UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
AMENDMENT NO. 1 TO FORM 8-K DATED AUGUST 14, 1998
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 22, 1998
(July 31, 1998)
PACKAGED ICE, INC.
(Exact Name of Registrant as Specified in Its Charter)
TEXAS 333-29357 76-0316492
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
8572 KATY FREEWAY, SUITE 101
HOUSTON, TEXAS 77024
(Address of principal executive offices)
(713) 464-9384
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
ACQUISITION OF CASSCO ICE & COLD STORAGE, INC.
On July 31, 1998, the Packaged Ice, Inc. (the "Company") acquired all of
the outstanding capital stock of Cassco Ice & Cold Storage, Inc., a subsidiary
of WLR Foods, Inc., ("Cassco") for a purchase price of approximately $59 million
in cash (the "Cassco Acquisition"). The Cassco Acquisition was financed with
funds available under the Company's credit facility with Antares Leveraged
Capital Corp. and cash on hand.
The Company has not completed the assessment of the fair values of the net
assets acquired for purposes of allocating the purchase price of the Cassco
Acquisition. The excess of the purchase price over the currently estimated fair
values of the net assets has been allocated to goodwill, which will be amortized
over 40 years. The Cassco Acquisition was recorded using the purchase method of
accounting, and therefore, the results of its operations will be included in the
Company's consolidated financial statements from the date of purchase.
Cassco is a leading producer and distributor of packaged ice products and
owner/operator of cold storage warehouse facilities in the Mid-Atlantic region.
Cassco's assets include nine separate ice manufacturing facilities, four
distribution facilities and related equipment and rolling stock, all of which
are used to manufacture and distribute ice products. In addition, Cassco owns
10.3 million cubic feet of cold storage buildings at five separate locations,
all of which are used as public warehouses. Principally, the Company intends to
continue such use.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Cassco Ice & Cold Storage, Inc.
(i) Independent Auditors' Report - KPMG Peat Marwick LLP F-1
(ii) Balance Sheets as of June 27, 1998 and June 28, 1997 F-2
(iii) Statement of Earnings for the Years Ended June 27,
1998 and June 28, 1997 F-3
(iv) Statements of Shareholder's Equity for the Years Ended
June 27, 1998 and June 28, 1997 F-4
(v) Statements of Cash Flows Equity for the Years Ended
June 27, 1998 and June 28, 1997 F-5
(vi) Notes to Financial Statements F-6
(B) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements are
filed with this report:
(i) Unaudited Pro Forma Combined Condensed Balance Sheet
as of June 30, 1998 F-13
(ii) Unaudited Pro Forma Combined Statements of Operations
for Year Ended December 31, 1997 F-14
(iii) Unaudited Pro Forma Combined Statements of Operations
for the Six Months Ended June 30, 1998 F-15
(iv) Notes to Unaudited Pro Forma Combined Condensed
Financial Statements F-16
2
<PAGE>
(C) EXHIBITS
The following is a list of exhibits filed as part of this Form 8-K. Where
so indicated by footnote, exhibits, which were previously filed, are
incorporated by reference.
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ---------- --------------------------------------------------------------------
2.1 Stock Purchase Agreement among Packaged Ice, Inc., WLR Foods, Inc.
and Cassco Ice & Cold Storage, Inc. dated July 31, 1998.*
2.2 Non-Competition Agreement between WLR Foods, Inc. and Packaged Ice,
Inc.*
- ------------------
* Previously filed as an exhibit to Form 8-K, filed on behalf of the Company
with the Securities and Exchange Commission on August 14, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PACKAGED ICE, INC.
Date: December 22, 1998 By: /s/ JAMES C. HAZLEWOOD
----------------------
James C. Hazlewood
Chief Financial Officer
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Cassco Ice and Cold Storage, Inc.:
We have audited the accompanying balance sheets of Cassco Ice and Cold
Storage, Inc. (a wholly-owned subsidiary of WLR Foods, Inc.) as of June 27, 1998
and June 28, 1997 and the related statements of earnings, shareholder's equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cassco Ice and Cold Storage,
Inc. as of June 27, 1998 and June 28, 1997, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Richmond, Virginia
July 24, 1998
F-1
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
BALANCE SHEETS
JUNE 27, 1998 AND JUNE 28, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash ............................................... $ 118,362 $ 143,326
Accounts receivable (notes 9 and 10):
Parent company .................................. 1,025,650 1,093,940
Other ........................................... 3,189,307 2,813,858
----------- -----------
4,214,957 3,907,798
Notes receivable (note 2) ............................. 9,761 35,675
Inventories (note 3) .................................. 1,212,610 1,124,925
Deferred income taxes (note 5) ........................ 246,347 205,861
Prepaid expenses ...................................... 269,407 172,115
Due from parent company (note 10) ..................... 957,919 --
----------- -----------
Total current assets .................................. 7,029,363 5,589,700
----------- -----------
Property, plant and equipment, net (notes 4, 6 and 8) 23,878,030 24,626,766
Other assets .......................................... 385,337 399,235
----------- -----------
Total assets .......................................... $31,292,730 $30,615,701
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current installments of long-term debt (note 6) .... $ 529,487 $ 519,125
Current installments of obligations under capital
leases (note 8) .................................. 268,678 110,699
Accounts payable ................................... 1,128,644 1,322,998
Accrued expenses ................................... 476,919 449,891
Due to parent company (note 10) .................... -- 1,356,999
----------- -----------
Total current liabilities ............................. 2,403,728 3,759,712
----------- -----------
Long-term debt, excluding current installments (note 6) 1,975,701 2,506,616
Obligations under capital leases, excluding
current installations (note 8) ...................... 797,825 686,148
Deferred income taxes (note 5) ........................ 1,543,947 1,647,935
Other long-term liabilities ........................... 110,734 140,364
----------- -----------
Total liabilities ..................................... 6,831,935 8,740,775
----------- -----------
Shareholder's equity:
Common stock, $1,000 par value. Authorized
5,000 shares; issued and outstanding 70 shares ..... 70,000 70,000
Additional paid-in capital ......................... 10,613,855 10,513,855
Retained earnings .................................. 13,776,940 11,291,071
----------- -----------
Total shareholder's equity ............................ 24,460,795 21,874,926
----------- -----------
Commitments (note 8)
Total liabilities and shareholder's equity ............ $31,292,730 $30,615,701
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
STATEMENTS OF EARNINGS
YEARS ENDED JUNE 27, 1998 AND JUNE 28, 1997
1998 1997
------------ ------------
Operating revenues (notes 9 and 10):
Parent company .............................. $ 7,297,937 $ 7,053,271
Other ....................................... 22,079,856 19,130,471
------------ ------------
29,377,793 26,183,742
Operating expenses ............................. 16,996,578 15,885,712
------------ ------------
Gross profit ................................... 12,381,215 10,298,030
Selling, general and administrative expenses ... 7,636,595 6,232,423
------------ ------------
Operating income ............................... 4,744,620 4,065,607
Other expense (income):
Interest expense ............................ 73,065 272,195
Interest income ............................. (9,797) (8,797)
Other, net .................................. 239,594 75,516
------------ ------------
Total other expense ............................ 302,862 338,914
------------ ------------
Income before income taxes ..................... 4,441,758 3,726,693
Provision for income taxes (note 5) ............ 1,725,139 1,401,401
------------ ------------
Net income ..................................... $ 2,716,619 $ 2,325,292
============ ============
See accompanying notes to financial statements.
F-3
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED JUNE 27, 1998 AND JUNE 28, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at June 29, 1996 ............ 70 $ 70,000 $ 9,940,105 $ 9,211,732 $ 19,221,837
Net income ............................ -- -- -- 2,325,292 2,325,292
Dividends declared: $3,513.61/share .. -- -- -- (245,953) (245,953)
Issuance of WLR Foods, Inc. stock for
business acquisition (note 11) .... -- -- 573,750 -- 573,750
-------- ------------ ------------ ------------ ------------
Balances at June 28, 1997 ............ 70 70,000 10,513,855 11,291,071 21,874,926
Net income ............................ -- -- -- 2,716,619 2,716,619
Dividends declared: $3,296.43/share .. -- -- -- (230,750) (230,750)
Issuance of WLR Foods, Inc. stock for
business acquisition (note 11) .... -- -- 100,000 -- 100,000
-------- ------------ ------------ ------------ ------------
Balances at June 27, 1998 ............ 70 $ 70,000 $ 10,613,855 $ 13,776,940 $ 24,460,795
======== ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 27, 1998 AND JUNE 28, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 2,716,619 $ 2,325,292
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 3,401,617 3,111,198
Deferred income taxes ............................ (144,474) (167,968)
Loss on sales of property, plant and equipment ... 153,034 76,018
Change in assets and liabilities:
Increase in accounts receivable ................. (307,159) (470,392)
Increase in inventories ......................... (65,205) (47,425)
Increase in prepaid expenses .................... (97,292) (4,159)
Increase in other assets ........................ 94,840 (278,737)
Decrease in accounts payable and accrued expenses (654,753) (498,043)
Change in due from/due to parent company ........ (1,827,491)
Decrease in other long-term liabilities ......... (29,630) (32,585)
----------- -----------
Net cash provided by operating activities ............. 3,240,106 1,326,227
----------- -----------
Cash flows from investing activities:
Capital expenditures ................................ (1,683,293) (1,956,549)
Acquisition of businesses (note 11) ................. (650,000) (195,549)
Proceeds from sales of property, plant and equipment 24,665 95,899
Payments from notes receivable ...................... 25,914 55,115
Proceeds from lease financing ....................... -- 1,761,078
----------- -----------
Net cash used in investing activities ................. (2,282,714) (239,457)
----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt ................ (520,553) (511,757)
Principal payments under capital lease obligations .. (231,053) (109,498)
Principal payments on notes payable to bank ......... -- (300,000)
Dividends paid ...................................... (230,750) (245,953)
----------- -----------
Net cash used in financing activities ................. (982,356) (1,167,208)
----------- -----------
Net decrease in cash .................................. (24,964) (80,438)
Cash at beginning of year ............................. 143,326 223,764
----------- -----------
Cash at end of year ................................... $ 118,362 $ 143,326
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .............................................. $ 262,484 $ 273,657
=========== ===========
Income taxes .......................................... $ 1,628,880 $ 1,317,163
=========== ===========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1998, the Company recorded additional paid-in capital as a result of
WLR Foods, Inc. stock valued at $100,000 issued to acquire a business (note
11).
During 1998, the Company recorded capital lease obligations of $500,709
related to the acquisition of transportation equipment.
During 1997, the Company recorded additional paid-in capital as a result of
WLR Foods, Inc. stock valued at $573,750 issued to acquire a business (note
11).
During 1997, the Company recorded capital lease obligations of $582,843
related to the acquisition of transportation equipment.
See accompanying notes to financial statements.
F-5
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS
JUNE 27, 1998 AND JUNE 28, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Cassco Ice and Cold Storage, Inc.'s (Cassco or the Company) operations are
devoted primarily to refrigerated warehousing and to the manufacturing,
packaging and sale of ice.
Cassco operates primarily in the Mid-Atlantic region.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to June 30. Fiscal
years 1998 and 1997 ended on June 27 and June 28, respectively, and included 52
weeks in each year.
INVENTORIES
Inventories are valued at the lower of cost or market. The cost of
packaging materials and packaged ice is determined by a method that approximates
the first-in, first-out (FIFO) method. The cost of icemaking systems and parts
is determined by the specific identification method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Equipment under capital
leases is stated at the present value of minimum lease payments. Equipment held
under capital leases is amortized straight line over the shorter of the lease
term or estimated useful life of the asset. Depreciation on property, plant and
equipment is computed using the straight-line method and useful lives of the
respective assets are as follows:
Land improvements..................10-15 years
Buildings and improvements.........15-20 years
Machinery and equipment............3-5 years
Transportation equipment...........4-6 years
The costs of maintenance and repairs are charged to operations, while
costs associated with renewals, improvements and major replacements are
capitalized.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income for the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Company is included in the consolidated federal income tax return and
certain consolidated state income tax returns of WLR Foods, Inc. The Company
provides income taxes on a separate company basis.
F-6
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, accounts receivable, notes receivable, due
from/to parent company, accounts payable and accrued expenses approximate fair
value due to their short maturities. The fair value of long-term debt is
calculated by discounting scheduled cash flows through maturity using estimated
rates currently offered for debt with similar terms and average maturities. The
carrying amount of long-term debt approximates fair value.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements
to conform with the 1998 presentation.
INTANGIBLES
Intangibles, primarily agreements not to compete, are stated at cost less
accumulated amortization and are included in other assets in the accompanying
balance sheets. Amortization is computed on the straight-line method over
periods of 3 to 5 years.
(2) NOTES RECEIVABLE
Notes receivable consist of the following:
1998 1997
------- -------
8.5% note receivable, due December 1996
(amended to August 1997) .......................... $ -- $30,272
8.5% note receivable, due August 1997 .............. -- 5,403
12% note receivable, due July 23,1998 .............. 3,667 --
10% note receivable, due August 15,1998 ............ 6,094 --
------- -------
Total notes receivable ............................. $ 9,761 $35,675
======= =======
(3) INVENTORIES
A summary of inventories follows:
1998 1997
---------- ----------
Packaging materials ................................ $ 860,958 $ 586,589
Package ice ........................................ 235,978 417,079
Ice maker systems and parts ........................ 105,505 120,139
Fuel and other ..................................... 10,169 1,118
---------- ----------
Total inventories .................................. $1,212,610 $1,124,925
========== ==========
F-7
<PAGE>
(4) PROPERTY, PLANT AND EQUIPMENT
The Company's investment in property, plant and equipment was as follows:
1998 1997
----------- -----------
Land and improvements ............................ $ 2,931,282 $ 2,930,878
Buildings and improvements ....................... 15,813,389 15,738,256
Machinery and equipment .......................... 28,477,175 26,614,563
Transportation equipment ......................... 4,998,416 4,412,380
Construction in progress ......................... 13,041 430,426
----------- -----------
52,233,303 50,126,503
Less accumulated depreciation and amortization ... 28,355,273 25,499,737
----------- -----------
Total property, plant and equipment, net ......... $23,878,030 $24,626,766
=========== ===========
(5) INCOME TAXES
The provision for income taxes was as follows for fiscal years 1998 and 1997:
1998 1997
----------- -----------
Current:
Federal .............................. $ 1,646,703 $ 1,360,235
State ................................ 222,910 209,134
----------- -----------
Total current .......................... 1,869,613 1,569,369
Deferred:
Federal .............................. (137,440) (160,127)
State ................................ (7,034) (7,841)
----------- -----------
Total deferred ......................... (144,474) (167,968)
----------- -----------
Total income tax provision ............. $ 1,725,139 $ 1,401,401
=========== ===========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets (liabilities) at June 27, 1998 and June 28,
1997 are listed below:
1998 1997
----------- -----------
Deferred tax liabilities:
Property, plant and equipment, principally due to
differences in depreciation and amortization .. $(1,943,504) $(1,980,911)
----------- -----------
Gross deferred tax liabilities ................... (1,943,504) (1,980,911)
Deferred tax assets:
Obligations under capital leases ............... 415,936 310,771
Insurance accruals ............................. 60,060 68,857
Tax credits .................................... 27,016 27,016
Accrual of compensated absences ................ 122,286 91,491
Other .......................................... 20,606 40,702
----------- -----------
Gross deferred tax assets ........................ 645,904 538,837
----------- -----------
Net deferred tax liability ....................... $(1,297,600) $(1,442,074)
=========== ===========
In assessing the recoverability of deferred tax assets, management considers
whether it is more likely than not that some or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax
assets is dependent on the generation of future taxable income, during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal
F-8
<PAGE>
of deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based on the level of historical
operating results and expectations of future taxable income and reversals of
deferred tax liabilities, management believes it is more likely than not that
the Company will realize the benefits of these deductible differences as
reflected at June 27, 1998 and June 28, 1997.
(6) LONG-TERM DEBT
Long-term debt as June 27, 1998 and June 28, 1997 consisted of the
following obligations:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Industrial Revenue Development Bond, due December 2001,
payable in initial monthly installments of $3,305 plus interest
(with annual increases in monthly payments to $11,598 plus
interest by 2001) at 70% of the bank's prime lending rate (year
end rate 7.163%). Secured by property, plant and equipment .............. $ 397,846 $ 500,396
Unsecured Bank Term Note, due June 2003, payable in monthly
installments of $33,389 plus interest at 30 day LIBOR +85
basis points (year-end rate 6.54%) ...................................... 2,003,342 2,404,012
Unsecured Note Payable, due September 2003, payable in
annual installments of $17,333 plus interest (year-end rate 7.5%)........ 104,000 121,333
---------- ----------
Total long-term debt ...................................................... 2,505,188 3,025,741
Less current installments ................................................. 529,487 519,125
---------- ----------
Total long-term, excluding current installments ........................... $1,975,701 $2,506,616
========== ==========
</TABLE>
The net book value of all property, plant and equipment encumbered under
long-term debt agreements at June 27, 1998 and June 28, 1997 was approximately
$6,968,000 and $7,081,000, respectively.
The Company had no agreements to maintain compensating balances.
Required annual principal repayments of long-term debt are as follows:
FISCAL AMOUNT
------ ------
1999.................................... $529,487
2000.................................... 538,953
2001.................................... 550,300
2002.................................... 451,113
2003.................................... 418,002
(7) EMPLOYEE BENEFITS
The Company participates in WLR Foods, Inc.'s Profit Sharing and Salary
Savings Plan that is available to substantially all employees who meet
certain age and service requirements. Participants may elect to make
contributions of up to 15% of their salary. For each employee dollar
contributed (limited to the first 4% of an employee's compensation), the
Company is required to contribute a matching amount of 50 cents. The Company
can also make additional contributions at its discretion. Cassco's total
contributions under this plan were approximately $94,000 for fiscal 1998 and
$78,000 for fiscal 1997.
F-9
<PAGE>
(8) LEASES
The Company is obligated under various capital leases for certain
transportation equipment that expire at various dates during the next five
years. At June 27, 1998 and June 28, 1997, the gross amount of equipment and
related accumulated amortization recorded under capital leases were as
follows:
1998 1997
---------- ----------
Transportation equipment ................... $1,458,484 $ 957,775
Less accumulated amortization .............. 433,450 184,358
---------- ----------
$1,025,034 $ 773,417
========== ==========
Amortization of assets held under capital leases is included with
depreciation expenses.
The Company has also entered into various noncancelable operating leases
for machinery and equipment. The leases are noncancelable and expire on
various dates through fiscal 2003. Total rent expense was approximately
$897,000 and $872,000 for the years ended June 27, 1998 and June 28, 1997,
respectively. Future minimum lease payments under noncancelable operating
leases and future minimum capital lease payments as of June 27, 1998 are:
CAPITAL OPERATING
FISCAL LEASES LEASES
------ ------- -------
1999.......................................... $333,012 $344,592
2000.......................................... 333,012 62,112
2001.......................................... 228,561 3,180
2002.......................................... 183,030 1,440
2003.......................................... 146,813 120
--------- --------
Total minimum lease payments.................. 1,224,428 $411,444
========= ========
Less amount representing interest (at rates
ranging from 6.29% to 7.31%)................ 157,925
---------
Present value of net minimum capital lease
payments.................................... 1,066,503
Less current installments of obligations under
capital leases.............................. 268,678
---------
Obligations under capital leases, excluding
current installments........................ $ 797,825
=========
(9) CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Most of the Company's customers are located in the Mid-Atlantic states.
Five customers, one of which is a related party, accounted for approximately
55% of the Company's revenues in fiscal 1998. Four customers, one of which is
a related party, accounted for approximately 55% of the Company's revenues in
fiscal 1997. Three customers, one of which is a related party, accounted for
45% of the Company's accounts receivable as of June 27, 1998. Six customers,
one of which is a related party, accounted for 66% of the Company's accounts
receivable as of June 28, 1997.
(10) RELATED PARTY TRANSACTIONS
Cassco is a 100% owned subsidiary of WLR Foods, Inc. (the Parent). The
Parent performs certain services for the Company. These services include
cash management, preparation of all income tax returns, information systems
services and the administration of worker's compensation, health and
property insurance and savings plans. The Company is charged a management
fee for these services provided by the Parent.
F-10
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Management fees paid to WLR Foods, Inc. were $434,000 and $309,760 for
fiscal 1998 and 1997, respectively. The Company provides refrigerated
warehouse services and sells ice to the Parent. The intercompany account is
interest bearing at a rate of 6.25% at June 27, 1998.
In management's opinion, all related party transactions are conducted
under normal business conditions, with no preferential treatment given to
related parties.
(11) BUSINESS ACQUISITIONS
On March 10, 1998, the Company acquired substantially all of the assets of
Mt. Joy Ice Company (Mt. Joy) for $400,000 cash and $100,000 (15,534 shares)
of WLR Foods, Inc. common stock. The assets included primarily ice
merchandisers. This transaction has been accounted for as a purchase, and
accordingly, the financial statements include the assets acquired at fair
value and the results of operations of Mt. Joy from the acquisition date.
On March 30, 1998, the Company acquired substantially all of the assets of
Copes Ice Company (Copes) for $250,000 in cash. The assets included
primarily ice merchandisers. This transaction has been accounted for as a
purchase, and accordingly, the financial statements include the assets
acquired at fair value and the results of operations of Copes from the
acquisition date.
In the fiscal 1997, the Company acquired substantially all of the assets
of Jennings Ice Company (Jennings) for $573,750 (45,000 shares) of WLR
Foods, Inc. common stock. The assets included primarily ice merchandisers
and refrigeration equipment. This transaction has been accounted for as a
purchase, and accordingly, the financial statements include the assets
acquired at fair value and the results of operations of Jennings from the
acquisition date.
The Company also acquired substantially all of the assets of The Ice
Plant, Inc. for $195,000 in cash in fiscal 1997. The assets included
primarily ice merchandisers. This transaction has been accounted for as a
purchase, and accordingly, the financial statements include the assets
acquired at fair value and the results of operations of The Ice Plant, Inc.
from the acquisition date.
(12) SUBSEQUENT EVENT
WLR Foods, Inc. has entered a letter of intent to sell its stock in Cassco
Ice and Cold Storage, Inc. to Packaged Ice, Inc. of Houston, Texas. Closing
for the transaction is subject to certain conditions, including the
completion of customary due diligence by the purchasers and regulatory
approvals.
F-11
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma combined condensed balance sheet as of June 30,
1998 gives effect to the Cassco Acquisition and related financing, as if
they had occurred on June 30, 1998.
The unaudited pro forma combined condensed statements of operations for
the year ended December 31, 1997, give effect to the (i) the Cassco
Acquisition and related financing, (ii) the acquisition of Reddy Ice
Corporation ("Reddy") and (iii) 76 insignificant prior acquisitions of the
Company and Reddy since January 1, 1997 (the "Acquisitions"), as if they had
occurred on January 1, 1997. The unaudited pro forma combined statements of
operations for the year ended December 31, 1997 are derived from (a) the
audited historical financial statements of the Company and Reddy for such
year, (b) the unaudited historical financial statements of Cassco for such
period and (c) the unaudited historical financial statements of the
Acquisitions for the applicable periods prior to their respective
acquisition dates.
The unaudited pro forma combined condensed statements of operations for
the six months ended June 30, 1998 give effect to the (i) the Cassco
Acquisition and related financing, (ii) the acquisition of Reddy and (iii)
25 insignificant prior acquisitions of the Company and Reddy since January
1, 1998 (the "1998 Acquisitions"), as if they had occurred on January 1,
1997. The unaudited pro forma combined condensed statements of operations
for the six months ended June 30, 1998 are derived from (a) the unaudited
historical financial statements of the Company and Reddy for such period,
(b) the unaudited historical financial statements of Cassco for such period
and (c) the unaudited financial statements of the 1998 Acquisitions for the
applicable periods prior to their respective acquisition dates.
The pro forma adjustments which give effect to the various events
described above are based upon currently available information and upon
certain assumptions that management believes are reasonable. The Company has
accounted for all acquisitions under the purchase method and the resulting
assets acquired and liabilities assumed are recorded at their estimated fair
market values at the respective dates of acquisition. The adjustments
included in the unaudited pro forma combined condensed financial statements
reflect the Company's preliminary assumptions and estimates based upon
available information. The Company is in the process of evaluating the
allocation of purchase price to other intangible assets such as customer
lists, tradenames and trademarks in connection with the 1998 acquisitions of
Reddy and Cassco. The Company expects to finalize the allocation during the
fourth quarter of 1998 and does not believe the impact of the final
allocation will differ materially from the preliminary estimates.
The unaudited pro forma combined condensed financial statements do not
purport to be indicative of the results of operations that would have
occurred or that may be obtained in the future if the transactions described
had occurred as presented in such statements. In addition, future results
may vary significantly from the results reflected in such statements due to
general economic conditions, utility prices, labor costs, competition, the
Company's ability to integrate the operations of the companies the Company
acquires with its current business successfully and several other factors,
many of which are beyond the Company's control.
These unaudited pro forma combined condensed financial statements should
be read in conjunction with the Notes thereto; the separate audited and
unaudited financial statements of the Company, including the Notes thereto,
previously filed with the Securities and Exchange Commission; and the
separate audited and unaudited financial statements the of Reddy, including
the Notes thereto, previously filed with the Securities and Exchange
Commission.
F-12
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
PACKAGED ICE CASSCO ADJUSTMENTS COMBINED
------------ ------ ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents ......................... $ 7,311 $ 118 $ (7,000)(a) $ 429
Accounts and notes receivable ................ 26,082 5,183 (958)(b) 30,307
Inventories .................................. 7,664 1,213 -- 8,877
Prepaid expenses and other assets............. 1,478 516 (246)(b) 1,748
-------- -------- -------- --------
Total current assets ....................... 42,535 7,030 8,204 41,361
Property, net .................................. 140,567 23,878 -- 164,445
Other assets, net .............................. 13,733 385 -- 14,118
Goodwill ....................................... 195,723 -- 31,693 (b) 227,416
-------- -------- -------- ---------
Total assets ............................... $392,558 $ 31,293 $ 23,489 $ 447,340
======== ======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations .... $ 76 $ 798 $ (530)(b) $ 344
Accounts payable ............................ 9,644 1,129 -- 10,773
Accrued expenses ............................ 21,942 477 -- 22,419
--------- --------- --------- ---------
Total current liabilities ................. 31,662 2,404 (530) 33,536
Long-term obligations:
Credit Facility ............................. 15,000 -- 52,000 (c) 67,000
9 3/4% Senior Notes ......................... 270,000 1,976 (1,976)(b) 270,000
Other indebtedness .......................... 787 908 -- 1,695
Debt discount ............................... (263) -- -- (263)
--------- --------- --------- ---------
Total long-term obligations ............... 285,524 2,884 50,024 338,432
Deferred taxes ................................ -- 1,544 (1,544)(b) --
Mandatorily redeemable preferred stock:
13% exchangeable ............................ 36,006 -- -- 36,006
10% exchangeable ............................ 26,438 -- -- 26,438
Preferred stock with put redemption option:
Series A .................................... 2,497 -- -- 2,497
Series B .................................... 726 -- -- 726
Common stock with put redemption option ....... 1,972 -- -- 1,972
Shareholders' equity:
Common stock ................................ 49 70 (70)(b) 49
Additional paid-in capital .................. 41,322 10,614 10,614 (b) 41,322
Treasury stock .............................. (1,491) -- -- (1,491)
Retained earnings (accumulated deficit) .... (32,147) 13,777 (13,777)(b) (32,147)
--------- --------- --------- ---------
Total shareholders' equity .................... 7,733 24,461 (24,461)(d) 7,733
--------- --------- --------- ---------
Total liabilities and shareholders' equity $ 392,558 $ 31,293 $ 23,489 $ 447,340
========= ======== ======== =========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-13
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL PRO FORMA PRO FORMA
PACKAGED ICE REDDY CASSCO ACQUISITIONS ADJUSTMENTS COMBINED
------------ ----- ------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................ $ 28,981 $ 66,449 $ 28,675 $ 78,771 $ -- $ 202,876
Cost of sales ....................... 18,724 41,713 19,547 53,211 -- 133,195
----------- ----------- ----------- ----------- ----------- -----------
Gross profit ........................ 10,257 24,736 9,128 25,560 -- 69,681
Operating expenses .................. 7,636 10,952 705 8,469 (155)(a) 24,919
(1,545)(b)
(446)(c)
(72)(d)
(499)(e)
(126)(f)
Depreciation & amortization ......... 5,130 6,070 3,062 6,719 5,311 (g) 26,292
Interest expense .................... 6,585 7,168 217 1,910 18,253 (h) 34,133
Other income (expense) .............. 655 580 (390) 302 (155)(a) 992
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before taxes .......... (8,439) 1,126 4,754 8,764 (20,876) (14,671)
Income taxes ........................ -- 441 1,788 -- (2,229)(j) --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) before
preferred dividends ........... (8,439) 685 2,966 8,764 (18,647)
(14,671)
Preferred dividends ................. 198 -- -- -- 7,502 (i) 7,700
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) to common
shareholders ................... $ (8,637) $ 685 $ 2,966 $ 8,764 $ (26,149) $ (22,371)
=========== =========== =========== =========== =========== ===========
Net loss per share to common
shareholders ................... $ (2.40) $ (6.21)
=========== ===========
Weighted average number of
common shares outstanding ...... 3,600,109 3,600,109
=========== ===========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-14
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL 1998 PRO FORMA PRO FORMA
PACKAGED ICE REDDY CASSCO ACQUISITIONS ADJUSTMENTS COMBINED
------------ ----- ------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues .............................. $ 59,416 $ 17,858 $ 12,886 $ 4,968 $ -- $ 95,128
Cost of sales ......................... 35,474 13,871 9,420 1,759 -- 60,524
----------- ----------- ----------- ----------- ----------- -----------
Gross profit .......................... 23,942 3,987 3,466 3,209 -- 34,604
Operating expenses .................... 11,763 4,179 472 2,700 -- 19,114
Depreciation & amortization ........... 6,823 3,089 1,593 423 1,762(g) 13,690
Interest expense ...................... 8,727 4,376 90 281 3,593(h) 17,067
Other income (expense) ................ 146 218 (273) 108 -- 199
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before taxes ............ (3,225) (7,439) 1,038 (87) (5,355) (15,068)
Income taxes .......................... -- -- 394 -- (394)(j) --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) before
extraordinary item and
preferred dividends .............. (3,225) (7,439) 644 (87) (4,961) (15,068)
Preferred dividends ................... 2,008 -- -- -- 1,842(i) 3,850
----------- ----------- ----------- ----------- ----------- -----------
Loss before extraordinary
item available to common
shareholders ..................... $ (5,233) $ (7,439) $ 644 $ (87) $ (6,803) $ (18,918)
=========== =========== =========== =========== =========== ===========
Loss per share before
extraordinary item available
to common shareholders ........... $ (1.11) $ (4.01)
=========== ===========
Weighted average number of
common shares outstanding ........ 4,721,536 4,721,536
=========== ===========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-15
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(a) Cash on hand used in Cassco Acquisition.
(b) The excess purchase price over the allocation of the fair value of the net
assets of Cassco will be recorded as goodwill, which is calculated and
based on the following assumptions:
(IN THOUSANDS)
Cassco purchase price ......................... $ 59,000
Allocation of net assets:
Historical net assets (equity) of Cassco ... 24,461
Historical assets of Cassco not acquired ... (1,204)
Historical liabilities of Cassco not assumed 4,050
--------
Total ................................... 27,307
--------
Goodwill ...................................... $ 31,693
========
The Company has not completed an assessment of the fair value of the net
assets to be acquired for the purpose of allocating the purchase price. To
the extent that such an assessment indicates the fair value of the fixed
assets is in excess of net book value, this excess would be allocated to
fixed assets or other intangible assets and would reduce the goodwill
calculated above. Assuming a weighted average depreciable life for fixed
assets of five years, every $500 allocated to fixed assets rather than
goodwill would increase depreciation and amortization expense for the pro
forma year ended December 31, 1997 and the six-months ended June 30, 1998
by $87 and $44, respectively.
(c) Borrowing from Credit Facility to finance Cassco Acquisition.
(d) Does not reflect $9,344 of additional pro forma undeclared preferred
dividends and $1,713 of additional pro forma accretion on the $40,000 13%
Exchangeable Preferred Stock and $25,000 10% Exchangeable Preferred Stock
had they been issued on January 1, 1997.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(a) Elimination of intercompany revenues/expenses with respect to equipment
leasing and service agreements between Packaged Ice and certain acquired
companies purchased during 1997.
(b) The decrease in operating expenses reflects the elimination or net
reduction of salaries and related benefits of owners and officers of
certain companies acquired by the Company, whose positions and salaries
have either been eliminated or who have taken positions at lower salaries
pursuant to contractual agreements resulting from the acquisitions.
(c) Elimination of costs associated with operations not acquired.
(d) Elimination of lease costs related for facilities not contemplated under
the respective acquisition agreements.
(e) As a result of the acquisitions, the Company is no longer required to pay
management fees to the predecessor parent of the acquired entities.
(f) Reduction of defined contribution plan matching costs to conform to the
Company's existing benefit plans.
F-16
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(g) The excess of total purchase price for the Acquisitions, the 1998
Acquisitions and the acquisitions of Reddy and Cassco over the allocation
of fair value to the net assets acquired or to be acquired has been
recorded as goodwill, which is calculated and amortized based on the
following assumptions:
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
--------- ---------
(IN THOUSANDS)
Value of common stock consideration ........... $ 23,362 $ 23,362
Cash consideration ............................ 330,355 330,355
--------- ---------
Total purchase price ..................... 353,717 353,717
Total net assets acquired ..................... 124,790 124,790
--------- ---------
Goodwill ...................................... $ 228,927 $ 228,927
========= =========
Calculated amortization, 40-year estimated life $ 5,723 $ 2,862
Less: historical amortization ................. (412) (1,100)
--------- ---------
Adjustment to amortization .................... $ 5,311 $ 1,762
========= =========
(h) Interest expense adjustments are as follows:
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
--------- ---------
(IN THOUSANDS)
9 3/4% Senior Notes ........................... $ 270,000 $ 270,000
========= =========
Borrowing on Credit Facility .................. $ 67,000 $ 67,000
========= =========
Pro forma interest expense on 9 3/4% Senior Notes 26,325 $ 13,163
Pro forma interest expense on Credit Facility . 6,365 3,183
Less: Packaged Ice historical interest expense (6,585) (8,727)
Reddy historical interest expense ........ (7,168) (4,376)
Cassco historical interest expense ....... (217) (90)
Acquisitions historical interest expense . (1,910) (281)
Plus: Additional interest on amortization
of debt issue costs:
Total debt issue costs of $9,820,
calculated amortization, 7-year life . 1,403 701
Amortization of discount on 9 3/4% Senior Notes:
Total discount of $280, calculated
amortization, 7-year life ............ 40 20
--------- ---------
Net adjustment to interest expense ............ $ 18,253 $ 3,593
========= =========
(i) Dividends on the $40,000 13% Exchangeable Preferred Stock and $25,000 10%
Exchangeable Preferred Stock.
(j) The elimination of Reddy's and Cassco's income tax expense assumes that
the combined Company was in a loss position, therefore the Company would
not incur income tax expense.
F-17
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
2.1 Stock Purchase Agreement among Packaged Ice, Inc., WLR Foods, Inc.
and Cassco Ice & Cold Storage, Inc. dated July 31, 1998.*
2.2 Non-Competition Agreement between WLR Foods, Inc. and Packaged Ice,
Inc.*
- --------------------
* Previously filed as an exhibit to Form 8-K, filed on behalf of the Company
with the Securities and Exchange Commission on August 14, 1998.
