sales volume in the rigid business was approximately $3 million. Lower customer selling prices resulting from even lower resin costs, lower resin price reductions yielded $23 million improvement. Operations were negatively affected by approximately $2 million mainly from lower plant operating levels. SG&A reported an improvement of $1 million through focus on reducing costs.

In the flexible business adjusted EBITDA including realized synergies decreased approximately $11 million including an almost $10 million EBITDA impact from a 15% decline in sales volumes. All building-related products including sheeting, structural board, house wrap and HVAC tapes declined substantially during the quarter partially offset by gains in stretch films and institutional bags. The flexible films business was most affected by the runoff of high priced inventories reporting an under recovery of $8 million as selling prices declined during the quarter. The tapes and coatings division reported approximately $5 million of increased prices compared to material costs. Operations continued to improve approximately $1 million during the quarter despite the low operating rates in some of the businesses.

SG&A improved approximately $3 million as well due to cost cutting efforts which was partially offset by $1 million of unfavorable FX. A real bright spot for the quarter was the improved liquidity generated from operating activities. Both accounts receivable and inventory improved as a result of both lower resin prices and management focused on working capital improvement. This was partially offset by decreased accounts payable and other liabilities. Overall the Company generated almost $115 million in cash provided from operations. The Company continued to maintain approximately $135 million in cash which is more than the business requires due to the continued uncertainty of the financial markets.

Because of our strong liquidity position and market availability during the quarter, the Company was able to acquire through its subsidiary BP Parallel a nonguarantor subsidiary of the Company $24 million of the ten and a quarter senior subordinated notes for $7.6 million in cash plus accrued interest. The Company also announced it would invest $147 million to purchase assignments of $473 million of principal of the company's parent Berry Plastics Group Inc. senior secured term loan. These assignments are expected to close during our fiscal third quarter of 2009. Capital spending for the quarter was approximately $56 million bringing the year-to-date spending up to approximately $99 million. Our target for the year continues to be approximately $195 million including the 2009 costs for the Evansville thermoforming addition. The purchase of the assets of Erie County Plastics was approximately $5 million.

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 or revolver does not occur until 2013. This concludes my financial review of the second quarter 2009. At this time I would like to turn it over to the operator to entertain questions from the participants.

Thank you. (Operator Instructions) The first question comes from Joe Stivaletti of Goldman Sachs.

Good morning, guys. I have a couple things. One, I was wondering if you could try to help us understand the -- as your quarter progressed how the lower priced inventory came in and had an effect on you guys. I know you were hurt in the early part of the quarter, but I just was hoping maybe you could shed a little more light on that as it progressed January, February, March?

Joe, I'd like to answer that one. We mentioned our last call that the volumes had gotten softer in late November and December and we had -- were progressing along with inventory levels that had not expected that decline. So basically there were a couple things that were on here. First of all, the softer volume continued into the first quarter and what was typically a 60 day inventory through raw material and finished goods became a larger number. So the largest impact that we felt in that was basically in January and then each month we saw progressive substantial improvement between January, February and then March as these inventories and the various businesses that were higher cost, remember, it was a cliff, so it was higher cost inventory that radically fell off. So depending on how these inventories were consumed, we saw great improvement whenever those inventories fell off and that -- and so basically everybody was using the high cost inventory. All our divisions in January. We started to see some falloff in February and we were basically through it in March.

The other thing that was important, just the timing of our escalator deescalators, the way a lot of that is tied into the way plastics is reported and they actually reported a decrease one week earlier than we would have liked to have seen and that ended up, we saw decreased prices for the quarter faster because of the timing of these deescalators, particularly in the rigid side of the business which hit us sooner than we would have liked to have seen. We've -- that timing missed by one week in November of last year.

Would you be able to put some numbers on, like say quantify sort of the benefit in March versus January from getting inventories into being more reflective of current resin prices? Just trying to get some -- trying to get our arms around the actual magnitude of that.

Well, I'm trying to think about exactly how to do that. We saw substantially -- I'll just tell you, Joe, we saw substantial improvement each month to the point where we were very pleased with the March number.

The other question I had, I just wanted to make sure that we understood a couple things regarding your repurchases of your hold code term loan. So your plan is to basically send money up from the OpCo to complete those purchases during your fiscal third quarter or is there something more to it than that?

A nonguarantor subsidiary, Joe, of Berry Plastics that will be making the investment in those term loans.

Okay. But is that going to be -- that would be done with some of your existing liquidity presumably either your cash or?

Correct.

Right, okay. And the -- can you just talk about what remains in terms of your ability to do more under your covenants, your restricted payments basket and whatnot?

I don't think we're prepared today, Joe, to give exactly how much available capacity we have to buy debt. We're obviously focused on maintaining liquidity. So first and foremost, we want to make sure we have ample liquidity to run the business. That's really where our focus is.

All right.

To answer your question more, Joe, we do have the ability by our baskets to be able to do more.

Okay. Thank you.

Our next question comes from [Richard Cuff] of Jefferies.

Hey, guys, could you tell me how volume trends progressed during the quarter?

Yes. Basically we came into our quarter with relatively softer volumes than we would like to see and I would tell you I think as I said in the commentary, we saw a thermoform cups continue to do well. The products that people use every day that we were -- typically did pretty well, we had a couple of exceptions with aerosol over caps and tubes in that category, injection cups were down. Some of that was offsetting by thermoform cups but overall on the rigid side of the business it was a much more stable piece and then we saw much softer volume in the building products really than we've seen and that trend on volume I think was fairly steady throughout the quarter. We saw some tick up, some tick downs but it was basically steady at the lower level through most of the quarter. So it was fairly consistent.

Okay. Have you guys seen any kind of an uptick over the last several weeks here or not really?

Yes, Rick, this is Ira and there's two pieces of our business that has certainly been abnormal and that's automotive and construction. Fortunately for us those aren't major pieces of business with us, but those businesses have been off and they remain off as would be consistent with probably most other reporting companies. We have not seen a large uptick in automotive nor in housing construction in particular in throughout the last several months during that. The rest of our business has actually been a much more normal seasonal fashion, albeit suppressed from overall activity due to the economy.

I would say that the Company has done I think an admirable job in terms of adjusting to levels in those areas, production levels in those areas, very quickly. In other words we, obviously things like overhead absorption, labor have been adjusted, early on in the quarter.

Okay. Great. That's all I have. Thanks, guys.

Thank you.

Your next question comes from Bruce Klein of Credit Suisse.

Hi. Good morning, guys.

Good morning, Bruce.

Hey, just back on the volume, I guess, maybe Ira, I guess it sounds like if I heard you correctly, you are seeing somewhat of a seasonal improvement that's typical of this year, but is there any sense that it's any better than normal seasonal because customer inventories have been destocked or there's any other pickup or you wouldn't say that you're really not seeing that absent the auto and construction end markets would sound like they're obviously still on their back.

Including our construction and automotive, no. The rest of our businesses are not seeing what we would feel to be extraordinary good increases during this season, but I would say there's a slight improvement in general across the faces of Berry inside the economy as we're sitting here but certainly nothing that you would say material or are significant at this point.

Great. And then resin trends, it sounds like you worked through some high cost inventory and now things are kind of I guess bumping along the bottom on resin or maybe there's been a slight bounceback, but are you still seeing resin trends fairly subdued and your inventory in pretty good shape? Is that a fair characterization or no?

That is a fair characterization. There has been some exporting of the resins recently albeit I don't think to the levels that some of the resin companies would have hoped for or preferred. We think all in all that the resin markets will remain pretty docile in terms of volatility throughout the remainder of this year and that's -- would be involving any type of geopolitical crisis that could happen out there that we're not aware of but given the set of circumstances we see right now we think resin will remain relatively stable throughout the remainder of '09. There's going to be -- we are in an uptick as we are right now but that is going to be offset by demand unless something dramatically changes inside the demand factor throughout the year.

And what -- and the stretch film business was -- sounded like it was better. Was that just lower value added stuff gaining share? What was maybe driving that, anything in particular to note?

I think our sales team did a nice job in the stretch area. We've been able to secure additional contracts and orders and we have seen a nice little uptick there.

Great. Thanks, guys.

We made some nice capital investments in that area as well.

Okay. Thank you.

Thank you, Bruce.

The next question comes from [Jack Wagner] of MJX Asset Management.

Yes. Going back to the repurchase debt, is the debt going to be retired or is it going to be contributed back as equity to the Company?

I do not have intentions of retiring it at this time.

I'm sorry?

We do not have intentions of t retire it at this time.

So it's going to continue to pay interest to that subsidiary?

Correct.

Okay. All right. Thank you.

Your next question comes from [Peter Rah] of New York Life.

Yes, hello.

Hello.

Just a quick question going back to the Holdco I guess buyback. What's the liquidity I guess pro forma for the buyback in terms of cash levels and revolver availability?

$200 million on a pro forma basis.

And that's purely just revolver or is there a cash component?

We've continued to maintain a cash position just due to the continued uncertainty in the financial markets. We've -- we've made the decision to draw higher than our revolver requirements and hold money in cash in multiple bank accounts and we've continued to -- that philosophy.

Okay. And--?

The combination.

And my second question just goes to the -- I guess for the EBITDA for the, I guess for the (inaudible) covenant I guess would be gains be added back for that or is it not I guess is my question?

No. They're excluded.

Okay. Thank you.

The next question comes from [James Bailey] of Deutsche Bank.

Good morning.

Hi, James.

Can you kind of give us an outlook on acquisition wrap possibilities now that your first lien debt test is kind of below that 4 times debt incurrence test, kind of any opportunities out there that you're seeing?

James, this is Ira. We are an acquisitive Company and we will remain in a growth mode both organically and by acquisition and certainly manage inside the decimals that we've always managed in the past. So we will continue to be active in the market in the areas that afford value to the Company and where we can see a clear discipline that leaves us in a position that we remain liquidity and the position that we need to run our Company. So the answer is yes, we will remain in a growth mode.

Okay, thank you.

(Operator Instructions) Our next question comes from [Jeff Harkett] of Barclays Capital.

Hi, good morning.

Hi, Jeff.

Just on the resin price pass-throughs, it looked like I think you said $23 million negative in the rigid business and seven positive in flexibles. Is that right?

No. I think you got that wrong. In the rigid business we were favorable net as a Company I think we were favorable 20 and we were favorable 23 I think in the rigid and then we were offset you, there was 8 negative in terms of the resin relationship in flex and I think there was like 5 that were positive in tapes and coatings and the other area and quite frankly, the relationship, if we had the same relationship in flex that we had in rigid, we missed -- not only were we 8 negative, but we missed an opportunity because of the high priced inventories that we had, okay? I don't want to say we did it. It was just the situation and the business environment at the time.

Yes. I guess what I'm having trouble understanding, last year I know there was a big negative from resin and just the way the MD&A reads, benefit from resin price pass-through lags, that almost indicates that you got ahead of the lower resin vis-a-vis the prices, the lower prices to your customers. So I guess what I'm saying is does this mean if resin prices stay stable, you'll have an adjustment to that going forward to -- as the resin -- as the customer prices adjust to lower resin?

Let me make a couple of comments. First of all, last year we had a negative lag in the March quarter and in the June quarter, okay? We had a negative lag during those quarters. So for us to be in a -- neither a lag or a reverse lag situation, it would be an improvement in resin, okay, just to have it -- not to have that lag from last year, okay? So the $20 million that we look at is an improvement year on year, okay, but it isn't necessarily of a typical reverse like you would see if resin had not dropped so quickly and sales volume hadn't declined.

Right, okay. So forgetting about last year, in terms of where you were in the March quarter on price for resin are you even, are you ahead or behind?

This is a tough one because it always depends on at what point are you comparing to, right, above behind versus what? That's where it always gets tricky. It's a moving benchmark.

Let's say versus the December quarter.

Let me put it in a different perspective for you, okay? If you look at the last year, okay, if you look at the last 12 months on resin recovery on short and over, okay, we would be even.

Would be even, okay. Okay. And on the cost savings can you just talk about what -- or roughly quantify the more recent cost savings actions you talked about? You're adding back additional savings in your adjusted EBITDA. I'm just wondering what -- if you can quantify those and how they should flow through?

We can talk -- what I would tell you is we've got a number of programs that are in place including we reduced salary wages across the entire corporation. We eliminated our -- or suspended our 401-K match. There's a number of action items and what I'll tell you is the number that we pro forma'd in our 10-Q is less than the total of those programs. We took a conservative view and most of those are like the 401K, the reduction pay, those are effective in April and some of them -- we actually had two phases of our cost reduction. So some of them were effective in the quarter that was reported, but most of them would be in full effect in the next couple of quarters.

Jeff, the other thing we try to do when we look at this, we have a number of projects which we believe were staffing related to match up with where our current operating level was. In other words, we just took positions in terms of reducing people out of plants to do this and we did not include those in the number that was pro forma'd here or that we added back in, but they were in just a number of plants where he we adjusted the volume that we didn't include. So we feel like we were actually conservative in this full number that we pro forma'd and as Mark said, many of those are already in place. Some of those are still happening right now in the next, month and a half will be fully executed on.

Okay. So the SG&A number which was down pretty significantly, then some of that is stock comp, but is that a reasonable run rate, the 74?

Depends on volumes, I guess.

Okay. Okay. And then just lastly, could you just talk about absent resin just, pricing? Is it normal? Is it more aggressive in the flexibles and tapes and coatings business? I see in one of those businesses pricing was actually up.

Yes. Let me just go through the three areas, and I spoke on the last call in the first quarter, I said, I reminded everybody that pricing was becoming aggressive as the end of the first fiscal or the fourth calendar that we spoke about and I think that it's a little more normal right now. There are some extraordinary customers or exceptional customers that are maybe making the demands but I think it's a little more in line with the normal course of business. On our rigid and our flex side in tapes and coatings. So I don't know that right now, Jeff, there's anything extraordinary that's happening inside with the exception of a couple from two or three customers, but I don't know that that's a trend. That's pretty normal in the course of our business. So pricing, I think it would be consistent in terms of policies and actual practices of what has happened in the past.

Great. Thanks.

The next question comes from Sandy Burns of Sterne, Agee.

Hi. Good morning.

Hi, Sandy.

I guess tying together some of the previous discussions, when you just look specifically at the rigid open top segment, your EBITDA margin improvement there was much greater than the other segments, it went up almost 800 basis points whether year-over-year or sequentially. And that was the one segment where you actually did see some volume growth as well. Was that margin improvement just more a matter of the resin recovery was greater there, the SG&A savings accrued more to that segment, maybe there were some product issues as certain higher margin products were able to perform well in the marketplace and help the margin there? I mean overall do you think the -- what I calculate as 22% EBITDA margin is sustainable for the next few quarters?

The answer to the first part of your question, certainly the products where our volume held strong we didn't have that high cost inventory flow-through issue because volumes maintain themselves. We got hurt more in the product categories like sheeting, for example, where volume fell substantially and so we had higher cost inventory that took longer to flow through the income statement. So I think that certainly helped Open Top and then the lag we've been talking about, certainly also benefited Open Top.

They did have an offset to that actually and their injection volume was actually softer than we would have liked to have seen and some of the plants were slower in that way in terms of overhead absorption. We did see an offset to the good news there as well, but you're right. That business did very well during the quarter.

Do you feel those kind of margins are sustainable in terms of looking forward for the next few quarters? I mean you've had margins I mean kind of call it around 20% in the past. I don't think they've been this high historically, but with some of the operational improvements do you think you can keep these margins going forward?

I don't think there's anything we see in the Open Top business that would tell us that we're not going to sustain those margins. I'm not aware of anything that would impact this business to say we would have decreased margins. Mark, Ira?

Well, again on the rigid side of the business--.

I'm talking about specifically in rigid Open Top.

Correct.

I mean those are -- I mean we typically don't forecast margins, earnings or anything like that, but that is consistent with past performance in that business.

Over time.

Yes. 20, low 20s we've been that historically in that business.

Right, right. Okay, great. And just second question, in the goodwill impairment discussion it was very helpful you gave some of the guidelines that you use in calculating that test and it was mentioned that you use a CapEx number of about $200 million a year similar to what you're spending this year for the next few years. I mean is that number just more a matter of needing to be conservative for accounting rules or do you have a lot of backlog of growth opportunities both with customers as well as internal cost saving opportunities where you do see the CapEx at that level absent market conditions for the next few years?

Your first comment was correct, that it's a conservative approach and I'd also say that our project pipeline is rich and that we would easily be able to hit that target on a go forward basis.

Okay. Thank you.

Thank you.

Your next question comes from Roger Spitz of Banc of America.

Thank you and good morning.

Hi, Roger.

Can you provide the organic volume growth sequentially from fiscal Q1 for each of your segments? Is that possible?

I don't think I'm prepared to answer that on this call.

Yes. I don't think we have sequential. We typically look at the business year-over-year just due to seasonality quarter-over-quarter. I mean calendar Q4 is typically our slowest calendar quarter. So we typically don't look at volume sequentially. It's usually year-over-year, Roger.

Sure, sure, no problem. No problem. What was the principal outstanding amount of the Holdco PIC loan at March 31, and when does this loan become cash pay?

About 580 is the answer to your first question and your second one, boy, I honestly don't remember, Roger, five years. It's five or six years I think.

Five or six years out?

We still got a ways is what I would say. We'll get back to you, but it's still a ways out.

Great. That's a fine answer. And is there a particular minimum cash you like to operate the business at, cash level within the OpCo?

I tend to be very conservative, Roger, with the -- what I expect our revolver and cash position to be and I don't know that we could say that there's a pinpoint number because as the season progresses and we're going to have flex up and down as our orders change and as resin increases or decreases along with other nonresin type items and that's going to cause us to flex our number up and down, but I think that most of you have grown accustomed that we as a management team are pretty conservative with that number.

Absolutely. And finally can you give a sense of how much your rigid volume has shifted to private label from branded since mid-last year? This discussion sort of came up in the last call and if there's a material difference in your margin between brand and private label business?

Well, I don't know that we have a specific number that we can tell you a switch from branded to private label. We saw that trend certainly in the first fiscal and continuing inside this quarter here. We think that branded products will probably be making a comeback as the economy tries to turn up a little bit and we think that that will put a little pressure on private label people and typically on the margin side I think it's pretty consistent. I don't know there's any material differences between our margins with branded products and private label products.

All right. Very good. Thank you very much, guys.

(Operator Instructions) Our next question comes from Aaron Rickles of Oppenheimer.

Thanks. Most of my questions were asked. I was hoping you could maybe give a little bit of a longer term outlook for the flex business. You've operated for a couple years now. Do you think that could ever be a sort of growth driver for the business? Is it just purely at the mercy of the economy? Is there anything you can do there if you can help us out, that would be great?

Are you just talking about flexible films or the entire flexible business with coatings and tapes?

The whole flex, the whole Covalence.

That's a fair question. I'm happy to take that, Aaron. We've been with the business now for a couple years. I think we have -- I don't know that we would say we've mastered the business. I don't think that's yet but obviously we're much more knowledgeable and engaged with our strategies with the business today than we could have been when we first took the business two years ago. We think that our flexible business along with our tapes and coatings are key and integral to the progress in the future of Berry Plastics and we appreciate and value them as diversifying our pipelines and bringing additional runways, our paths with customers to us and we will continue to mine in those particular areas to be able to derive and to drive value to the Company.

So we're pleased to have those groups with us and we think that they are part of our long term, I think most of you have heard we have a 100 year strategy and flexible products certainly are a portion of that 100 year strategy that paints and coated products came to us more as a by-product with Covalence but we're pleased. Certainly the personnel are extraordinary. They're having a little tougher time due to the lack of construction that is going on currently, but I think when you look at it in the long term plan as Berry sees our future, they're very key and integral as I just spoke. So we will continue to mine in those particular areas and to drive toward scale and again, by organic and acquisition methods and we'll continue to make those a core and an important part of Berry.

Okay. Thanks. Good luck, guys.

The next question comes from Barrett Eynon of Brownstone.

I have a question on your rigid Open Top. Are you able to disclose how much of the volume growth is from the thermoform cup in the quarter?

We can tell you that whether we disclose it or not. Just one second.

Okay.

The volume growth in thermoform cups was about 23%.

23%?

So we continue to -- and I think it's pretty obvious to the marketplace. We continue to grow with our preformed cups and that's why we're expanding including bricks and mortar as we're sitting here today as we spoke about inside the call. We continue to expand and to invest in this business.

And the other thing that's important in that business to understand is not only are we investing in it, but we're improving the efficiency of the equipment and with every evolution of investment. So , it's important for us to stay ahead of our competition and we are working hard to make sure that our equipment is the most competitive equipment that's out there.

You're saying every year the growth of 23%?

Yes. Quarter -- from a year-ago quarter.

Year ago quarter-over-quarter, right. That's largely -- is that largely from some new customer business you won or is that just overall throughout all your customers?

Both. And I would tell you--.

And the third. It's overall throughout our customers and the third leg of that is additional products that we've added.

Right.

Okay. And then on your other expense item, is that consistently that 5.9 million to $6 million whatever, $6 million a year, is that pretty consistent throughout? Is that sort of normal run rate?

No. It's -- I think this quarter has got the debt purchases in that number, so it's not consistent.

I mean on the other operating expenses, not the other expense income lines.

No. I would say actually it's been trending down. It was in '07 it was significantly higher when we had Covalence. It's been trending down.

I would agree and I think what's important to understand here is that the Covalence business is -- from an operating standpoint is substantially different. We've made a lot of improvements to that business that are for the business and some of those other expenses have been the cost of doing that over time.

Okay. So that's mostly tied to Covalence other expense item.

That's where historically most of our expense has been.

Okay. And then one other thing, I'm not sure you can comment or not but I read -- not seen it lately in the press but there was articles out there about Berry potentially bidding on any client assets. Is that something you can talk about or is that something you guys would still consider doing?

I'm not aware that Berry is bidding on any clients' assets. There's a bankruptcy process going on that a client is a part of and I want to be very clear that I don't confuse our Company with Apollo. Apollo has been dealing inside that bankruptcy and Berry, to my knowledge, Jim, and we don't have any bids on a client to my knowledge.

Okay. Thank you.

Thank you. At this time we're showing no further questions.

Well, thank you as an operator and really I want to thank the investor group. It's been our pleasure to speak with you this morning and we'll continue to work and try to drive value and take care of our customers with Berry. So have a nice day. Thank you.

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