Berry Global Group Inc (BERY) 2012 Q4 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 with instructions following at that time.

(Operator Instructions)

As a reminder, this conference is being recorded. Now I'll turn the conference over to Dustin Stilwell, Head of Investor Relations. Please begin.

Good morning and welcome to Berry Plastics earnings conference call. Joining me from the Company today I have Jon Rich, our Chairman and CEO; Jim Kratochvil, our CFO; and Mark Miles, our Treasurer. During this call we will be discussing some non-GAAP financial measures including operating 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 conference 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 risk 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 and cost of plastic resin, the impact of changing environmental laws, changes in the level of the Company's capital investment, the results and integration of acquired business, our reliance on unpatented know how and trade secrets and the risks set forth in the risk factors cautionary statement regarding forward-looking statements and other section of our reports filed or furnished with the Securities Exchange Commission.

You should not place undue reliance on our forward-looking statements. We undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes. Additional important information about the Company's business is set forth in the Company's various filings with the SEC, and the information discussed today should be considered alongside the information contained in those filings. I would now like to turn it over to Jon Rich.

Thank you, Dustin, good morning, everyone. Thank you for joining us and welcome to the Berry Plastics fourth-quarter 2012 earnings call and our first conference call since filing our IPO on October 4, 2012. Throughout this call, we'll refer to the fourth fiscal quarter as the September 2012 quarter. During today's call, I'll provide an overview of our performance for the September 2012 quarter, offer an update surrounding our key strategies and provide insight into Berry's outlook going forward. Jim will then report on our financial results, capital structure and key balance sheet items. After our prepared remarks, Jim and I will open the call to answer your questions. Let me begin by welcoming new investors and coverage analysts of Berry Plastics to our conference call today. We are always interested in hearing from our investors and I encourage you to reach out to Dustin Stilwell and our Investor Relations group if you have any questions or comments about Berry.

The successful completion of our public offering and the initiation of trading of our shares on the New York Stock Exchange on October 4 was a historic milestone for our Company. Included in our investor base today, are approximately 375 Company employees, many of whom purchase shares in the IPO and who collectively own approximately 14% of the Company. The broad based participation of employees in our equity is a longstanding part of our history and culture at Berry that has tied our interest closely to that of our investors.

I'm very pleased to report that quarterly operating EBITDA was $212 million for the September 2012 ending period. The total fiscal year 2012 adjusted EBITDA was $803 million. Both of these are records for any quarter or year in the Company's history. Operating EBITDA increased 13% versus the same period in 2011 on sales that were 2% lower. Adjusted net income per share for the September 2012 quarter was $0.34 compared to a net loss per share of $0.04 for the same period in 2011. Operating EBITDA margin, as defined by operating EBITDA per net sales, was strong for the quarter at 18%, up 3% from the prior-year quarter. Improved product mix, aggressive productivity initiatives and lower costs for raw materials, coupled with higher prices in certain of our product segments lead to the improvement.

The reduced year-over-year sales were attributable to the pass through of lower raw material costs versus last year, intentional withdrawal from chronically low margin business and weaker demand as a result of ongoing sluggish economic activity. Adjusted free cash flow, defined as cash from operations less net additions to property, plant and equipment for the September 2012 quarter, was $159 million. This result exceeded our expectations and allowed us to reduce our post- IPO debt leverage to 4.9 times adjusted EBITDA, one quarter sooner than originally planned. We remain committed to the path of driving our leverage lower.

Before I turn it over to Jim, who will provide greater detail on our financial periodic changes, I want to take a couple minutes to give you my perspective on the packaging industry, how Berry participates in that segment and the impact of the current economic environment on the industry and Berry. The global served industry market for packaging today including glass, metal, paper and plastic substrates is more than $600 billion in turnover equally distributed geographically between Europe, Asia and the Americas. The average demand for packaging volumes typically grows at GDP rates in the individual countries. And here in the US, we believe that growth rates for aggregate packaging volumes correlates most closely to the non-durable goods component of the US GDP. Because our products are used in consumer staples market segments such as food, personal care and healthcare, demand tends to be less cyclical and more predictable than many other industries. This has certainly been true since the economic recession of 2009 and the recovery of the past two years.

Within the packaging segments, plastics packaging has and, in our opinion, will continue to be the fastest growing substrate. Plastic packaging has over the past several years generally grown at two to three times the rate of glass, metal or paper packaging. We believe the reasons for plastics success in gaining share in the industry is grounded in the fact that there is a greater ability to enhance the consumers experience in the form and function of the packaging while reducing the total cost of the product to our customers. Plastic packaging also uses significantly less energy throughout the life cycle of our products and the expansion of post-consumer recycling is reducing the environmental impact of our packages and providing a reusable raw material string. For all of these reasons, we believe plastics will be the winning substrate for packaging and because of this, Berry's focus is almost exclusively on plastics.

Today Berry is already one of the largest global players in the plastic space. Berry is uniquely positioned with our expansive portfolio of products, technologies and assets in both Rigid and Flexible Plastics. One of the most exciting future areas for Berry will be the development of new packaging products that are at the interface of rigid and flexible technologies. Innovative packaging utilizing these technologies will offer the weight savings and barrier properties of flexible plastics while retaining the form and function that comes from rigid substrates.

While we are pleased with our performance, the economic environment that we have faced in 2012 has presented challenges to our industry and Berry has not been immune to those factors. While the overall GDP for the US has grown quarterly in the 1.5% to 2% range, the non-durable goods component of GDP has only grown at about half of that rate. This situation is somewhat unusual from a historical perspective and has been principally caused by weak demand for packaged food products especially at grocery. As a result of higher commodity prices for grains, caused by quantitative easing and the summer drought, food prices have risen substantially in the past 1.5 years which lead to a nearly 3% overall decline in demand for packaged food products. In contrast, we have seen demand within other segments that we serve, such as personal care, healthcare and restaurants, grow in line or above the average US GDP rates.

Fiscal Year to date volumes for Berry have been approximately 6% lower than in the same period 2011. The primary reason for this was due to our decision to withdraw from certain chronically low margin segments of our Flexible Plastics offerings in 2011. The benefits of this strategic decision are evident in the 18% year-over-year increase in our operating EBITDA with only a 4% increase in revenue. These actions were completed by December 2011, and going forward in calendar 2013, our year-over-year volume comparison should reflect normal business activity. Net of these strategic decisions, our volume this year has grown approximately 1% to 2%.

Looking forward into next year, we are assuming that the US GDP will grow by roughly 2%. We also believe that the non-durable goods portions will return to more normal historic relationships to overall GDP and could provide some lift especially in the latter half of 2013. Based on the plastic substrate share increases highlight previously, new product launches by Berry and other internal actions, we anticipate that Berry volumes should grow above the US non-durable GDP rate. Furthermore due to operating leverage in the business and continued mix shifts toward higher margin products, we anticipate operating EBITDA will grow faster than the increase in volume.

Raw material costs for our principal inputs, polyethylene and polypropylene have in general been lower to date in 2012 versus the same period in 2011. We believe this trend is linked to the global weakness in demand for resins, lower oil prices and the effect of more production from low cost natural gas inputs starting to impact especially ethylene related derivatives. Long term, we believe that the trend of investment in gas related raw materials will be positive to Berry and our industry. While our crystal ball to resin prices is never as clear as we would like, if demand remains consistent with the recent past quarters, we would anticipate resin prices to trend flat to slightly down in the coming quarter. Now I'll turn the call over to Jim who will provide more specific details on Berry's financial results. Jim?

Thank you, Jon, and good morning to everyone. I'd like to comment first on our consolidated results from the September 2012 quarter and then discuss the segment results for the quarter. Please make note that throughout my commentary when I reference our Rigid business, know that this consists of our rigid open top and rigid close top segments. My comments surrounding our Flexible business will include our engineered materials and flexible packaging segments. As Jon will discuss momentarily, our primary focus is reducing the Company's debt. The proceeds from the IPO went to retire the Company's 11% senior subordinated notes. If you take into account this debt retirement at the end of September 2012 quarter, our net debt was $3.958 billion compared to $4.585 billion at the end of the September 2011 quarter. The year-over-year leverage reduction of 1.2 times to 4.9 times currently, was assisted by the continued focus on margin expansion and generation of free cash and is the continuance of our strategy to reduce overall debt and reside in a 2 to 4 times leverage range.

Looking at adjusted free cash flow, defined as cash from operations less additions to property, plant and equipment, in the September 2012 quarter, we had positive adjusted free cash flow of $159 million compared to $91 million in the September 2011 quarter. For the fiscal year 2012, our adjusted free cash flow was $279 million compared to $172 million for the fiscal 2011. As announced in our press release, September 2012 quarter sales declined 2%. Net sales for the quarter were $1.204 billion compared to $1.229 billion for the September 2011 quarter. The sales decline was primarily attributable to the intentional withdrawal from chronically low margin business and lower selling prices due to the pass through of lower resin costs partially offset by sales from acquired businesses. However, despite modestly softer volumes throughout the quarter, our operating EBITDA performance continued to be strong. Specifically, adjusted net income per share for the September 2012 quarter was $0.34 compared to a net loss per share of $0.04 in the same period in 2011.

Operating EBITDA was $212 million for the September 2012 quarter reflecting an increase of $24 million, or up 13% from the $188 million in the same period in 2011. Berry's overall operating EBITDA margin improved from a low of 11% in the June 2010 quarter to 18% in the September 2012 quarter. Again this improvement reflects better sales mix, better alignment between cost of raw materials, and our selling prices to customers, cost reductions and significant operational improvements. In addition, working capital decreased $69 million sequentially versus the June 2012 quarter. This improvement is a result of continued focus on managing the working capital cycles and lower resin costs. Fiscal 2012 additions to property, plant and equipment increased to $230 million which was in line with our projections and an increase of $70 million compared to fiscal 2011. Our additions to property, plant and equipment are forecasted to be approximately $230 million to $250 million for fiscal 2013 with much of the increased funding new growth initiatives and product launches.

Turning to our business segments, in the Rigid business, net sales increased by 1% resulting from the sales related to the Rexam acquisition partially offset by reduced price adjusted volume and lower selling prices as a result of lower raw material costs during the quarter. Operating EBITDA increased 12% overall. The increase resulted from improved manufacturing performance and the relationship of net selling price to raw material cost. Operating EBITDA margin for the Rigid business increased to 21% in the September 2012 quarter compared to 19% in the same period in 2011.

In the Flexible business, net sales decreased by 6% resulting from the intentional withdrawal from the chronically low margin business, lower selling prices as a result of lower raw material cost and a modest decline in the base net price adjusted organic sales. Operating EBITDA increased 16% overall. This increase resulted from improved manufacturing performance, the relationship of net selling price to raw material cost and earnings from acquired business partially offset by modest negative net price adjusted organic sales volumes and increased SG&A costs. Operating EBITDA margin for the Flexible business increased to 13% in the September 2012 quarter compared to 11% in the same period in 2011.

Our balance sheet continues to strengthen. Berry maintains more than ample liquidity which is enhanced by businesses that generate substantial free cash flow. At the end of the September 2012 quarter, the Company had net cash on hand of $87 million and unused borrowing capacity of $426 million providing a significant amount of liquidity totaling $513 million. As a reminder, the Company has no material financial maintenance covenants associated with our debt facilities. Also, our annual principal amortization on our debt is approximately $35 million per year. This concludes my financial review at the September 2012 quarter. And at this time, I would like to turn it back to Jon.

Thank you, Jim. As we move forward, there are a few key strategic objectives that we will focus on. The first is to continue our actions to reduce the overall debt leverage of Berry. Over the past two years, we've made significant progress toward this goal. Even with the expectations of modest economic growth, we will generate substantial positive free cash that combined with the increases in our adjusted EBITDA should reduce our leverage at the rate of about one half turn per year. Ultimately our goal is to reduce leverage to around 3 times and maintain leverage in the range of 2 to 4 depending on the attractiveness of our opportunities to put capital to work.

The second goal is to accelerate our rate of innovative organic growth. Berry has a strong pipeline of new products and portfolio of intellectual property. We're particularly excited about new packaging concepts that are at the interface of rigid and flexible technologies. As we work closely with our customers to create new products, we strive to improve the form and function that our packaging offers to consumers, to enhance the brand image and messaging that our customers convey with our packages on retail shelves, and to create designs that reduce the overall cost of the packaging. Two exciting product areas that we are working on are the plastic barrier packages and packages for thermal management. The most recent quarter, we made progress towards commercialization of these products that were consistent with our plans and we will describe these in more detail as we reach successful commercialization with our customers.

The third goal is to continue to identify value adding acquisitions that can be accretive to shareholder value. We typically look for bolt-on acquisitions that have innovative technology and where a combination with Berry generates substantial synergies. A good example of this kind of acquisition is Prime Label and Screen Incorporated which we closed on in October. Prime is a highly innovative leader in specialty resealable labels including a patented rigid lens closure system. The Prime Label operations and product offering with approximately $11 million in annual sales be integrated into Berry's Flexible Packaging segment. While the Prime Label acquisition was a small transaction, the acquisition was in direct alignment with Berry's strategic plan allowing us to enhance our existing product offering while providing us with opportunities to develop innovative products to further meet our customers needs. Prime Labels expertise and narrow web technology coupled with Berry's expertise and high volume wide web technology will allow us to expand Prime Labels closures to consumer product applications beyond their current core personal care business.

Our fourth strategic goal is to begin to take the steps to grow our business internationally where population demographics and GDP growth rates are attractive. Today more than 90% of our sales are in North America, but we do have 14 plants overseas that are located in Latin America, Asia and Europe. Our initial focus will be to grow with our existing customers in Latin America and Asia, introducing technology-based value-added products where we can achieve at or above Berry's current total operating EBITDA margin average. We will continue to update you quarterly and at investor events on our progress in all of these strategic areas.

Now I'd like to share some comments about our view of the current December ending quarter which is seasonally our weakest quarter. We believe that overall, economic activity will continue to remain sluggish but modestly positive in the near term as it has been for the past three quarters. Berry has been investing heavily in new product launches which will likely have a slightly negative near-term impact but will generate future new revenues. Also, nine Berry facilities were impacted temporarily as a result of Hurricane Sandy and the associated cost will have a modest impact in the December quarter. Facing these headwinds in the December quarter, we still anticipate that our operating EBITDA will improve versus the prior year as long as volumes continue on their current trend. If volumes weaken, Berry is prepared to take the necessary steps to variablize our costs.

Finally in October, in conjunction with our IPO, David Heller joined our Board of Directors where he will serve as Chairman of the Audit Committee. David is the former global co-head of the securities division at Goldman Sachs. His extensive background in the financial sector will prove beneficial as we move the Company forward and we are pleased to have him join our Board. These are indeed exciting times here at Berry. Our results this quarter are consistent with our belief that we're winning in the marketplace. We are confident in our strategies to enhance the value of our Company and we look forward to a long and mutually beneficial relationship with our investment community. As we move ahead we'll execute on the strategies I discussed and continue our traditional focus on reducing our costs, enhancing our productivity and generating cash. I thank you for your continued interest in Berry Plastics and now we are ready to answer your questions.

(Operator Instructions)

George Staphos of Bank of America.

Three questions. First off, Jon would it be possible to talk about the December quarter on a year-on-year basis, your expectations relative to what we observed in the third quarter, should we expect EBITDA, growth trends and dollar terms that are comparable with what we saw in the fiscal third -- excuse me, in the fiscal fourth quarter or could it be lower because the headwinds that you mentioned? That's number one. Number two, I know you gave some general commentary on your products and you stated that you're in the process of commercializing them, but given that you spoke a fair amount about these on the road show it would be helpful to hear a bit more in terms of what you're seeing in terms of commercializing these new products. And then thirdly, could you remind us, do you have any debt that is coming up as callable, what are the opportunities perhaps to improve upon your cost of borrowing in the months ahead? Thank you.

I'll take the first two questions and then I'll turn the third question over to Jim. With regards to the first question, I think clearly, the number one challenge in the packaging industry remains just the overall economic activity. It has been, as I commented, a sluggish recovery. We don't really see any change in that factor going on in the December ending quarter with regards to volume. We have a couple of slight headwinds so I would say that on a year-over-year basis we expect our EBITDA to be above last year's level, on a percentage improvement basis, perhaps slightly lower than what we achieved in the September ending quarter.

Okay, thank you.

Still an improvement.

Yes.

With regards to new products, we talked about the products that we're focusing on for barrier packaging and thermal management. Nothing has changed in terms of our plans or progress with regards to what we discussed in conjunction with the IPO. We remain extremely excited about these products, all of the developments are going exactly as planned, we are in the midst of customer approvals. Those approval processes are on track as we discussed before and we're taking the appropriate steps to make the right investments to get ready to serve those customers. I don't want to get ahead of my customers in terms of their customer approval processes, so I'm not going to talk about specific customers, but in general, everything remains exactly on track as we had discussed in September and October.

Jon, if I can interject here. Coffee, is that in a test market anywhere and when we would expect to hear some results back on that?

I think we'll be able to discuss that in the next conference call.

Okay, and on debt?

On debt, I'll turn it over to Jim and he can comment on that.

Thanks, Jon.

Hi, Jim.

How you doing, George? We do have tranches of our debt that are callable, okay, and there are opportunities for us as we go forward. We haven't made-- we haven't called any debt. We haven't made any formal decisions to do so, but there will be opportunities going forward to that. For example, our 10.25%s that are-- in '16 are callable, that would be an example. There are some that are out there and we will be looking at opportunities to optimize our capital structure going forward. We have a great capital structure right now I think as you know.

When's that next opportunity?

We could do something now if we wanted to.

Okay. Thank you very much.

Thanks, George.

Al Kabili of Credit Suisse.

Wanted to talk a little bit about the headwinds you'd indicated on Hurricane Sandy and the new product introductions. Is there any color as to magnitude of the headwinds in this fiscal first quarter? Do you expect that they'll be fully abated in the second quarter?

I would describe both as modest impacts. Hurricane Sandy affected nine of our facilities, also impacted a number of our customers on the East Coast. The good news is we didn't miss any shipments or have any issues serving our customers, all of our plants are back up and running as normal. There'll be a small, modest cost which will be completely booked in the December quarter. With regards to our R&D expenses, look, we view those as great investments. They're directed towards the exciting new product opportunities and we think that's what pricing could do. Those will be recurring, but the revenues should start in the back half of next year.

Okay, got it. So Sandy obviously is a temporary in the quarter, and then on the new products, the R&D ramps up a little bit, but they'll start to be accretive in the back half of the year if I caught that right, Jon?

September ending quarter revenues next year.

Okay. And then if you could talk a little bit on the competitive environment, what you're seeing right now as your -- the contracts that are coming up for renewal. How are you feeling about that? How do you perceive your market share trending on these renewals?

Overall, demand has continued to be sluggish for the factors that I described in the text. I think from a competitive standpoint, we try to focus on what Berry does best and that's create innovative, differentiated packaging that allows us to distinguish ourselves with our customers. The progress we're making there continues to be very good. That weighs against the sluggish economic environment where overall demand continues to be modest, but in the face of that, we believe that we are doing a very good job. The exact determination of market shares is clouded somewhat by we're just at the end of the period of the strategic decisions that we took to withdraw from certain chronically low margin businesses and the transparency of that will become more clear in 2013. We should be completely through that by the end of the December quarter.

Okay, all right, I appreciate that, Jon. And then final questions for Jim, on the working capital contribution, and great -- bigger than we expected. I was wondering if that's sustainable as we look to the coming quarter? Does some of this working capital contribution that you've got in this fiscal fourth quarter reverse out in Q1 on timing or are you able to hold working capital at current levels going forward? Thanks.

Yes, Al on the working capital which was about a $69 million decrease from the June quarter, about a third of that is relative to decrease in days outstanding. So, in other words we worked hard at the Company through being able to improve on the acquisitions working capital that we've made. We've taken it to a more granular level, we put -- we worked on our receivable days, there's a lot of things we've done and that's a permanent reduction of about one-third. The rest of it was driven by lower raw materials specifically resin, okay, and that's subject to the resin cycle. So, to the extent resin is flat, we don't have to give that back. To the extent that resin increases, then it will be a use of working capital to have to deal with an increasing or inflationary environment with resin.

Okay, terrific. Thank you very much. Good luck in the upcoming quarter.

Thanks, Al.

Scott Gaffner of Barclays.

Following up on the last question on the competitive landscape, in the release you did mention some market share gains. Can you talk about where those gains are coming forth, if it's by segment or by product?

A lot of the gains have occurred in product mix where we have differentiated new offerings. I would say that probably gaining at that interface of rigid and flexible technologies. The other thing of course is our Flexible business has stabilized now. We're essentially through the year-over-year voluntary decisions that we took and so we're starting to see our Flexible business have positive comps on a year-over-year basis and that should continue in the coming quarters.

Okay. And then in the outlook, you did mention growing internationally and I wondered, is that taking on an increased importance here? Have you-- are your customers pulling you more than maybe they have over the past year? Is that-- should we see some gains on that in 2013?

Actions that we're taking are in the order in which I discussed them. Growing internationally is important to the Company because it fits with where the population demographics and GDP growth rates are higher. We certainly have the ability to grow with our existing customers, but Berry has been and will continue to be very focused on going internationally where we have differentiated product offerings where we can hold or enhance our current Company average operating margin. So, I think we're still a few quarters out. We frankly have more-- we're being very selective to make sure that we can do it in a way that adds to shareholder value.

Okay. And then lastly on the exit of the low margin businesses, I think you mentioned you'd be done with that by the end of December. Should we still expect some impact in the December quarter and should it be less than the impact that you felt in the September quarter?

Yes, that's exactly right. Some modest impact in the current quarter and then next year should be just market comps.

Okay, thanks, good luck in the quarter.

Thanks very much.

Ghansham Panjabi of Robert W. Baird.

Good morning, it's actually Matt Wooten sitting in for Ghansham today. Your commentary has been a little cautious on the near-term outlook and I'm wondering if this is specific to order patterns or customer commentary in October and November. Have you seen any shift there, especially around inventory for their year end?

First of all, the December ending quarter is always seasonally the weakest quarter for us, so in terms of trying to draw comparisons, you have to take into account that we see demand weakening in the current quarter as it always does. So, I don't think there's anything abnormal about that. I think the entire year has been sluggish from a demand standpoint and so I wouldn't say that we're seeing anything dramatically different than the last three quarters, but I wouldn't describe that as being a particularly robust environment. I would say we remain cautious only because the full year has been a weak demand environment. We're not seeing anything unusual in the fourth quarter other than the normal weakness in seasonal trends, which is largely driven by our Rigid business.

Understood. And then as we look out to fiscal year 2013, how should we think about the different components of EBITDA growth? I think if I recall correctly that on a calendar year basis, you're forecasting about $50 million in year-over-year improvement.

[It] will grow at 2% next year and we think Berry will grow slightly above that for the reasons I discussed largely driven by product mix and innovation. And again on a year-over-year basis our Flexible business should look more like normal.

Thank you.

Joe Stivaletti of Goldman Sachs.

A couple quick things. One is I was wondering if you could talk about the Thermoforming drink cup business trends there, is it still continuing to provide the type of growth you've seen in the past, is it slowing down? I just wanted a little color there because I know that's been a big positive over the years.

Yes, I think on Thermoform drink cups, look we've had a very strong year in Thermoform drink cups. It was again I think consistent with our past performance, clearly one of the strongest businesses we have and one of the strongest growers so nothing unusual there. I would say that the early part of the year remembering back, was a very mild winter. I think our customers got off to a fast start in the year because the winter was mild and people were out at restaurants earlier perhaps than they would be historically, so that drove volumes in the early part of the year. Seasonally the fourth quarter is always the weakest for fast food restaurants. I think you've seen that with some of our customers who reported and I think our business trends there. But overall it's been an extremely strong year for Thermoform drink cups again.

Okay. And then the only other thing was in terms of the relationship between your selling prices and your raw material costs, how would you describe the quarter you just finished in terms of that relationship? Is it a normal back to balance or was there some bit of a boost there as there was maybe a lag in passing along some of the lower costs? I was trying to -- as we think about modeling going forward, just trying to understand where things stood in the most recent quarter.

Joe, you know resin prices fell and they were up in the first part year and then they fell which is typical. And we did receive some benefit from that but it's not just the relationship between selling prices and materials that affects that category. It's also our continued focus on reducing the amount of usage of material and recovering scrap and other things that continues to benefit us there, but I would say overall, we did have some benefit from that.

And I would remind you that Berry's scale is a big competitive advantage in this area and certainly we've been able to leverage Berry's scale to our advantage.

Al right, thank you.

Alex Ovshey of Goldman Sachs.

As you think about the volume trend in the grocery channel, based on the conversations you're currently having with your customer base, when are you thinking that we may see the organic volume trend in the grocery channel start to turn positive?

Again, I think it's always difficult to forecast that exactly. What we've seen is that the rate of increases at grocery has started to moderate some. Demand has been weak this year as I discussed. I'm still anticipating that in the early part of the year it'll still look like the environment that we're in right now but I would -- my personal view is that things will improve in the back half of 2013 and should return to a more normal relationship with GDP. So, I'm anticipating some improvement in the back half of next year.

That's helpful, Jon. And then a question for Jim, thinking about the cash flow outlook for '13. Can you talk to the important cash items that we should be thinking about in '13, specifically what the cash interest number will be, cash taxes, what your expectation is for working capital?

Let me start with that and I'll have Mark finish it. Basically, I think that on the CapEx side of the business, I think we said between $230 million and $250 million which is important and that will depend on how much we invest in innovations and how quickly that comes in terms of the need. In terms of working capital, that'll be highly dependent on what happens with resin pricing going forward. We're not expecting to have because we're continuing to focus on working capital as a source of cash for us. We don't expect to have a significant usage of cash for working capital other than what you would expect with supporting increased sales and increased growth. On the interest and on the tax, I'll turn it over to Mark.

Yes, on interest, it's in the $250 million range annually for cash interest. And on taxes, for fiscal 2013 it should be minimal. Our first significant payment under the tax receivable agreement will be in the first quarter of fiscal 2014, early in that quarter.

Okay, thanks very much, Jim and Mark.

Chris Manuel of Wells Fargo.

A couple questions for you. First, if we could start with a little bit of color on the acquisition you just did, I think you said it was $11 million of revenue. Do you have any purchase price, approximately what you paid, EBITDA you gained, synergies, things of that-- typical metrics that you guys provide?

I would say that it's a very small transaction.

Yes.

And so it's purchase price was de minimis to Berry in it's entirety. The key was this was a very attractive piece of technology which we thought would have a lot of synergies in terms of applying those technologies to Berry's existing asset infrastructure. So we think it'll be a great growth opportunity, especially tied -- again, it ties to this approach that we're taking at the interface of rigid and flexible technology, so this was a small technology bolt-on. Again, there will be some normal synergies but it was really driven by the--

It doesn't move the needle at all.

Okay, second question I had was when we think about free cash flow for 2013 and as you work through the elements that -- some of the almost from the previous question and some of the stuff you discussed earlier with respect to what piece is permanent and what piece would be a one-year improvement. I think you said two-thirds of it would be a permanent with resin if it stays at the present level. So if resin stays at the level and you did [79] in fiscal '12, what would be the puts and takes as we think about 2013? You still have a few acquisitions that roll through, I think [Snowpack] and this most recent one that helped you a little bit of volume growth. Can you be about that same range for 2013?

Well first of all, what I would -- this is Jim, what I would tell you is that was not-- I would say one-third is permanent of the working capital and two-thirds is subject to the cycle with resin, okay?

Yes.

Just to clarify that. But I would say other than the major components that we've talked, there really isn't a lot, other than of course EBITDA growth which is the other important factor in there. There really isn't a lot of other things that would move the needle. If there's an acquisition that comes up during that time certainly would have an effect as well, but there isn't anything other than the things we've talked about.

Okay, that's helpful. And then the last question I had was as we were thinking about -- you had announced a few -- some restructuring activities and things, I think closing some plants, or reopening a plant as well. Can you give us a sense of where you are in that process? Do you have most of the actions that you intend to take under way or are there more things that you're contemplating looking at? How do you look at that?

Yes, I think on the restructuring, we're through the majority of that based on current volumes. I think as Jon said, to the extent volumes deteriorate, Berry is prepared, as it always has been, to take actions as necessary to variablize our cost. We're still going to have a little tail on the cost side, Chris, on the cost related to those actions, but it's decreasing on a quarterly basis going forward.

Okay, thank you.

Mark Wilde of Deutsche Bank.

I wondered, Jon, if it's possible to get a little bit more color on underlying volumes in the four segments?

I think demand -- I think if you look at Berry's total year to date, I think I told you that net of the voluntary decisions, our overall demand has been up about 1% to 2% for the total year. I think year to date, a little bit stronger in Rigid than in Flexible. Going forward, it may flip just because the year-over-year comps on Flexible should improve as we go forward. I still anticipate that demand will increase at GDP rates although food packaging, as I already discussed, may be slightly stronger than that because we're getting a little bit of a recovery from a particularly weak 2012. So overall we may be slightly better demand than GDP rates.

Okay and specifically if I look at that rigid open top where it looks like you were down about, on a top line basis, about 10%, 10.5% year on year, is that all just resin then?

On the revenue side, the vast majority of that is just pass-throughs on revenue. Rigid, our open top business, our Thermoform drink cup business has been great as I described already, offset by some weakness in the container side, particularly in dairy at grocery, and so those two have balanced. Also, we did have one piece of business in the Rigid open top in 2011 with a customer that we voluntarily withdrew from, because the investment-- the reinvestment in that business didn't make any sense and we're working our way through that. That should also be done by the end of this year.

Okay and then Jon, can you remind us, how much exposure do you have to the housing market through things like tapes and other products and what you're seeing in terms of housing related demand right now?

Part of our engineered materials business is primarily in the tape segment but we serve both housing and automotive and we're seeing a nice recovery there. Tapes -- our tapes business is getting better. The other thing is while we didn't like Hurricane Sandy, the tapes business got helped some by that. So, I would say we don't have a huge exposure to the durables side, automotive or housing, but what we have is getting better and our tapes business is getting nicely better.

Yes, and we've invested our way into higher operating margins there, that's actually a pretty good business.

Okay. And then Jim a couple questions for you. Can you give us a sense of the underlying tax rate excluding adjustments here in the fourth quarter and what we should expect going forward?

Yes, use 40%, that would be a good number.

Because it looked like it was lower in the latest quarter.

Mark, it was impacted by some unusual items that are not recurring.

Okay, all right, that's helpful, Mark. And then finally, any thoughts on switching your fiscal year to a calendar year basis to make the comparison with your peers a little easier?

Yes, we've gone back and forth on that subject here numerous times because there's a cost involved with doing it to-- mechanically there's a cost doing it and we haven't come to a decision on what we want to do there at this point. So we've considered and we'll consider it again.

Yes, we'll continue to look at that.

Okay, sounds good. Good luck in the coming quarter.

Thank you.

Anthony Pettinari of Citi.

When you talked about the 2% sales decline in the quarter, you referenced the intentional withdrawal from lower margin businesses as well as some lower raw material prices. As you look forward to the December quarter it sounds like the actions to cut low margin volumes are ramping down, but there's still some impact there and resin prices have been muted. As you look forward to the December quarter, would you expect sales to be down in the same neighborhood as they were in the September quarter or how should we think about that?

Part of it -- the big factor is passed through on resin prices. Resin as Jim described already dropped in the first half of the year, its become flat in the current period, so there may be less pass-through of that. But I would expect something similar.

Okay, and then one last question, I think you had proceeds from asset sales of about $30 million in the year. As we look forward to 2013, do you expect any significant asset sales for the year?

We don't see anything that's significant out there. There may be some -- we've got some idled facilities that we'll maybe sell, but there won't be a lot of -- there shouldn't be a lot of sale.

We're constantly looking at our portfolio, but we don't have anything new to discuss.

Okay. Thanks, I'll turn it over.

Edlain Rodriguez, Lazard Capital Markets.

Jon, one quick question on the steps you've taken to grow the business internationally, can you talk about what you're doing there? And let's say two years from now, how big do you expect this to be compared to where it is right now?

We're taking steps internally to prepare Berry to be in a position to grow the business internationally. As you know, we've largely been a domestic customer. There are certain organizational steps you need to take to be able to manage and grow international businesses. We're doing that. We have targeted Latin America and Southeast Asia as the two regions to focus on. We have assets there already, so it's not like we don't have a presence there. We're going to focus on our current customer base because many of our customers are global multi-nationals. We're going to enter those markets with products where we have some differentiation from a technology standpoint so that we can enter those markets with operating margins that are at or above Berry's current average. I would anticipate that within the two-year period you discussed, we should be generating revenues consistent with our plans but I don't have a number to give to you.

Okay, that's fine. Thank you.

Thank you. This ends the Q&A portion of today's conference. Like to turn the call over to Management for any closing remarks.

Yes and I'd like to thank everybody for participating in the call today. Again remind you that we always want to hear from investors, so that if you have any follow-up questions or comments, I encourage you to reach out to Dustin Stilwell. And we look forward to talking with you at the next conference call. Also want to wish everybody a great holiday season here as we come to the end of the year. We look forward to seeing you on the next call.

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