Reddy Ice Holdings Inc. Q1 2008 Earnings Call Transcript

| About: Reddy Ice (RDDC)

Reddy Ice Holdings Inc. (FRZ) Q1 2008 Earnings Call April 30, 2008 10:00 AM ET

Executives

Hala Elsherbini - Halliburton IR

Bill Brick - Chairman - CEO

Steve Janusek - CFO

Analyst

Mark Churchill - Piper Jaffray & Co.

John San Marco - Wachovia Securities

Fla Lewis - Weybosset Research & Management

Marianne Manzolillo - Angelo, Gordon & Co.

Eric Larson - Summerset Asset Management

Paul Langlois - Seligman

JP Leisure - Pacific Asset Management

Michael Turgor - Eaton Vance

Operator

Good morning, ladies and gentlemen, and welcome to the Reddy Ice fiscal 2008 first quarter Earnings Call. Your host for today's call is Mr. Bill Brick, Chairman and Chief Executive Officer of Reddy Ice Holdings. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Just as a reminder, this call is being recorded. At this time, I would like to turn the conference over to Mr. Hala Elsherbini. Please go ahead.

Hala Elsherbini

Good morning, and thank you for joining us today for the Reddy Ice Holdings Inc. conference call to discuss the Company's first quarter 2008 financial results. Before I turn the call over to management, I would like to review a few items. The Company issued its first quarter earnings release this morning, and if you did not receive a copy the release can be found on the Reddy Ice website at ReddyIce.com. Additionally, if you would like to be placed on the Company's email or fax distribution for future announcement, please email your request to Investor Relations at reddyice.com or call the office of Halliburton Investor Relations at 972-458-8000. You may also register to receive announcements through the Investor Relations portion of the Company's www.reddyice.com. A replay of today's call will be available at approximately 1:00 pm Eastern Time, and can be accessed by dialing 866-891-3570, and entering pass code number 98189675. The telephone replay will be available through May 7, and the webcast will be available for approximately 90 days.

Before we begin, I would like to remind you that during the course of this conference call, management may make statements concerning the company's future prospect, business strategies, and industry trends that are based on management's beliefs, as well as assumptions made by and information currently available to management. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995, and are subject to certain risks, uncertainties and assumptions, including known events and developments, which could cause actual results to differ materially from those that management might be describing during today's discussion. Please refer to the company's filing with the Securities & Exchange Commission for more information on those risk factors. Please note that time-sensitive information reported on this call is current as of today, April 30, 2008, but may no longer be accurate at the time of any subsequent replay. Additionally, the company undertakes no obligation to publicly update or revise any forward-looking statements.

And now, I would like to turn the call over to Mr. Bill Brick, Reddy Ice's Chairman and Chief Executive Officer.

Bill Brick

Thank you, Hala. Good morning, everyone and thank you for joining us today. As mentioned, the purpose of this call is to discuss the first quarter 2008 earnings and the outlook for the balance of the year. Revenues for the quarter were $43 million as compared to last year's $45.4 million. Revenues were down $2.4 million or 5.3% primarily as a result of cooler and wetter weather in many of our markets as compared to last year. Additionally, we are continuing to analyze what impact, if any, the softening economy is having on our business. Adjusted EBITDA from continuing operations as defined in our credit facility was negative $4.3 million for the current quarter versus negative $0.7 million in the prior year. Our trailing 12-month pro forma adjusted EBITDA from continuing operations as of March 31, 2008, stands at $81.2 million, which includes the impact of acquisitions closed through March 31, 2008.

In addition to the disappointing weather conditions and resulting volume decline, we have seen increasing pressure on costs that are related to energy. The continued increase in the price of crude oil has had a significant impact on fuel cost that is beyond what we've planned for 2008 and will impact our results for this year. Because of lower than expected first quarter results, the outlook for April, increased energy prices, and the expenses incurred to date with the ongoing anti-trust investigations and related litigation, we're reducing our full-year 2008 guidance. We now expect our full-year revenues to range between $344 million and $354 million, net income to range between $21 million and $25.2 million, and adjusted EBITDA to range from $82 million to $87 million.

With regards to acquisition, we closed five transactions in the first quarter of 2008 and one earlier this month for a total acquisition cost of approximately $3.8 million. Annual revenue and adjusted EBITDA related to these six transactions are approximately $2.6 million and $0.7 million respectively. At this point I'll turn the call over to Steve Janusek, our Chief Financial Officer to provide additional details after which I will return for closing comments. Steve.

Steve Janusek

Thanks, Bill. Good morning, let me provide some additional detail regarding the first quarter. Revenues were $43.0 million, versus $45.4 million last year. As mentioned previously, revenues were down $2.4 million, primarily due to cooler and wetter weather especially in the month of March. Compared to 2007, sales of packaged ice in 2008 first quarter were down approximately 8% to approximately 240,000 tons sold. Approximately 65% of our total tonnage was in 10-pound bags this quarter, compared with approximately 53% for the same period last year.

Cost of sales excluding depreciation were $37.3 million in this year's first quarter, compared to $36.7 million in the same period as 2007. This increase was primarily due to significant increases in the price of fuel and additional fix cost related to acquired operation. Also contributing was higher cost for labor, bags and electricity. Partially offsetting these increases was the effect of reduced volume sales, although that effect was minimal due to high ratio fixed costs in the quarter.

Operating expenses for the quarter were $10.8 million, compared to $10.4 million in last year's first quarter. Professional services and insurance costs were up $0.3 million primarily due to expenses related to acquisitions that were not completed and the engagement of an executive recruiting search firm to conduct search for a new CEO. Adjusted EBITDA for the quarter decreased $3.6 million to negative $4.3 million in this year's first quarter compared to negative $0.7 million in the previous year's quarter. For a reconciliation of adjusted EBITDA to adjusted EBITDA from continuing operations to net loss, please go to today's press release on our website, at www.reddyice.com.

Total depreciation and amortization expense was up approximately $0.5 million as compared to the prior year due to the effects of acquisitions, and new capital expenditures. Net interest expense increased by $0.3 million from last year, to $7.6 million primarily due to scheduled increases in the non-cash interest expense associated with our 10% senior discount notes and higher average balances on our revolving credit facility, partially offset by lower interest rates on our revolving credit facility and the un-hedged portion of our term loan.

Effective October 12, 2007, the notional balance of our hedge decreased $20 million to $180 million while the balance of our term loan remains at $240 million. The income tax benefit in this year's first quarter was $1.2 million, compared with the benefit of $5.4 million in last year's first quarter. Our year to date effective rate is 26.2%, which is lower than expected due to a non-cash charge to tax expense to adjust deferred taxes on our prior acquisition. We expect that the effective rate for the full year for 2008 will approximate 41.5%. Our Federal net operating loss carry forward was approximately $88 million at December 31, 2007. Assuming that we refinance a 10.5% senior notes by the end of 2010, we do not expect to pay significant cash tax through the end of 2010. If we do not refinance those notes by the end of 2010, we would expect to pay minimal amount of cash taxes in '09, and a more significant amount in 2010 and beyond until the bonds are refinanced.

As expected during the first quarter, we incurred $28 million of additional costs related to the GSO merger agreement and the related stock holder litigation. As discussed in our year-end conference call, the GSO merger agreement was terminated on January 31, 2008, and we received a net termination fee of $70 million on February 5.

In regards to the ongoing anti-trust investigation, and related civil litigation, we incurred $1.2 million of expenses for legal and other professional services during the first quarter. These expenses are being funded by cash at the holding company level, and have no impact on the company's adjusted EBITDA. We are evaluating our insurance policies in regards to coverage; however, no estimates can be made at this time regarding any potential recovery. The net loss for the current quarter was $3.3 million or $0.15 per diluted share as compared with a net loss of $10.2 million or $0.47 per diluted share in the first quarter of 2007. The current basic and diluted share count of $22.0 million shares and cash dividends declared during the quarter totaled $9.2 million or $0.43 per share.

Regarding the balance sheet, cash and equivalents were $23.7 million, as of March 31, of which $22.4 million is at the holding company level, and represents the remaining cash generated from our IPO in 2005 and the net proceeds from the termination of the GSO merger agreement. As previously noted, the holding company cash has been and is being used to fund the expenses of the GSO transaction, including the stockholder litigation, and the cost of the anti-trust investigations and related civil litigation.

As of March 31, we also had $11.0 million of restricted cash remaining from the sale of our non-ice businesses in 2007. These proceeds must be used to either repay term borrowings under our credit facility or to make acquisition and/or capital expenditures within 12 months of receipt of such proceeds. The company's intention is currently to utilize these proceeds to fund future CapEx and acquisition through earlier September 2008. Using this cash in this manner will maximize the Company's available cash and cumulative available cash under the credit facility.

During the first quarter of 2008, we utilized 6.3 million of restricted cash to fund capital expenditures and acquisitions. All of the acquisitions completed to date in 2008, have been or will have been paid for with the restricted cash. We expect to fully utilize the restricted cash within the required 12-month period. Our total debt, net of cash and restricted cash was $357.9 million on March 31, 2008. At the end of the first quarter, our ratio of total net debt to pro forma adjusted EBITDA was approximately 4.4 times and our ratio of operating company net debt to pro forma adjusted EBITDA was 2.9 times.

From an availability standpoint, at March 31, we had $43.5 million of availability under our $60 million revolver which was net of outstanding revolver of $10.8 million and stand by letters of credit of $5.7 million. As of yesterday, availability under our credit facility was $29.6 million, which was net of a revolver balance of $24.7 million and letters of credit of 5.7. The revolver is currently at or near its seasonal high point.

Our current cash balances including restricted cash, are approximately $30 million, which includes $22.4 million at the holding company level. Capital expenditures and dispositions in the first quarter were $4.8 million, and $1.3 million respectively. Capital expenditures net of reinvested proceeds from disposition, the relevant measure in our credit facility, and for purposes of calculating available cash were $0.8 million in the first quarter of 2008. Available cash as defined in our credit facility and a key measure in determining our ability to pay dividends was negative $9.1 million for the first quarter of 2008, primarily due to the seasonality of the business.

As Bill noted, we are revising our 2008 guidance to reflect the first quarter results, the outlook for April, the effect of cost incurred to date related to the anti-trust investigations and related civil litigation, our outlook for the effective energy prices for the remainder of the year, and the potential effect of a softening economy. These projections do not include any costs to be incurred after March 31, 2008, in connection with the anti-trust investigations and related litigation. We currently expect revenues for 2008 to range between $344 million and $354 million. Adjusted EBITDA is expected to range from $82 million to $87 million. Net income is expected to be $21.0 million to $25.2 million or $0.95 to $1.14 per diluted share.

Please keep in mind that guidance includes $17 million gain from the termination of the GSO transaction, which represents approximately $9.9 million of that income, and $0.45 of diluted earnings per share. Available cash is estimated at a range of $60.1 million to $69.1 million, available cash per diluted share for 2008, is expected to be in the range of $2.71 to $3.11. The projected amount of available cash is higher than normal due to the utilization of the restricted cash generated by the non-ice business sales to offset 2008 CapEx. We continue to expect capital expenditures for the full year of 2008 to range between $17 and $19 million and dispositions to total $2.2 million to $4 million for net capital expenditures of $13 million to $17 million. Capital expenditures net of the reinvested proceeds from the sale of our non-ice operations and other dispositions for the purposes of calculating available cash under our credit agreement is expected to range from $0.5 million to $3.0 million in 2008.

Please note that we have continue to include our expectation of depreciation and amortization expense, interest expense, income tax expense, and non-cash stock-based compensation expense in our reconciliation of adjusted EBITDA to net income. We have also include our expectations for cash interest expenses, cash taxes, capital expenditures, net of reinvested proceeds from disposition and principal repayments in our reconciliation of adjusted EBITDA to available cash. This guidance does not include the effects of any future acquisitions or corporate transactions.

At this point let me turn the call back to over Bill for some further comments.

Bill Brick

Thanks, Steve. The results of the first quarter were certainly challenging with weather and fuel costs significantly impacting the business. The cost-saving initiatives that we began implementing in late 2007 are providing some benefits and we continue to review all additional opportunities for controlling costs. We are please that we completed six tuck-in acquisitions in the first four months of this year. We will continue to evaluate acquisition opportunities. However, we expect the pace of closings to slow through the summer selling season. In regards to the anti-trust investigations that are in progress, the Board's special committee and its counsel, and the company's counsel are working through the process.

In the meantime, we are continuing to service our customers and are looking forward to our peak season. Due to the nature of the ongoing investigations, we will not be able to answer any questions related to the matters in the question and answer session this morning. As noted on previous calls, the Company and the Board of Directors are in the process of reviewing the company's leadership structure and making appropriate additions and changes. The Board of Directors has engaged Spencer Stewart to perform a search for a new CEO, and we look forward to finding a qualified candidate to lead the Company for the long-term.

I would also like to take this opportunity to welcome the two newest members of our Board of Directors Christopher Kiper and Michael Rauch. They joined the Board two weeks ago as designees of a larger shareholder Shamrock Activist Value Fund. We look forward to their input and expertise going forward. It was also recently announced that Tracy Noel a member of our Board will be resigning from the Board at the end annual meeting next month. I want to thank him for his contribution and guidance to the company over the last several years and we wish him luck for his future endeavors. I would like to remind our stockholders that our annual meeting will be held in Dallas on May 28 at 10:00 am Central Time for those who would like to attend. You'll find additional details regarding the meet in the proxy statement that was filed last week.

In closing, as always I want to thank our employees of Reddy Ice for the hard work and dedication as we get ready for what hopefully will be a very busy season. Thank you for joining us today. And now we would be happy to take your questions.

Questions-and-Answers

Operator

Thank you. (Operator Instructions). Our first question comes from Mark Churchill of

Piper Jaffray. Please proceed with your question.

Mark Churchill - Piper Jaffray & Co.

Yes, you guys said in the introduction that you will see or you are evaluating whether a softening economy is having any impact on your business. Can you elaborate on your current findings on that?

Bill Brick

Grey area. The first four months of the year are -- if we would have had Mark, the same weather patterns in each month as last year, I think it would have been easier to pin point it. January was not as good as last year in our results indicated that. February we seemed to get what we thought was more normal a little bit up and our sales reflected it, and March was very disappointing both from temperatures and rainfall, and April seem to be stagnant. So, you wonder, and you try and come up with a calculated and analytical answer that can give you a precise number. We can't do that at this point. I think it may become more apparent as we move forward but at this point in time, we're just trying to analyze it. We're not seeing anything from any customer losses as far as our customers, and we're seeing a variance of sales once again reflected some ways by the temperature and the weather with respect to our products across the country.

Mark Churchill - Piper Jaffray & Co.

Okay. On the last call you had discussed increasing competition, and I didn't see a whole lot of discussion about that here. Can you give us an idea how that is looking today versus a couple of months ago?

Bill Brick

It's really has not changed. I think, the point we wanted to make a couple of months ago was that we are seeing more of the technology being used for selling ice on a free-standing basis, which we talked about, other parking lots through the vending operation. We continue to see, some self-bagging at some of the small convenience stores. Nothing has really changed there. I just think that our point then was as that we felt it was coming into the industry. We were continuing to review it to see what role we would potentially play in that area, or what opportunities may or may not be there. We continue to assess it, but there's nothing that has been dramatically changed since then.

Mark Churchill - Piper Jaffray & Co.

And can you guys elaborate a little bit on the fuel cost and energy increases, maybe give us a dollar amount what impact you are seeing, and then what you're doing to mitigate that as far as whether you are hedging or elaborate a little bit on your cost savings initiatives, how that might do something to offset it, and whether you are trying to take any higher prices.

Steve Janusek

Mark, Hi. As far as the energy prices -- and we talked about this last call. We had planned for higher energy costs in all areas in terms of fuel, our bag costs and our electricity costs. Our bag -- I'll start with the bags and the electricity. They were up, but I would say they were more in line with what we had planned for. We knew they were going to be up some with the some resident market and with certain parts of our electricity. A good portion of electricity however though, in the state of Texas for instance, and certain other deregulated markets are hedged for the entire year on a fixed rate contract since it's a deregulated market. I think fuel is the area we've got and I think it's widely fair that we plan for some. It's been much more than we had planned for. In terms of the dollars, the impact -- based upon the volume that we had in the quarter, and what we're seeing in April, 7 or, $800,000 of just pure higher prices than planned and than last year somewhat of a increased amount.

For the full year, in what we have kind of revised into our guidance on the expense line, we're looking at fuel somewhere around $3 plus million in the $3 million area of increased fuels above plan. And it would actually be another -- a portion above that for above last year in terms of, if you want to think of it as the same miles driven. Obviously fuel is up as we have higher volumes sales and down and lower volume sales periods, based upon relative miles driven, based on the miles driven. But fuel has definitely been a surprise. I would think of it in our guidance changes of $3 million change on that line.

As far as our cost savings, we definitely planned for those. I would say they are working out for the most part as planned. In certain areas they were basically a component of our guidance originally in the last quarter. And I think, we have our lumps and bruises in execution of certain things. Certain things go better than others. But overall they are working as planned.

Bill Brick

With respect to -- if you are asking about controlling on this fuel, Mark, I don't know if you were specifically there or not. We continue to look at all avenues form idling time of trucks, to maximizing loads, road density, anything and everything we can. The good news at this time of year is you are typically selling a box to its maximum, because customers want to have it totally full rather than a minimum-drop shipment that you might do sort of in the off season. So, we continue analyze that. We do not do any hedging on fuel, and have not at this point in time.

Mark Churchill - Piper Jaffray & Co.

And then are you guys increasing prices too?

Bill Brick

Well, we typically go out the first two year an increase prices, and we have done that this year. We have not historically done a second round of pricing. We'll watch and see how that goes. And at this point in time our increases for the year or for the most part are already in place.

Mark Churchill - Piper Jaffray & Co.

Okay. Thank you very much.

Bill Brick

You're welcome.

Operator

Our next question comes from Jonathan Feeney from Wachovia. Please proceed with your question.

John San Marco - Wachovia Securities

This is John San Marco on behalf of Jonathan. Hello, everyone.

Bill Brick

Good morning, John.

John San Marco - Wachovia Securities

I know you can't anticipate weather conditions obviously, but is there something that has changed fundamentally about your business over the last year that's given you less visibility than you used to have? Or is it really just the weather?

Bill Brick

Well, listen, we can never say that it's 100% weather. But the measuring stick that we use -- and we talked about this at the end of the year on the February call, when we look back at last year we had eight months where climatically it delivered where we thought it would be and our results delivered the same way four months of zenith. I'm sitting here looking at statistics for the month of March, and we see things like -- the temperature was down 5% across our marketplaces during that month. We had 26% more precipitation and our average rain days were up 24%. In some markets that was even higher.

In Florida for instance and some of that Southeast market, the rainfall went from 1.17 to 4.25 inches, which was a like a 200 plus 260% increase. So is it all weather? I can't -- I don't think anybody could tell you that it's everybody bit is weather. But certainly, it is the prime driver that when we see it go the other way we get the results. February is the prime example. Weather exceeded last year, as did our sales in our bottom line. So it's the one that we certainly know, we have not seen any major customer swings, so the other point as I mentioned earlier, the comments is there -- is the softening of the economy impacting us? We're still trying to study that. We -- I think today the statistic came out that the planned travel for vacations for people this year is way down. It is going to be one of the lowest in many, many years. Will that spur some additional buying patterns for backyard barbecues that will help us? We hope so.

John San Marco - Wachovia Securities

Thank you. And then second is sort of a follow up around the visibility. Last quarter we talked a little bit more than normal about emerging competitive options for your customers to provide ice to consumers. Can you give an update around the competitive environment?

Bill Brick

I think, just before I was asked the same question. Mark it really is -- we have not seen anything radically different. Our point was that from a vending point of view, we're seeing more vending -- typically you go to a store to buy ice and whether it's inside the store or in front of a convenience operation, we're now seeing more free-standing vending companies springing up, offering the product, which is good exposure for it. So, we were seeing that as being the majority of it. We were also seeing in some cases some additional smaller independents bagging their own ice through using some technology within their own small convenience store side. As well as, you know, some additional with the in-store bagging even at the grocery store level. Nothing has changed in that time frame. We just wanted to point out that it is more visible today because of the number of locations out there than historically it had been up until basically sort of the second half of '07 and moving forward.

John San Marco - Wachovia Securities

Got it. Sorry I missed that question earlier.

Bill Brick

That's okay.

John San Marco - Wachovia Securities

And lastly -- I hope I didn't miss this one too. Our model suggests, and I think it sort of current run rate levels, there is sufficient cash -- the business is generating sufficient cash flow to support the dividend. Do, any of your sort of medium, long-term expectations for the business or debt covenants or maybe something else that I'm missing, sort of threaten the sustainability of today's dividend rate?

Bill Brick

Yeah, I think -- John, you obviously -- when we talked about last time, our liquidity is very healthy right now. We're sitting on a lot of cash, we're at a seasonal low point right now, but we started the year pro forma for the GSO termination fee of around $50 million. As you can see this year, with our projections and with based upon the guidance that we have, we expect to generate additional free cash flow, subject to acquisition and of course the outcome of the anti-trust investigation.

John San Marco - Wachovia Securities

Got it.

Bill Brick

So, we see sustainability based upon those factors, and we continue to evaluate the refinancing alternatives. The credit markets are in great shape, we'll have to continue to evaluate that. The board reviews the dividend policy every quarter, based upon all of the relevant information that's available.

John San Marco - Wachovia Securities

Alright, thank you very much. That's all for me.

Bill Brick

Thank you.

John San Marco - Wachovia Securities

Thanks.

Operator

Our next question come Tom Lamb from Weybosset Research. Please proceed with your question.

Fla Lewis - Weybosset Research & Management

Hello, it's Fla Lewis. My question was also about the dividend. It's been kind of a wild year for your shareholders in a business that -- it was built as being very stable. Looks like you can afford the dividend. How about managements and the Board's commitment to the dividend?

Bill Brick

I think as Steve had just mentioned that the management, and the Board -- or the Board actually -- not the management -- the Board reviews the dividend every quarterly, and that has been our policy and will continue to be the policy.

Fla Lewis - Weybosset Research & Management

And -- okay. The dividend is reviewed -- you guys are on the Board, right?

Bill Brick

I am on the Board, Steve is not.

Fla Lewis - Weybosset Research & Management

Okay. What's your sense of the Board's attitude toward it.

Bill Brick

I really can't comment. I mean it's the Board's decision that is reviewed on quarterly basis.

Fla Lewis - Weybosset Research & Management

Okay. Thank you.

Bill Brick

Thanks.

Operator

Our next question comes from Marianne Manzolillo Angelo, Gordon & Co. Please proceed with your question.

Marianne Manzolillo - Angelo, Gordon & Co.

Hello, your comments on revenues, you stated that 10-pound bags represented 65% of your revenues this year versus 53% last year. What trend did you experienced? Is there any significance there? Is that a good trend or is it a negative trend?

Bill Brick

I think it's a continuing trend, Marianne. We had sort of provided to the market a couple years ago, three or four years ago the opportunity to go to -- from a 7 to a 10 of these still desired and you can see more and more people have done that. So, we look at that as a positive trend.

Marianne Manzolillo - Angelo, Gordon & Co.

Is that a more profitable sale for you?

Bill Brick

It's really -- it's comparable. It's a volumetric sale, so it sometimes will give you more dollars, but does not as they translate to a higher profit margin.

Marianne Manzolillo - Angelo, Gordon & Co.

So why would that be a positive trend then.

Bill Brick

Well, I think it's just more consumption in the marketplace. Retailers get a higher ring sometimes that may provide a better margin at the retail level. It's another available product for a mix. You buy -- you now you have a 10-pound bag versus a 7, so in some cases you buy two or three or whatever.

Marianne Manzolillo - Angelo, Gordon & Co.

Okay. And, you had said your sales in tons this quarter was 240,000 tons.

Bill Brick

That's correct.

Marianne Manzolillo - Angelo, Gordon & Co.

And that was down how much? I am sorry I missed that.

Bill Brick

It was a down approximately 8%.

Marianne Manzolillo - Angelo, Gordon & Co.

Down 8%. Okay. And again I think, I missed this the two, of the cash what was [HOLCO] and OPCO ? The breakdown

Bill Brick

The [HOLCO] cash was $22.4 million, I believe, and the OPCO, the unrestricted cash was de minimus at this point in time, since we are under seasonal revolver and our restricted cash was $11 million at the end of the quarter. And we're utilizing that to fund our CapEx, and we have utilized it also to do the tuck-in acquisitions that we completed to date.

Marianne Manzolillo - Angelo, Gordon & Co.

Got you. And then one more question. Have you ever in prior years gone back to your customers for perhaps higher prices, when maybe you have faced circumstances such as this year with -- where one of your input costs are going up more than expected?

Bill Brick

Historically we have not.

Marianne Manzolillo - Angelo, Gordon & Co.

Uh-huh. Okay. And right now -- I believe you said you don't plan too right now either?

Bill Brick

Correct.

Marianne Manzolillo - Angelo, Gordon & Co.

Okay. All right, great. Thank you.

Operator

Our next question comes from Eric Larson from Summer Set Asset Management. Please proceed with your question.

Eric Larson - Summerset Asset Management

Hey, good morning, guys, how are you.

Bill Brick

Good, Eric, and you?

Eric Larson - Summerset Asset Management

I'm well, thanks. Just a couple of questions. First you guys normally traditionally take your price increases generally first quarter of the year; is that correct?

Bill Brick

Yes, we do.

Eric Larson - Summerset Asset Management

And what was your price increase this year?

Bill Brick

Yeah, Eric in -- basically embedded in the guidance that we provided. Our price increase this year was somewhere around 2 to 3%.

Eric Larson - Summerset Asset Management

Okay. Okay. Now given -- kind of given the unprecedented conditions with fuel, everybody is doing this, it would not -- it would not be unusual for you guys to maybe in these unprecedented times to go back and take another price increase to offset that fuel. Seems like a 1% price increase would probably cover that $3 million. Are you reluctant to do that? Would competition -- would you lose volume, is competition something that would maybe hurt volumes if you try to take a second price increase.

Steve Janusek

Well numerically your 1% is probably close there. I think once again it is case of historical patterns, which we try to follow. And secondly, I think that you know, we would love to take it along with some buyers out there who are facing tremendous pressure from every manufacture out there today with worth rising prices. So our first visit like any price increase one that you will rather, it was not exactly a love-in and to go back a second time would probably follow the same suit. I think it's just, there is a lot of pressure at the retail level as well and they are trying to maintain things for the consumer.

Eric Larson - Summerset Asset Management

Okay. Then a question on the guidance. I clearly understand the shortfall in the first quarter, and your comments related to that. What is troubling me a little bit, though, is when you look at the comparisons from last year, you have particularly difficult, summer season a year ago, as well as, I believe, September -- I think, I believe early fall, your early part of the third quarter was pretty difficult as well. What have you built into your guidance today to kind of look at -- your comps -- your year-over-year comps going in to the final three quarters of '08?

Steve Janusek

Eric that's a great question. I think, last year, as you said, on a pro forma basis our revenues were approximately $345 million, and as we discussed at the last conference call, our guidance put us up, maybe $15 million more than that, and a portion of that was the 2 to 3% pricing that we had planned as well as some increased volume. From our original guidance in '07, though, we didn't basically -- we increased our guidance in a effort to be prudent with our guidance in terms of volume, a portion of that back because we knew we had very soft growth last year primarily raised in challenging weather from April through July, and we budgeted a portion of that back.

Due to the shortfall that we had in March primarily and the fact that April, while it's looking like it's comparable to last year, we didn't get the bump that we had expected in April results climatically thus far have been more comparable to last year as well, which was equally poor, I would say. So in addition to that, as Bill said, we're being prudent around the economy. We have moved our guidance for the remainder of the year approximately a point to 1.5 points downwards from where we were before in lieu of some of the challenges that we are seeing and just trying to be conservative as it relates to the economy and, the overall weather outlook from what we have seen so far.

Eric Larson - Summerset Asset Management

Okay. So with any kind of return to maybe normal weather patterns, we might see a positive -- we could potentially see a positive surprise on that end, given how you budgeted.

Bill Brick

Certainly, Eric if you go historically, we have seen years where we were in a similar pattern, and all of a sudden it gets hot across the country, and we look like hero. We would love to have that problem.

Eric Larson - Summerset Asset Management

Yeah, okay. Then the final question is and I'll be respectful to your no comments, no questions on the litigation issue, but what -- you may have said this -- what did you have for extra costs in the first quarter maybe related to the litigation that's going on?

Steve Janusek

Yeah, Eric, we have accrued $1.2 million thus far, which is the gross number -- the actual cost incurred, and as I commented, we're viewing our insurance options related to that. We can't really comment on the outcome there, but are reviewing that as well to potentially have some recoveries.

Eric Larson - Summerset Asset Management

Okay, so you've accrued 1.2, is that spread evenly across the four quarters.

Steve Janusek

No it is 1. 2 actually in the first quarter.

Eric Larson - Summerset Asset Management

Okay. Right.

Steve Janusek

And we in your guidance going forward -- we have none -- there is no cost in the guidance, although we have got disclaimers there that the investigation is ongoing, and there are cost being incurred ongoing, but we have not given guidance related to those costs.

Eric Larson - Summerset Asset Management

Okay. So that was really the issue -- the question is -- given that you haven't put any more costs in from the March 31, period, obviously there will be, so why would you not make some kind of a judgment on that going forward and put that in to your numbers if you are taking guidance down this quarter?

Steve Janusek

Yeah, I think as Bill said, we really -- we can't get in to the anti-trust investigation in any degree, and I think that's just a related question.

Eric Larson - Summerset Asset Management

Okay. Alright. Thanks, guys.

Bill Brick

Thanks, Eric.

Operator

Our next question comes from Paul Langlois from Seligman. Please proceed with your question.

Paul Langlois - Seligman

Good morning.

Bill Brick

Good morning.

Paul Langlois - Seligman

Hi. I was just curious, I know you are not going to comment on the investigation, but you talked about our restricted cash, and a lot of it you claim is going to go for further acquisitions, and it kind of hits me that that's sort of a little counter intuitive that in an anti trust investigation you are going to be increasing your market share. And I just, I wanted to get a filler, are the acquisition opportunities out there that attractive right now?

Bill Brick

Well, I think what I said was that we don't expect over the season that it will slow -- I think that was my words in the script. We continue to always review acquisitions, but we do not have a specific number or time frame for doing anything certainly over the next short time frame.

Paul Langlois - Seligman

Okay. And you mentioned that the dividend payout ratio will be discussed by the board. But I realize that a lot of your capital structure matures in the next 4.5 years, and the credit markets definitely have tightened. I mean, is it your sense that you need to maybe start paying down some debt at this point?

Steve Janusek

Right. I think -- you know, we're continuing to review the opportunities in the credit environment. I think, as we said last conference call, right now is not a time to refinance. We know as you said you are right, in 2012, the main portions of our capital structure or all of our capital structure mature, our revolver actually matures in 2010 and we continue to evaluate it. So that's just part of the overall discussion at the Board level related to dividend policy. Secondly, just as a clarifier on the restricted cash. What we're using that for is to fund our acquisition, which is really -- if we do not use that restricted cash within the next 12 months, we're required to pay down term debt. So, essentially these are planned capital expenditures, primarily maintenance expenditures that are we just using that cash instead of our normal operating cash to do so. So, it's really -- and then to the extent we have done tuck-ins, we have also applied it against that as well, but that is not indicative of future acquisitions.

Paul Langlois - Seligman

Okay. Thank you.

Steve Janusek

You're welcome.

Operator

Our next question comes from JP [Leisure] of Pacific Asset Management. Please proceed with your question.

JP Leisure - Pacific Asset Management

High morning. I know you can't comment on the anti-trust investigation but can you kind of give some color as far as the impact on your customer base, what that has done to the business? Have any customers decided to leave you and go to a competitor? Any information around that?

Bill Brick

No, no customer has changed. I think that at this point in time.

JP Leisure - Pacific Asset Management

Thanks.

Operator

Our last question comes from Michael [Turgor] of Eaton Vance. Please proceed with your question.

Michael Turgor - Eaton Vance

Hey, guys, how are you doing?

Bill Brick

Good.

Michael Turgor - Eaton Vance

Just want to follow up on a couple of questions ago. Given that you are planning to use the restricted cash for just kind of normal capital expenditures and potentially some tuck-in acquisitions, I would imagine that frees up, cash flow that you would have otherwise had used for those things. Can you comment on -- assuming you keep the dividend payments level, and that's my assumption, not what you've said, you should have fairly substantial free cash flow even beyond that. Kind of, can you comment on thoughts around what the planned uses are for that cash flow?

Bill Brick

Yes, Michael I think, as we talked on last conference call and a little bit here. I think it's clearly driving our available cash on our credit agreement higher, because it essentially offsets our CapEx. So essentially, it's like a year without much CapEx. We're generating much more available cash than planned. And I think, as we look at our alternatives, as the Board reviews the dividend policy, as we look at our alternatives long-term for our capital structure, it's a component of that. But, as part of our plan -- and it really -- we haven't gotten specific to it. It's part of our overall plans as we think to our capital structure longer term.

Michael Turgor - Eaton Vance

And then from a -- either -- maybe getting at it a little bit different way, maybe from a holding company perspective or an operating company perspective, how much cash do you think you need, kind of operate the business day-to-day? What is kind of a comfortable level for you guys?

Bill Brick

I don't know if we think about it exactly that way. We know on an annual basis, we've been paying, the dividend has been a portion of our free cash flow, and our free cash flow at the operating level has exceeded and plans are for it to continue to exceed our dividend payouts and fixed cost related to cash interest and our capital expenditure needs. We look at our acquisition separately, and those are not drawn on available cash, and we look at those in terms of their accretion to cash flow. At the holding company level, those are unique events as it relates to the GSO transaction and the investigation that we have cash availability up there. It's not related to the credit agreement, and we just have chosen to fund those corporate holding company style expenses at that level. So, I think -- once again that cash up there is just part of our overall planning for what it may be in the future.

Michael Turgor - Eaton Vance

And then from a credit facility perspective, can you remind us do you have other step downs in the covenant levels?

Steve Janusek

No, they are two very straightforward covenants. We have a leverage covenant that is four times adjusted EBITDA covenant at the operating company level. There's an actual component to that the -- in order to fund a dividend we have to be at 3.7 times or lower. That current ratio is 2.9 times today, net of cash.

Michael Turgor - Eaton Vance

But those don't change over time.

Steve Janusek

No, they do not change. And then there's an interest coverage ratio of 3.2 times interest at -- the cash interest at the OPCO level, and they do not change. They are fixed numbers for the remainder of the credit facility term.

Michael Turgor - Eaton Vance

Okay. Thanks very much.

Steve Janusek

Great.

Operator

This concludes our question-and-answer session. At this time, I would like to turn the call back over to Mr. Bill Brick. Please go ahead.

Bill Brick

Thank you very much. We appreciate your time today and look forward to speaking with you at the end of the second quarter.

Operator

This concludes the Reddy Ice 2008 first quarter earnings conference call. Thank you, everyone, for joining. You may now disconnect.

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