================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from........to........
Commission file number 333-29357
PACKAGED ICE, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0316492
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8572 KATY FREEWAY, SUITE 101
HOUSTON, TEXAS 77024
(Address of principal executive offices)
(713) 464-9384
(Issuer's telephone number, including area code)
Check whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of Common Stock as of the latest practicable date: The total number of shares of
Common Stock, par value $.01 per share, outstanding as of July 15, 1998 was
5,044,310.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................................................. $ 7,311,166 $ 14,825,259
Short-term cash investments ............................................................ -- 4,543,552
Accounts receivable:
Trade, net ........................................................................ 26,071,251 4,038,582
Affiliates ........................................................................ 11,167 64,727
Inventories ............................................................................ 7,664,299 1,347,496
Prepaid expenses ....................................................................... 1,477,605 321,492
------------- -------------
Total current assets .............................................................. 42,535,488 25,141,108
PROPERTY, net ................................................................................ 140,566,600 43,297,449
OTHER ASSETS:
Goodwill, net .......................................................................... 195,722,984 44,280,568
Debt issuance costs, net ............................................................... 9,365,759 6,297,712
Other assets ........................................................................... 4,366,946 3,283,617
------------- -------------
TOTAL ........................................................................................ $ 392,557,777 $ 122,300,454
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations ............................................... $ 76,438 $ --
Accounts payable ....................................................................... 9,509,359 1,965,093
Payable to affiliates .................................................................. 135,363 1,309,083
Accrued expenses ....................................................................... 10,363,848 1,461,030
Accrued interest ....................................................................... 11,576,456 1,875,972
Note payable ........................................................................... -- 1,975,968
------------- -------------
Total current liabilities ......................................................... 31,661,464 8,587,146
LONG-TERM OBLIGATIONS ........................................................................ 285,523,921 67,501,537
COMMITMENTS AND CONTINGENCIES ................................................................ -- --
EXCHANGEABLE PREFERRED STOCK:
13% Redeemable - 400,000 shares issued and outstanding at June 30, 1998 ................ 36,006,168 --
MANDATORILY REDEEMABLE PREFERRED STOCK:
Series C, 10%, Exchangeable - 259,860 shares issued and outstanding at
June 30, 1998 and 250,000 shares issued and outstanding at
December 31, 1997, liquidation preference of $100 per share ....................... 26,438,356 25,198,630
PREFERRED STOCK WITH PUT REDEMPTION OPTION:
Series A Convertible - 450,000 shares issued and outstanding at
June 30, 1998 and December 31, 1997 ............................................... 2,496,528 2,496,527
Series B Convertible - 124,831 shares issued and outstanding at
June 30, 1998 and December 31, 1997 ............................................... 726,226 726,226
COMMON STOCK WITH PUT REDEMPTION OPTION:
420,000 shares issued and outstanding at June 30, 1998 and
December 31, 1997 ................................................................. 1,971,851 1,971,851
SHAREHOLDERS' EQUITY:
Preferred Stock, Series C, $.01 par value, 100 shares authorized and outstanding ....... -- --
Common Stock, $.01 par value, 50,000,000 shares authorized; 4,922,541 shares
issued at June 30, 1998, and 4,015,981 shares issued at December 31, 1997 ......... 49,225 40,160
Additional paid-in capital ............................................................. 41,321,849 28,804,811
Less: 298,231 shares of treasury stock, at cost ....................................... (1,491,155) (1,491,155)
Accumulated deficit .................................................................... (32,146,656) (11,535,279)
------------- -------------
Total shareholders' equity ........................................................ 7,733,263 15,818,537
------------- -------------
TOTAL ........................................................................................ $ 392,557,777 $ 122,300,454
============= =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues ................................................. $ 51,014,570 $ 7,278,204 $ 59,415,727 $ 8,123,936
Cost of sales ............................................ 29,079,463 4,243,136 35,473,491 4,702,916
------------ ----------- ------------ -----------
Gross Profit ............................................. 21,935,107 3,035,068 23,942,236 3,421,020
Operating Expenses ....................................... 7,908,805 1,607,782 11,762,724 2,182,420
Depreciation and amortization expense .................... 4,751,311 1,347,021 6,822,376 1,825,857
------------ ----------- ------------ -----------
Income (loss) from operations ............................ 9,274,991 80,265 5,357,136 (587,257)
Other income, net ........................................ 144,292 246,952 144,992 407,597
Interest expense (including interest income) ............. (5,852,641) (1,433,246) (8,726,612) (1,518,546)
------------ ----------- ------------ -----------
Income (loss) before income taxes ........................ 3,566,642 (1,106,029) (3,224,484) (1,698,206)
Income taxes ............................................. -- -- -- --
------------ ----------- ------------ -----------
Net income (loss) before extraordinary item
and preferred dividends ............................. 3,566,642 (1,106,029) (3,224,484) (1,698,206)
Extraordinary loss on refinancing ........................ -- -- (17,386,893) --
------------ ----------- ------------ -----------
Net income (loss) before preferred dividends ............. 3,566,642 (1,106,029) (20,611,377) (1,698,206)
Preferred dividends ...................................... 1,392,054 -- 2,008,493 --
------------ ----------- ------------ -----------
Net income (loss) attributable to
common shareholders ................................. $ 2,174,588 $(1,106,029) $(22,619,870) $(1,698,206)
============ =========== ============ ===========
Income (loss) per share of Common Stock:
Basic:
Income (loss) before extraordinary item
attributable to common shareholders ........... $ 0.43 $ (0.31) $ (1.11) $ (0.53)
Extraordinary item ............................ -- -- (3.68) --
------------ ----------- ------------ -----------
Income (loss) attributable to common
shareholders .................................. $ 0.43 $ (0.31) $ (4.79) $ (0.53)
============ =========== ============ ===========
Diluted:
Income (loss) before extraordinary item
attributable to common shareholder ............ $ 0.31 $ (0.31) $ (1.11) $ (0.53)
Extraordinary item ............................ -- -- (3.68) --
------------ ----------- ------------ -----------
Income (loss) attributable to common
shareholders .................................. $ 0.31 $ (0.31) $ (4.79) $ (0.53)
============ =========== ============ ===========
Weighted average common shares outstanding:
Basic ......................................... 5,044,310 3,631,009 4,721,536 3,231,509
============ =========== ============ ===========
Diluted ....................................... 6,996,095 4,515,162 6,343,531 3,846,531
============ =========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NUMBER
OF PAR PAID-IN TREASURY ACCUMULATED
SHARES VALUE CAPITAL STOCK DEFICIT TOTAL
--------- ------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 ............ 4,015,981 $40,160 $ 28,804,811 $(1,491,155) $(11,535,279) $ 15,818,537
Issuance of Common Stock ................ 906,560 9,065 10,565,596 -- -- 10,574,661
Dividends accumulated on
Mandatorily Redeemable
Preferred Stock ..................... -- -- (1,239,726) -- -- (1,239,726)
Dividends accumulated on
Exchangeable Preferred
Stock ............................... -- -- (768,767) -- -- (768,767)
Issuance costs on
Exchangeable Preferred
Stock ............................... -- -- (802,665) -- -- (802,665)
Warrants issued in connection
with Exchangeable Preferred
Stock ............................... -- -- 4,878,760 -- -- 4,878,760
Amortization of Warrants ................ -- -- (116,160) -- -- (116,160)
Net loss ................................ -- -- -- -- (20,611,377) (20,611,377)
--------- ------- ------------ ----------- ------------ ------------
Balance at June 30, 1998 ................ 4,922,541 $49,225 $ 41,321,849 $(1,491,155) $(32,146,656) $ 7,733,263
========= ======= ============ =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------
1998 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................................... $ (20,611,377) $ (1,698,206)
Adjustments to reconcile net loss to net cash used in
operating activities (excluding working capital from acquisitions):
Depreciation and amoritzation ................................................ 6,822,376 1,825,857
Amortization of debt discount, net ........................................... 99,971 --
Gain from disposal of assets ................................................. -- (3,915)
Extraordinary loss from refinancing .......................................... 17,386,893 --
Change in assets and liabilities:
Accounts receivable, inventory and prepaid expenses ..................... (15,224,837) (1,795,987)
Accounts payable, accrued expenses and note payable ..................... 8,994,973 327,514
------------- ------------
Net cash used in operating activities ............................................. (2,532,001) (1,344,737)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions, net ........................................................... (10,809,575) (3,520,402)
Cost of acquisitions .............................................................. (233,861,339) (8,396,319)
Investment in short-term cash investments ......................................... 4,543,552 --
Increase in other assets .......................................................... (218,678) (485,390)
------------- ------------
Net cash used in investing activities ............................................. (240,346,040) (12,402,111)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common and Preferred Stock .............................. 39,237,474 71,280
Proceeds from debt issuance, net .................................................. 260,070,557 44,954,082
Cost of refinancing ............................................................... (3,937,500) --
Issuance cost of convertible demand notes ......................................... -- (23,774)
Borrowings from lines of credit ................................................... 25,000,000 --
Repayment of lines of credit ...................................................... (10,000,000) (3,485,000)
Repayment of debt ................................................................. (75,006,583) (12,086,591)
------------- ------------
Net cash provided by financing activities ......................................... 235,363,948 29,429,997
------------- ------------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS ......................................... (7,514,093) 15,683,149
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .......................................... 14,825,259 169,535
------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................................ $ 7,311,166 $ 15,852,684
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- Cash payments for interest ...................................................... $ 2,621,058 $ 162,418
============= ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
INVESTING AND FINANCING ACTIVITIES:
Common Stock issued in consideration for business acquisitions .................... $ 10,534,521 $ 9,550,000
============= ============
Fair value of Warrants issued in connection with debt ............................. $ 4,762,600 $ 6,735,335
============= ============
Demand notes converted to Preferred Stock ......................................... $ -- $ 750,000
============= ============
Note payable incurred to purchase assets .......................................... $ -- $ 188,862
============= ============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Packaged Ice, Inc. and its wholly owned subsidiaries (the "Company")
is the largest manufacturer and distributor of packaged ice in the United States
and currently operates in 18 states, with Texas, Arizona, California and Florida
being the most significant markets. The Company provides its customers with
packaged ice (i) through traditional delivery methods, whereby ice is
manufactured, packaged and stored at a central facility and transported to the
retail location when needed, and (ii) through proprietary in-store bagging
machines which produce, package, store and merchandise ice, at the point of
sale, through an automated, self-contained system (the "Ice Factory"). At June
30, 1998, the Company's customers were located primarily in the southern half of
the United States.
The consolidated financial statements presented herein at June 30,
1998 and for the three-month and six-month periods ended June 30, 1998 and 1997,
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission and are unaudited. However, all adjustments, which are, in
the opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods covered, have
been made and are of a normal and recurring nature. Certain information and
footnote disclosure required by generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. At certain
interim reporting dates, the Company's inventory includes packaged ice for sale,
which is accounted for at the lower of average cost or market. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year-end. The results of the interim periods are not necessarily
indicative of results for the full year. Certain amounts from the prior year
have been reclassified to conform to the current presentation.
2. ACQUISITIONS
During the six months ended June 30, 1998, the Company acquired
certain traditional ice businesses and certain assets (the "Acquisitions") to
compliment its core business. The purchase prices of the Acquisitions totaled
approximately $244.4 million of which $233.9 million was in cash and $10.5
million was in Common Stock (900,260 shares) valued at $10 to $13 per share.
Included in Acquisitions was the purchase on April 30, 1998 of all of
the outstanding capital stock of Reddy Ice Corporation ("Reddy"), a subsidiary
of Suiza Foods Corporation, for $180.8 million in cash (the "Reddy
Acquisition"). Reddy is a leading nationwide producer and distributor of
packaged ice products with 1997 revenues of $66.4 million. Reddy's assets
consist of approximately 37 separate ice manufacturing facilities located in the
southern half of the United States.
The Acquisitions have been accounted for using the purchase method of
accounting, and accordingly, the purchase prices have been preliminarily
allocated to the assets and liabilities acquired based on fair value at the date
of the Acquisitions. The Acquisitions included, at fair value, current assets of
$14.5 million, property plant and equipment of $76.4 million, and current
liabilities of $14.3 million. The excess of aggregate purchase price over the
fair market value of the net assets acquired of approximately $152.5 million was
recognized as goodwill and is being amortized over 40 years. Amortization
expense of goodwill and other assets for the three months ended June 30, 1998
and 1997 was $1.5 million and $0.2 million, respectively, and for the six months
ended June 30, 1998 and 1997 was $2.3 million and $0.2 million, respectively.
7
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT - (CONTINUED)
(UNAUDITED)
The operating results of the Acquisitions have been included in the
Company's consolidated financial statements from the date of their respective
purchases. The following unaudited pro forma information presents a summary of
consolidated results of operations as if the Acquisitions had occurred on
January 1, 1997:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ------------ ------------
Revenues ........... $58,598,417 $34,686,566 $ 81,484,820 $ 48,933,166
Net income (loss) .. 2,899,938 2,227,197 (28,089,406) (1,720,646)
Earnings (loss)
per share ........ 0.57 0.61 (5.95) (0.53)
3. LONG-TERM OBLIGATIONS
On January 28, 1998, the Company completed a private offering of
$145,000,000 aggregate principal amount of its 9 3/4% Series A Senior Notes due
2005 (the "Senior Notes"). The Senior Notes are general unsecured obligations of
the Company and are senior in right of payment to all existing and future
Subordinated Indebtedness of the Company and pari passu to all senior
indebtedness of the Company. The Senior Notes are effectively subordinated to
the Credit Facility, as discussed below, and any future credit facility. The
Senior Notes contain certain covenants that, among other things, limit the
ability of the Company and its restricted subsidiaries to pay any cash dividends
or make distributions with respect to the Company's capital stock, to incur
indebtedness or to create liens. Net proceeds from the sale of the Senior Notes
were used for (i) repurchase of the Company's 12% Series B Senior Notes due 2004
(the "Series B Notes") and 12% Series C Senior Notes due 2004 (the "Series C
Notes"); (ii) repayment of all outstanding obligations under the old credit
facility; (iii) funding of acquisitions of traditional ice companies; and (iv)
working capital and general corporate purposes.
Simultaneous with the issuance of the Senior Notes and in conjunction
with the repurchase of $75.0 million of Series B Notes and Series C Notes, the
Company recorded an extraordinary charge of $17.4 million for such debt
extinguishment relating to the write-off of the debt discount, associated
redemption premiums and issuance costs.
On April 30, 1998, the Company issued an additional $125.0 million of
Senior Notes (the "Tack-on-Notes") due February 1, 2005. The Tack-on-Notes were
issued pursuant to the indenture dated January 28, 1998, as amended, (the
"Indenture") and are identical in terms to the $145.0 million of Senior Notes
issued January 28, 1998.
In connection with issuing the Tack-on-Notes, the Company obtained
the consent of a majority of the holders of the original Senior Notes to certain
amendments to the Indenture. The Company paid consent fees aggregating
$1,397,600 to the consenting holders. The principal amendments to the Indenture
increase the Permitted Indebtedness to allow the issuance of the Tack-on-Notes
and increase the Permitted Indebtedness basket to permit the Company to enter
the Credit Facility. The Company's Senior Notes (including the Tack-on-Notes)
are guaranteed, fully, jointly and severally, and unconditionally, on a senior
unsecured basis by each of the Company's current and future wholly owned
subsidiaries (see Note 5). The net proceeds of the Tack-on-Notes were used to
fund a portion of the cash consideration of the Reddy Acquisition.
On April 30, 1998, the Company entered into an $80.0 million, five
year senior credit facility with Antares Leveraged Capital Corporation (the
"Credit Facility") consisting of a revolving working capital facility of $15.0
million (the "Working Capital Facility") and a revolving acquisition loan
facility of $65.0 million (the "Acquisition Facility"). The Credit Facility
replaced the Company's old credit facility. The Company plans to use the Credit
Facility for acquisition and working capital needs.
The outstanding principal balance under the Credit Facility bears
interest, at the Company's option, at LIBOR plus 2.75% per annum, or the "prime
rate" plus 1.00%, with interest rates subject to a pricing grid. Amounts
outstanding under the Working Capital Facility of the Credit Facility are due
March 31, 2003. Amounts outstanding under the Acquisition Facility of the Credit
Facility will amortize in 12 equal quarterly installments
8
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT - (CONTINUED)
(UNAUDITED)
commencing June 30, 2000. The Credit Facility contains financial covenants which
include limitations on capital expenditures and the maintenance of minimum
levels of ratios of EBITDA to fixed charges, interest coverage and leverage, as
defined in the agreement, and is secured by substantially all of the Company's
assets and the capital stock of all of the Company's significant subsidiaries.
The Credit Facility contains general and financial covenants and events of
default customary for credit facilities of this type.
At June 30, 1998 and December 31,1997, long-term obligations
consisted of the following:
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
Senior notes .............................. $ 270,000,000 $ 75,000,000
Less: Unamortized debt discount on
detachable warrants issued ........ -- (7,498,463)
Less: Unamortized debt discount on
senior notes ...................... (263,145) --
Bank credit facilities .................... 15,000,000 --
Other ..................................... 863,504 --
------------- ------------
Total ..................................... 285,600,359 67,501,537
Less: Current maturities ................. (76,438) --
------------- ------------
Long-term obligations, net ................ $ 285,523,921 $ 67,501,537
============= ============
As of June 30, 1998, principal maturities of long-term obligations
for the next five years are as follows:
1998......................... $ 76,438
1999......................... 86,324
2000......................... 125,825
2001......................... 79,000
2002......................... 79,000
And thereafter............... 285,153,772
----------------
Total........................ $ 285,600,359
================
4. CAPITAL STOCK
PREFERRED STOCK - On April 30, 1998, the Company entered into a
Securities Purchase Agreement (the "Securities Purchase Agreement") with Ares
Leveraged Investment Fund, L.P. ("Ares") and SV Capital Partners, L.P. ("SV")
pursuant to which Ares acquired 325,000 shares and SV acquired 75,000 shares of
the 13% Exchangeable Preferred Stock (the "Exchangeable Preferred Stock") at
$100 per share for an aggregate amount of $40.0 million. Holders of the 13%
Exchangeable Preferred Stock have no voting rights other than approval rights
with respect to the issuance of parity or senior securities. In addition, the
Company may either elect or be required to redeem the 13% Exchangeable Preferred
Stock.
The 13% Exchangeable Preferred Stock bears a dividend rate of 13% per
annum; however, during the first twelve months following issuance, the dividend
rate will be 11.5%, and during the second twelve months following issuance, the
dividend rate will be 12.25%. Dividends shall be fully cumulative and payable
quarterly in cash, except that during the first five years after issuance,
dividends may be paid in kind by issuing additional shares of 13% Exchangeable
Preferred Stock. In the event the Company is unable for any reason to pay
dividends in cash after the fifth anniversary or in the event of a default, the
holders of 13% Exchangeable Preferred Stock will have the right to add up to two
directors to the Board of Directors, and the dividend rate will be increased
until the default is cured.
Additionally, Ares and SV entered into Warrant Agreements granting
warrants to purchase an aggregate of 975,752 shares of the Company's Common
Stock with an exercise price of $.01 per share. The Warrants are valid
9
<PAGE>
until May 31, 2005 but are exercisable only under certain conditions, such as an
initial public offering of Common Stock, change of control, merger, asset sale
or default.
The Securities Purchase Agreement contains certain restrictive
administrative covenants and requires a vote of two-thirds of the Board of
Directors before the Company may take certain significant actions. The Company
may exchange the 13% Exchangeable Preferred Stock for subordinated notes at the
Company's option. Ares and SV were granted certain registration rights under
separate Registration Rights Agreements. (See Note 7).
On May 1, 1998, the Company elected to pay-in-kind the dividends due
on its 10% Mandatorily Redeemable Preferred Stock. Such payment resulted in the
issuance of 9,860 shares of Common Stock and 75,844 warrants to purchase the
Common Stock, exercisable at $13 per share.
5. SUBSIDIARY GUARANTORS
The Company's Senior Notes are guaranteed, fully, jointly and
severally, and unconditionally, on a senior unsecured basis, by all of the
Company's current and future, direct and indirect, wholly owned subsidiaries
(the "Subsidiary Guarantors"). The following table sets forth the "summarized
financial information" of the Subsidiary Guarantors. Full financial statements
of the Subsidiary Guarantors are not presented because management believes they
are not material to the investors. There are currently no restrictions on the
ability of the subsidiary guarantors to transfer funds to the Company in the
form of cash dividends, loans or advances.
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
Balance Sheet Data:
Current assets................. $ 36,402,932 $ 6,591,604
Property and equipment......... 122,185,205 32,622,152
Total assets................... 346,965,118 71,381,168
Current liabilities............ 16,429,960 3,904,149
Long-term debt................. 787,066 -
Total shareholders' equity..... 203,226,351 16,707,700
SIX MONTHS ENDED JUNE 30,
--------------------------------
1998 1997
------------- ------------
Operating Data:
Net revenues................... $ 52,848,215 $ 6,999,326
Gross profit................... 21,163,561 3,285,198
Net income..................... 2,037,151 1,429,438
6. COMMITMENTS AND CONTINGENCIES
During 1998, the Company entered into certain employment contracts
with former employees of acquired companies with an aggregate annual commitment
of approximately $942,000.
The Company has leased certain facilities in Texas, Arizona and
California. Under these and other operating leases, minimum annual rentals at
June 30, 1998 aggregate approximately $1,408,675 in 1998; $1,861,185 in 1999;
$1,692,019 in 2000; $1,607,838 in 2001; $1,578,010 in 2002 and $8,922,331
thereafter.
The Company is involved in various claims, lawsuits and proceedings
arising in the ordinary course of business. While there are uncertainties
inherent in the ultimate outcome of such matters and it is impossible to
presently determine the ultimate costs that may be incurred, management believes
the resolution of such uncertainties and the incurrence of such costs should not
have a material adverse effect on the Company's consolidated financial position
or results of operations.
10
<PAGE>
7. SUBSEQUENT EVENTS
In July 1998, the Company completed an offer to exchange the Senior
Notes and the Tack-on-Notes (together, the "Series 1 Notes") and the
Exchangeable Preferred Stock with new debt (the "Series 2 Notes") and new
Exchangeable Preferred Stock (the "Series 2 Preferred Stock") registered under
the Securities Act of 1933. The form and terms of the Series 2 Notes and Series
2 Preferred Stock are identical in all material respects to the form and terms
of the Series 1 Notes and the Exchangeable Preferred Stock, except for certain
transfer restrictions and registration rights relating to the Series 1 Notes and
Exchangeable Preferred Stock.
On July 31, 1998, the Company purchased all of the outstanding
capital stock of Cassco Ice & Cold Storage, Inc., a subsidiary of WLR, Inc.,
("Cassco") for $59.0 million in cash (the "Cassco Acquisition"). The Cassco
Acquisition will be accounted for using the purchase method of accounting, and
accordingly, the results of its operations and its cash flows will be included
in the consolidated financial statements for the periods subsequent to the date
of acquisition. The purchase price will be allocated to the assets acquired and
liabilities assumed based on fair values at the date of acquisition. The excess
of the aggregate purchase price over the fair market value of the net assets
acquired will be recognized as goodwill and will be amortized over 40 years.
8. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income.
Comprehensive income is a more inclusive financial reporting methodology that
includes disclosure of certain financial information that historically has not
been recognized in the presentation of net income. SFAS No. 130 requires the
reporting of comprehensive income in addition to net income from operations. For
the six months ended June 30, 1998, the Company had no items of comprehensive
income, and as a result the Company's reported net income was the same as
comprehensive income.
In February 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 132, Employer's Disclosures about Pensions and Other
Post-retirement Benefits, which revises certain disclosure requirements of the
employer, and is effective for fiscal years beginning after December 15, 1997.
SFAS No. 132 will have no impact to the Company, as it provides no pension or
other post-retirement benefits to its employees.
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
of the American Institute of Certified Public Accountants ("AICPA") reached a
consensus of Statement of Position ("SOP") No. 98-1, Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use, which provides
guidance on accounting for the costs of computer software. SOP No. 98-1 is
effective for fiscal years beginning after December 15, 1998. Management is
evaluating what, if any, impact this SOP will have on the Company upon
implementation.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
Company's Consolidated Financial Statements and the notes thereto and other
information included elsewhere this Form 10-Q and the Company's Form 10-K
previously filed.
With the exception of historical information, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties, and actual
results could differ materially from the results discussed. The words and
phrases "should be," "will be," "predicted," "believe," "expect," "anticipate"
and similar expressions identify forward-looking statements. These
forward-looking statements reflect the Company's current views in respect of
future events in financial performance but are subject to many uncertainties and
factors relating to the Company's operations and business environment that may
cause its actual results to differ materially from any future results expressed
or implied by such forward-looking statements.
OVERVIEW
The Company is the largest manufacturer and distributor of packaged
ice in the United States and with the Cassco Acquisition currently serves over
55,000 customer locations in 22 states, with Texas, Arizona, California and
Florida being the most significant markets. The Company services the significant
segments of the ice industry, including supermarkets and convenience store
retailers, restaurants, commercial users and the agricultural sector.
The Company derives its revenues primarily from the sale of packaged
ice. Prices for packaged ice have historically been stable with some price
variations between markets based on geography, weather and the customer base.
Management believes that the Company's geographic and customer diversification
insulate it from both price and demand fluctuations due to regional weather
conditions and access to its customer base. The Company also derives revenue
form other goods and services including cold storage rental, the manufacturing
and sale of bottled water, and institutional ice machine leasing.
The Company operates predominantly in one business segment, the
manufacturing and sale of packaged ice products. These revenues are derived from
the sale of packaged ice through traditional delivery methods, whereby ice is
manufactured, packaged and stored at a central facility and transported to the
retail location when needed, and through its proprietary Ice Factories, which
automatically manufacture, package and store ice at the retail location. Such
combination of distribution methods provides the Company with (i) higher
operating margins due to reduced production and distribution costs, (ii) a
delivery system designed to supply high volume locations and capable of
cost-effectively servicing a larger geographical market than the Company's
traditional ice manufacturing facilities, and (iii) an ability to redistribute
production from its traditional ice facilities to additional customers and
satisfy seasonal peak demands at customer locations with Ice Factories.
The Company manufactures its ice in crushed, cubed, half-moon and
cylindrical forms and packages its ice primarily in six to 40 pound bags for
eventual sale to retail customers and sells block ice in 10 and 300 pound sizes,
primarily to commercial and agricultural users. Seven or eight pound bags are
the most commonly purchased size in the industry. Restaurants and other
commercial users typically purchase packaged ice sold in 20 pound and 40 pound
bags. Block ice in 10 pound and 300 pound units is typically sold to customers
in the commercial and agricultural sectors.
The Company's costs of goods sold include costs associated with both
traditional ice delivery and Ice Factories. In the traditional ice business,
plant occupancy, plastic bags, delivery, labor and utility-related expenses
account for the largest costs. Costs vary significantly by region and fluctuate
based upon, among other things, freezer capacity and local utility rates. With
the Ice Factory, ice storage costs and general operating utility costs are
eliminated. The Company's costs of goods sold also include the cost of plastic
bags, which are incurred by both the traditional ice manufacturing plants and
the Ice Factory. The cost of the bag used in the Ice Factory is substantially
higher than that used in traditional delivery due to special components and
greater thickness. The Ice Factory eliminates certain costs related to
production and distribution but does require in-store customer service
representatives and machine technicians. In the aggregate, labor, energy and
transportation costs associated with the Ice Factory are substantially lower
than labor costs associated with traditional ice manufacturing.
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The Company's operating expenses include costs associated with
selling, general and administrative functions. These costs include executive
officers' compensation, office and administrative salaries and costs associated
with leasing office space. Selling, general and administrative functions for
traditional plants and Ice Factories are similar. These operating expenses are
typically higher when the Company enters new markets in which it intends to
place the Ice Factories, as new marketing, systems and office facilities must be
established.
The Company has grown primarily through the implementation of its
consolidation strategy within the highly fragmented packaged ice industry, where
it has completed 53 acquisitions since April 1997 for an aggregated purchase
price of $371.4 million and, to a lesser extent, through the installation of Ice
Factories. The Company's acquisition program has resulted in the recordation of
over $229.0 million in goodwill on the Company's books, which is being amortized
over a 40-year period from the date of recordation. The Company's acquisition
program has been financed almost exclusively through the incurrence of debt and
the issuance of capital stock. As a result of these financings by which the
Series B and C Notes were refinanced, the Company recorded an extraordinary loss
on refinancing of $17.4 million in the first quarter of 1998.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected
operating data for the Company expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- ------------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Operating Data:
Revenues................................................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................................... 57.0 58.3 59.7 57.9
Gross profit............................................ 43.0 41.7 40.3 42.1
Operating expenses (1).................................. 15.5 22.1 19.8 26.9
Depreciation and amortization........................... 9.3 18.5 11.5 22.4
Interest expenses....................................... 11.5 19.7 14.7 18.7
Other income............................................ 0.3 3.4 0.3 5.0
Net income (loss) before extraordinary item
and preferred dividends............................ 7.0 (15.2) (5.4) (20.9)
</TABLE>
----------------
(1) Excludes depreciation and amortization.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
REVENUES: Revenues increased $43.7 million, from $7.3 million for the
three months ended June 30, 1997 to $51.0 million for the three months ended
June 30, 1998. This increase resulted from an increase of $41.9 million due to
acquisitions completed in 1997 and 1998 and an increase of $1.8 million due to
placement of additional Ice Factories.
GROSS PROFIT: Gross profit increased $18.9 million, from $3.0 million
for the three months ended June 30, 1997 to $21.9 million for the three months
ended June 30, 1998. As a percentage of revenues, gross profit increased from
41.7% for the three months ended June 30, 1997 to 43.0% for the three months
ended June 30, 1998. Since a substantial portion of cost of sales is of a fixed
nature, the greater revenue volume experienced during the three months ended
June 30, 1998 resulted in increased margins during the period.
OPERATING EXPENSES: Operating expenses increased $6.3 million, from
$1.6 million for the three months ended June 30, 1997 to $7.9 million for the
three months ended June 30, 1998. As a percentage of revenues, operating
expenses decreased from 22.1% for the three months ended June 30, 1997 to 15.5%
for the three months ended June 30, 1998. This decrease was due to greater
efficiencies realized by the Company as its general and administrative expenses
were spread over the larger base of sales resulting primarily from acquisitions
closed in 1997 and 1998.
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DEPRECIATION AND AMORTIZATION EXPENSES: Depreciation and amoritzation
increased $3.5 million, from $1.3 million for the three months ended June 30,
1997 to $4.8 million for the three months ended June 30, 1998. As a percentage
of sales, depreciation and amortization decreased from 18.5% for the three
months ended June 30, 1997 to 9.3% for the three months ended June 30, 1998.
This decrease was primarily due to the lower historical depreciation and
amortization percentages of the businesses acquired in 1997 and 1998. These
percentages reflect the longer estimated useful lives of traditional ice plants
and equipment, as compared to Ice Factories.
INTEREST EXPENSE: Interest expense increased $4.5 million, from $1.4
million for the three months ended June 30, 1997 to $ 5.9 million for the three
months ended June 30, 1998. This increase was a result of higher levels of debt
associated with the Company's borrowing of $145.0 million through the issuance
of Senior Notes and bank borrowings, the proceeds of which was used to
consummate 1998 acquisitions.
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND PREFERRED DIVIDENDS:
Net income increased $4.7 million, from a $1.1 million loss for the three months
ended June 30, 1997 to $3.6 million of net income for the three months ended
June 30, 1998. The increase in net income was a result of the significantly
higher level of revenues due to the acquisitions closed in 1997 and 1998 and a
higher level of revenues due to hotter, dryer weather than traditionally
experienced during the second quarter. The higher revenues produced an improved
gross margin (gross profit), which more than offset the higher level of expenses
caused by acquisitions, including interest expense associated with the debt
required to close such acquisitions.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
REVENUES: Revenues increased $51.3 million, from $8.1 million in the
six months ended June 30, 1997 to $59.4 million in the six months ended June 30,
1998. Revenues increased $41.2 million as a result of revenue contributed by
acquisitions closed during and subsequent to the six-month period ended June 30,
1997 and $2.5 million due to placement of additional Ice Factories since the
six-month period ended June 30, 1997. The unprecedented hot, dry weather during
the second quarter of 1998, throughout the southeastern portion of the United
States and Texas, has resulted in much greater sales than anticipated and has
more than offset the shortfall of sales during the first quarter of 1998 as a
whole.
COST OF SALES: Cost of sales increased $30.8 million, from $4.7
million in the six months ended June 30, 1997 to $35.5 million in the six months
ended June 30, 1998. This increase was due to acquisitions completed during 1997
and 1998. The cost of sales as a percentage of sales increased from 57.9% to
59.7% for the six months ended June 30, 1997 and 1998, respectively. This
reflected of the greater proportion of sales from traditional ice, where cost of
sales are a larger percentage of sales than from Ice Factories.
GROSS PROFIT: Gross profit increased $20.5 million, from $3.4 million
in the six months ended June 30, 1997 to $23.9 million in the six months ended
June 30, 1998. As a percentage of revenues, gross profit decreased from 42.1%
for the six months ended June 30, 1997 to 40.3% for the six months ended June
30, 1998. Gross margins decreased because of the higher cost of sales reflected
in the traditional ice businesses acquired during 1997 and 1998. Traditional ice
companies experience significantly higher costs of goods sold than the lower
costs of on-site manufacturing, packaging and delivery associated with the Ice
Factories.
OPERATING EXPENSES: Operating expenses increased $9.6 million, from
$2.2 million in the six months ended June 30, 1997 to $11.8 million in the six
months ended June 30, 1998. As a percentage of revenues, operating expenses
decreased from 26.9% for the six months ended June 30, 1997 to 19.8% for the six
months ended June 30, 1998. This decrease was due to greater efficiencies
realized by the Company as its general and administrative expenses were spread
over the larger base of sales resulting from acquisitions completed during 1997
and 1998.
DEPRECIATION AND AMORTIZATION EXPENSES: Depreciation and amortization
increased $5.0 million, from $1.8 million in the six months ended June 30, 1997
to $6.8 million in the six months ended June 30, 1998. As a percentage of sales,
depreciation and
14
<PAGE>
amortization decreased from 22.4% in six months ended June 30, 1997 to 11.5% in
the six months ended June 30, 1998. This decrease was primarily due to lower
historical depreciation and amortization percentages of the businesses acquired
in 1997 and 1998. These percentages reflect the longer estimated useful lives of
traditional ice plants and equipment, as compared to Ice Factories.
INTEREST EXPENSE: Interest expense increased $7.2 million, from $1.5
million in the six months ended June 30, 1997 to $8.7 million in the six months
ended June 30, 1998. This increase was a result of higher levels of the
Company's debt associated with the Company's borrowing of $270.0 million through
the issuance of Senior Notes and borrowings under the Credit Facility, the
proceeds of which were used to consummate 1998 acquisitions.
NET LOSS BEFORE EXTRAORDINARY ITEM AND PREFERRED DIVIDENDS: Net loss
before extraordinary items increased $1.5 million, from $1.7 million in the six
months ended June 30, 1997 to $3.2 million in the six months ended June 30,
1998. The increase in loss was due to the increases in depreciation and
amortization and interest expense that more than offsetting the increased gross
profit from 1997 and 1998 acquisitions.
EXTRAORDINARY LOSS ON REFINANCING: During the first quarter of 1998,
simultaneously with the issuance of the Senior Notes and in conjunction with the
repurchase of $75.0 million of Series B Notes and Series C Notes, the Company
recorded an extraordinary loss on refinancing of $17.4 million for such debt
extinguishment, which related to the write-off of the debt discount, associated
redemption premiums and issuance costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash from the sale of packaged ice through
traditional delivery methods, whereby ice is manufactured, packaged and stored
at a central facility and transported to retail locations when needed and
through Ice Factories, which manufacture, package and store ice in retail
locations. The Company's primary uses of cash are (i) cost of goods sold, (ii)
operating expenses, (iii) debt service, (iv) capital expenditures related to
manufacturing further Ice Factories and replacing and modernizing the Company's
other capital equipment and (v) business acquisitions.
The Company currently has $285.5 million of debt outstanding as
follows: (i) $270.0 million of Senior Notes; (ii) $15.0 outstanding under the
Company's Credit Facility, which, at the Company's option, bears interest at
LIBOR plus 2.75% or the "prime" rate plus 1.0%, with interest rates subject to a
pricing grid; and (iii) $0.5 million outstanding of other debt. The amounts
under the Working Capital Facility of the Credit Facility will be due on March
31, 2003. The amounts under the Acquisition Facility of the Credit Facility will
be due beginning June 30, 2000 in 12 equal quarterly installments. The Credit
Facility contains financial covenants, which include limitations on capital
expenditures and the maintenance of minimum levels of ratios of EBITDA to fixed
charges, interest coverage and leverage, as defined in the agreement, and is
secured by all of the Company's assets and the capital stock of all the
Company's significant subsidiaries.
The Company intends to pursue a growth-oriented strategy, which is to
be implemented through internal growth, an aggressive acquisition strategy,
margin enhancement and expansion into related businesses. The Company continues
to evaluate business acquisition and expansion opportunities, but it currently
has no contracts or capital commitments relating to any potential acquisitions.
The Company does, however, expect to continue acquiring traditional ice
companies using a combination of cash and Common Stock. There can be no
assurance that acquisitions based upon the Company's criteria can be obtained or
that funds will be available in sufficient amounts to finance such acquisitions.
For the six months ended June 30, 1998, the Company used $2.5 million
of net cash in operating activities and used $240.3 million of net cash in
investing activities, consisting primarily of $233.9 million spent to complete
the Acquisitions. Net cash of $235.4 million was provided by financing
activities, consisting of $39.2 million from the issuance of Preferred and
Common Stock; $260.1 million net from the issuance of the Senior Notes; and
$25.0 million from borrowings under credit facilities, which was offset by debt
repayments and financing costs of $88.9 million, resulting in a decrease in cash
and equivalents for the six months ended June 30, 1998 of $7.5 million.
15
<PAGE>
During the six months ended June 30, 1998, the Company acquired
certain traditional ice businesses and certain assets (the "Acquisitions") to
compliment its core business. The purchase prices of the Acquisitions totaled
approximately $244.4 million of which $233.9 was in cash and $10.5 million was
in Common Stock (900,260 shares) valued at $10 to $13 per share.
The Company believes that cash on hand, which, together with cash
flow anticipated from operations and available borrowings under the Credit
Facility, will be adequate to meet debt service requirements; to fund continuing
capital requirements for the acquisition of traditional ice manufacturing
companies and the placement of additional Ice Factories; and to satisfy working
capital and general corporate needs. At June 30, 1998 the Company had cash on
hand of $7.3 million had up $50.0 million available to fund acquisitions and
$15.0 available for working capital under the Credit Facility.
Capital expenditures to maintain and expand traditional ice
facilities are expected to be approximately $11.7 million in fiscal 1998. The
Company's Ice Factory is expected to range in cost from $11,500 to $18,500 per
installation, and capital expenditures for the Company's Ice Factories are
expected to be approximately $4.8 million in fiscal 1998.
The Company may need to raise additional funds through public or
private debt or equity financing to take advantage of opportunities that may
become available to the Company, including acquisitions and more rapid
expansion. The availability of such capital will depend upon prevailing market
conditions and other factors over which the Company has no control, as well as
the Company's financial condition and results of operations. There can be no
assurances that sufficient funds will be available to finance intended
acquisitions or capital expenditures to sustain the Company's recent rate of
growth.
The Company expects to meet its short-term liquidity requirements and
finance the placement of additional Ice Factory systems, the acquisition of
additional traditional ice manufacturing companies, and capital expenditures to
maintain existing operations with cash provided by operations, proceeds of the
Senior Notes, proceeds of borrowings under the Credit Facility, and the issuance
of equity securities.
The Company intends to satisfy its obligations under the Senior
Notes, the Credit Facility as well as its future capital expenditures and
working capital requirements, primarily with cash flow from operations or equity
capital. The Company may also seek additional debt or equity capital. The
availability of such capital will depend upon prevailing market conditions and
other factors over which the Company has no control, as well as the Company's
financial condition and results of operations. There can be no assurance that
sufficient funds will be available to finance intended acquisitions or capital
expenditures for the placement of Ice Factory systems to sustain the Company's
recent rate of growth.
SEASONALITY OF ICE BUSINESS AND WEATHER
The Company experiences seasonal fluctuations in its net sales and
profitability with a disproportionate amount of the Company's net sales and a
majority of its net income typically realized in its second and third calendar
quarters (May through September). The Company believes that over 60% of its
revenues will occur during the second and third calendar quarters when the
weather conditions are generally warmer and demand is greater, while
approximately less than 40% of its revenue will occur during the first and
fourth calendar quarters when the weather is generally cooler. As a result of
these seasonal revenues declines and the lack of proportional corresponding
expense decreases, the Company will most likely consistently experience lower
profit margins and possibly experience losses during the first and fourth
calendar quarters. In addition, because the Company's operating results depend
significantly on sales during its peak season, the Company's quarterly results
of operations may fluctuate significantly as a result of adverse weather during
this period (such as an unusually cold or rainy period). Because inclement
weather such as the type caused by the "El Nino" weather phenomena is believed
to be a primary cause for decreased volume in the ice industry, the Company
could be adversely affected by this and other weather phenomena.
16
<PAGE>
SUBSEQUENT EVENTS
On July 31, 1998, the Company purchased all of the outstanding
capital stock of Cassco for $59.0 million in cash. The Cassco Acquisition will
be accounted for using the purchase method of accounting, and accordingly, the
results of its operations and its cash flows will be included in the
consolidated financial statements for the periods subsequent to the date of
acquisition. The purchase price will be allocated to the assets acquired and
liabilities assumed based on fair values at the date of acquisition. The excess
of the aggregate purchase price over the fair market value of the net assets
acquired will be recognized as goodwill and will be amortized over 40 years.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is from time to time party to legal proceedings that
arise in the ordinary course of business. Management does not believe that the
resolution of any threatened or pending legal proceedings will have a material
adverse affect on the Company's financial position, results of operations or
liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 30, 1998, the Company issued to Jefferies, the initial
purchaser, $125 million of 9 3/4% Series A Senior Notes due 2005. On the same
date, the Company issued to Ares and SV 400,000 shares of Series A 13% Preferred
Stock for $10.00 per share and warrants to purchase 975,752 shares of Common
Stock for $0.01 per share. These issuances were exempt from registration under
Section 4(2) of the Securities Act.
On May 1, 1998, the Company elected to pay-in-kind the dividends due
on its 10% Mandatorily Redeemable Preferred Stock. Such payment resulted in the
issuance of 9,860 shares of Common Stock and 75,844 warrants to purchase the
Common Stock, exercisable at $13 per share.
On June 30, 1998, the Company issued warrants to purchase 15,000
share of Common Stock to an accredited investor for $15 per share. This issuance
was exempt from registration under Section 4(2) of the Securities Act.
On July 29, 1998, the Company issued 3,000 shares of Common Stock to
an accredited investor under an option agreement entered into June 25, 1997 at a
price of $10 per share.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 19, 1998, the Company held its annual meeting of stockholders
(the "Annual Meeting"). At the Annual Meeting, the following matters were vote
upon:
1. Election of seven directors to serve until the next annual
meeting of shareholders or until their respective
successors shall be elected and shall be qualified;
2. The ratification of the 1994 Stock Option Plan (the "1994
Stock Option Plan");
3. The adoption of the 1998 Stock Option Plan (the "1998
Stock Option Plan"); and
4. The authorization of the selection of Deloitte & Touche
LLP to audit the financial statements of the Company for
the fiscal year ending December 31, 1998.
A total of 7,493,231 shares of the Company's Common Stock, par value
$0.01 per share, and Series A and Series B Convertible Preferred Stock were
entitled to vote at the meeting. Of these shares, 4,867,702 shares were present
at the meeting and voted as follows:
With respect to each of the following seven nominees for reelection
to the Board of Directors, shares were voted for the election as
follows: James F. Stuart, A. J. Lewis III, Steven P. Rosenberg, Rod
Sands, Richard A. Coonrod, Arthur E. Biggs, III and Robert G. Miller,
share were voted as follows: 4,867,702 for; no votes against; and no
votes withheld.
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<PAGE>
With respect to the ratification of the 1994 Stock Option Plan,
shares were voted as follows: 4,867,702 for; no votes against; and no
votes withheld.
With respect to the adoption of the 1998 Stock Option Plan, shares
were voted as follows: 4,867,702 for; no votes against; and no votes
withheld.
With respect to the authorization of the selection of Deloitte &
Touche LLP to audit the financial statements of the Company for the
fiscal year ending December 31, 1998, shares were voted as follows:
4,867,702 for; no votes against; and no votes withheld.
On August 4, 1998, the Company will hold a special meeting of the
stockholders of the Company to vote upon a proposal to (i) approve the amendment
of the Articles of Incorporation to add mandatory indemnification of directors
and officers and to decrease the vote required for certain matters from
two-thirds to a simple majority and (ii) to increase the number of authorized
shares under the 1998 Stock Option Plan from 500,000 to 1,000,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
The following is a list of exhibits filed as part of this Form 10-Q.
Where so indicated by footnote, exhibits, which were previously filed, are
incorporated by reference.
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Articles of Incorporation of Central Arkansas Cold
Storage-Texas, Inc. filed with the Secretary of State of
the State of Texas on October 20, 1997. (1)
3.2 Bylaws of Central Arkansas Cold Storage-Texas, Inc.,
effective as of October 20, 1997. (1)
3.3 Articles of Incorporation of Golden Eagle Ice-Texas, Inc.
filed with the Secretary of State of the State of Texas on
October 20, 1997. (1)
3.4 Bylaws of Golden Eagle Ice-Texas, Inc., effective as of
October 20, 1997. (1)
3.5 Certificate of Incorporation of Reddy Ice Corporation
(successor-in-interest to Sparkle Ice Corporation
(formerly known as Desert Ice, Inc.)) filed with the
Secretary of State of the State of Delaware on August 2,
1988. (1)
3.6 Bylaws for Reddy Ice Corporation effective as of August 2,
1988. (1)
4.1 Form of Indenture for Exchange Debentures by and among the
Company, as Issuer, the Subsidiary Guarantors named
therein and Ares Leveraged Capital Corp. (1)
11.1 Packaged Ice, Inc. and Subsidiaries Computation of
Earnings Per Share.
27 Financial Data Schedule.
---------------------
(1) Filed as an Exhibit to the Company's Registration
Statement on Form S-4 (File No. 333-58111) and filed with
Securities and Exchange Commission on June 30, 1998.
(b) REPORTS ON FORM 8-K:
The following reports on Form 8-K were file during the three months
ended June 30, 1998.
1. Report on Form 8-K, dated April 1, 1998, reporting that
the Company had entered into a definitive agreement with
Suiza Foods Corporation on March 27, 1997 to purchase all
of the outstanding capital stock of Reddy Ice Corporation.
2. Report on Form 8-K/A dated May 11, 1998, was filed as
Amendment No. 1 to Form 8-K dated April 1, 1998 reporting
that (i) the Company had consummated the to purchase all
of the outstanding capital stock of Reddy Ice Corporation;
(ii) the Company had entered into a Securities Purchase
Agreement with Ares Leveraged Investment Fund ("Ares") and
SV Capital Partners ("SV"), pursuant to which Ares
acquired 325,000 shares and SV acquired 75,000 shares of
the 13% Exchangeable Preferred Stock and Ares and SV
entered into Warrant Agreements to purchase 975,752
18
<PAGE>
shares of Company Common Stock; (iii) on April 30, 1998,
the Company issued an additional $125,000,000 of 93/4%
Senior Notes due February 1, 2005 in a "tack-on" offering;
and (iv) concurrently with the Reddy acquisition, Antares
Leveraged Capital Corp. and the Company entered into an
$80,000,000 five-year senior credit facility. Included
were the financial statements for Reddy Ice Corporation
filed in connection with the acquisition.
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, thereto duly authorized.
PACKAGED ICE, INC.
Date: August 3, 1998 By: /s/JAMES F. STUART
James F. Stuart
Chief Executive Officer
Date: August 3, 1998 By: /s/JAMES C. HAZLEWOOD
James C. Hazlewood
Chief Financial and
Accounting Officer
19
<PAGE>
EXHIBIT INDEX
3.1 Articles of Incorporation of Central Arkansas Cold Storage-Texas,
Inc. filed with the Secretary of State of the State of Texas on
October 20, 1997. (1)
3.2 Bylaws of Central Arkansas Cold Storage-Texas, Inc., effective as of
October 20, 1997. (1)
3.3 Articles of Incorporation of Golden Eagle Ice-Texas, Inc. filed with
the Secretary of State of the State of Texas on October 20, 1997. (1)
3.4 Bylaws of Golden Eagle Ice-Texas, Inc., effective as of October 20,
1997. (1)
3.5 Certificate of Incorporation of Reddy Ice Corporation
(successor-in-interest to Sparkle Ice Corporation (formerly known as
Desert Ice, Inc.)) filed with the Secretary of State of the State of
Delaware on August 2, 1988. (1)
3.6 Bylaws for Reddy Ice Corporation effective as of August 2, 1988. (1)
4.1 Form of Indenture for Exchange Debentures by and among the Company,
as Issuer, the Subsidiary Guarantors named therein and Ares Leveraged
Capital Corp. (1)
11.1 Packaged Ice, Inc. and Subsidiaries Computation of Earnings Per
Share.
27 Financial Data Schedule.
- ---------------------
(1) Filed as an Exhibit to the Company's Registration Statement on Form
S-4 (File No. 333-58111) and filed with Securities and Exchange
Commission on June 30, 1998.
20
EXHIBIT 11.1
PACKAGED ICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE
---------------------------- -----------------------------
1998 1997(1) 1998(1) 1997(1)
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net income (loss) before extraaordinary item and preferred
dividends.................................................... $ 3,566,642 $(1,106,029) $ (3,224,484) $(1,698,206)
Add: Interest expense on convertible demand notes ............ -- -- -- 505
Less: Extraordinary item...................................... -- -- (17,386,893) --
Less: Dividends on Series C and
13% Exchangeable Preferred Stock .................... (1,392,054) -- (2,008,493) --
----------- ----------- ------------ -----------
Income (loss) atributable to Common shareholders............... $ 2,174,588 $(1,106,029) $(22,619,870) $(1,697,701)
=========== =========== ============ ===========
Weighted average common shares outstanding .................... 5,044,310 3,631,009 4,721,536 3,231,509
Incremental shares attributable to outstanding
Stock options and warrants .............................. 1,951,785 884,153 1,621,995 615,022
----------- ----------- ------------ -----------
As adjusted for diluted earnings per share calculation ........ 6,996,095 4,515,162 6,343,531 3,846,531
=========== =========== ============ ===========
Basic:
Income (loss) before extraordinary item attributable to
Common shareholders........................................ $ 0.43 $ (0.31) $ (1.11) $ (0.53)
Extraordinary item ...................................... -- -- (3.68) --
----------- ----------- ------------ -----------
Income (loss) attributable to Common shareholders............ $ 0.43 $ (0.31) $ (4.79) $ (0.53)
=========== =========== ============ ===========
Diluted:
Income (loss) before extraordinary item attributable to
Common shareholders ....................................... $ 0.31 $ (0.25) $ (0.83) $ (0.44)
Extraordinary item ...................................... -- -- (2.74) --
----------- ----------- ------------ -----------
Income (loss) attributable to Common shareholders............ $ 0.31 $ (0.25) $ (3.57) $ (0.44)
=========== =========== ============ ===========
</TABLE>
(1) This calculation is presented in accordance with Regulation S-K;
although it is contrary to paragraphs 13 and 27 of the Statement of
Financial Accounting Standards 128 "Earnings Per Share."
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF INCOME FOUND ON PAGES
4 AND 5 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,311,166
<SECURITIES> 0
<RECEIVABLES> 26,572,527
<ALLOWANCES> 490,109
<INVENTORY> 7,664,299
<CURRENT-ASSETS> 42,535,488
<PP&E> 150,840,257
<DEPRECIATION> 10,273,657
<TOTAL-ASSETS> 392,557,777
<CURRENT-LIABILITIES> 31,661,464
<BONDS> 285,523,921
26,438,356
39,228,922
<COMMON> 49,225
<OTHER-SE> 9,655,889
<TOTAL-LIABILITY-AND-EQUITY> 392,557,777
<SALES> 59,415,727
<TOTAL-REVENUES> 59,415,727
<CGS> 35,473,491
<TOTAL-COSTS> 54,058,591
<OTHER-EXPENSES> (144,992)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,726,612
<INCOME-PRETAX> (3,224,484)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,224,484)
<DISCONTINUED> 0
<EXTRAORDINARY> (17,386,893)
<CHANGES> 0
<NET-INCOME> (20,611,377)
<EPS-PRIMARY> (4.79)
<EPS-DILUTED> (4.79)
</TABLE>
