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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, 2000
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
(Registrant's telephone number, including area code)
Check whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceeding 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___
The total number of shares of common stock, par value $0.01 per share,
outstanding as of August 2, 2000 was 19,361,062.
================================================================================
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 2000
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
(unaudited) and December 31, 1999 ......................... 3
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 2000 and 1999
(unaudited)................................................ 4
Condensed Consolidated Statement of Shareholders'
Equity as of June 30, 2000 (unaudited) .................... 5
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999 (unaudited) ....... 6
Notes to the Condensed Consolidated Financial Statements...... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk..... 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 17
Item 2. Changes in Securities and Use of Proceeds...................... 17
Item 3. Default Upon Senior Securities................................. 18
Item 4. Submission of Matters to Vote of Security Holders.............. 18
Item 5. Other Information.............................................. 18
Item 6. Exhibits and Reports on Form 8-K............................... 18
SIGNATURES............................................................... 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACKAGED ICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 7,760 $ 3,619
Accounts receivable, net ............................. 35,719 19,002
Inventories .......................................... 10,660 8,079
Prepaid expenses ..................................... 3,718 4,658
--------- ---------
Total current assets .............................. 57,857 35,358
PROPERTY, net ........................................... 189,409 184,311
GOODWILL AND OTHER INTANGIBLES, net ..................... 238,958 242,421
OTHER ASSETS ............................................ 251 242
--------- ---------
TOTAL ................................................... $ 486,475 $ 462,332
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term obligations ............. $ 18,417 $ 13,126
Accounts payable ..................................... 10,573 6,010
Payable to affiliates ................................ 616 89
Accrued expenses ..................................... 22,441 20,985
--------- ---------
Total current liabilities ......................... 52,047 40,210
LONG TERM OBLIGATIONS ................................... 328,471 309,164
COMMITMENTS AND CONTINGENCIES ........................... -- --
MANDATORILY REDEEMABLE PREFERRED STOCK:
10% Exchangeable - 315,822 shares issued and
outstanding at June 30, 2000 and 300,861 at
December 31, 1999, liquidation preference of
$100 per share .................................... 32,108 30,589
SHAREHOLDERS' EQUITY:
Preferred stock, Series C, $0.01 par value, 100
shares authorized and outstanding at
December 31, 1999 ................................. -- --
Common stock, $0.01 par value, 50,000,000 shares
authorized; 19,631,323 shares issued at
June 30, 2000, and 19,606,940 shares issued
at December 31, 1999 .............................. 196 196
Additional paid-in capital ........................... 123,052 124,487
Less: 298,231 shares of treasury stock, at cost ..... (1,491) (1,491)
Accumulated deficit .................................. (47,908) (40,823)
--------- ---------
Total shareholders' equity ........................ 73,849 82,369
--------- ---------
TOTAL ................................................... $ 486,475 $ 462,332
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues ............................................ $ 76,213 $ 67,246 $111,725 $ 98,667
Cost of sales ....................................... 44,024 38,309 69,940 60,405
-------- -------- -------- --------
Gross profit ........................................ 32,189 28,937 41,785 38,262
Operating expenses .................................. 10,305 9,528 18,523 17,796
Depreciation and amortization expense ............... 7,125 7,431 14,105 14,246
-------- -------- -------- --------
Income from operations .............................. 14,759 11,978 9,157 6,220
Other income (expense), net ......................... 8 -- 8 (3)
Interest expense .................................... (8,269) (7,588) (16,250) (15,205)
-------- -------- -------- --------
Income (loss) before income taxes ................... 6,498 4,390 (7,085) (8,988)
Income taxes ........................................ -- -- -- --
-------- -------- -------- --------
Net income (loss) before preferred dividends ........ 6,498 4,390 (7,085) (8,988)
Preferred dividends ................................. (769) (703) (1,519) (1,611)
-------- -------- -------- --------
Net income (loss) attributable to common shareholders $ 5,729 $ 3,687 $ (8,604) $(10,599)
======== ======== ======== ========
Net income (loss) per share of common stock:
Basic ............................................. $ 0.30 $ 0.20 $ (0.45) $ (0.66)
======== ======== ======== ========
Diluted ........................................... $ 0.29 $ 0.20 $ (0.45) $ (0.66)
======== ======== ======== ========
Weighted average common shares outstanding:
Basic ............................................. 19,326 18,145 19,317 15,990
======== ======== ======== ========
Diluted ........................................... 20,064 18,896 19,317 15,990
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
NUMBER
OF PAR PAID-IN TREASURY ACCUMULATED
SHARES VALUE CAPITAL STOCK DEFICIT TOTAL
--------- --------- --------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 ... 19,607 $ 196 $ 124,487 $ (1,491) $ (40,823) $ 82,369
Issuance of common stock ....... 24 -- 85 -- -- 85
Redemption of Series C Preferred
stock ....................... -- -- (1) -- -- (1)
Dividends accumulated on
10% exchangeable
preferred stock ............. -- -- (1,519) -- --
(1,519)
Net loss ....................... -- -- -- -- (7,085) (7,085)
--------- --------- --------- --------- --------- ---------
Balance at June 30, 2000 ...... 19,631 $ 196 $ 123,052 $ (1,491) $ (47,908) $ 73,849
========= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $ (7,085) $ (8,988)
Adjustments to reconcile net loss to net cash used in
operating activities (excluding working capital
from acquisitions):
Depreciation and amortization ........................ 14,105 14,246
Amortization of debt discount, net ................... 20 20
(Gain) loss from disposal of assets .................. (8) 3
Change in assets and liabilities:
Accounts receivable, inventory and prepaid expenses (18,426) (15,591)
Accounts payable and accrued expenses ............. 6,546 6,333
-------- --------
Net cash used in operating activities ................... (4,848) (3,977)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions ...................................... (11,531) (18,687)
Cost of acquisitions .................................... (4,546) (6,739)
Increase in other noncurrent assets ..................... (499) (353)
Proceeds from disposition of assets ..................... 903 4,337
-------- --------
Net cash used in investing activities ................... (15,673) (21,442)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock .... 85 82,891
Proceeds from conversion of warrants .................... -- 1
Repurchase of common and preferred stock ................ (1) (43,607)
Borrowings from lines of credit ......................... 24,663 32,686
Repayment of lines of credit ............................ -- (45,000)
Repayment of debt ....................................... (85) (78)
-------- --------
Net cash provided by financing activities ............... 24,662 26,893
-------- --------
NET INCREASE IN CASH AND EQUIVALENTS ....................... 4,141 1,474
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............. 3,619 3,427
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................... $ 7,760 $ 4,901
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest .............................. $ 16,139 $ 15,582
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Common stock issued in consideration for
business acquisitions ................................. $ -- $ 1,575
======== ========
Accretion of warrants in connection with 13%
exchangeable preferred stock .......................... $ -- $ 43
======== ========
Conversion of common and preferred stock with put
redemption options into common stock ................. $ -- $ 5,195
======== ========
Conversion of warrants in exchange for common stock ..... $ -- $ 10
======== ========
Common stock issued for redemption premium on
13% exchangeable preferred stock ..................... $ -- $ 5
======== ========
Long term debt incurred to purchase assets .............. $ -- $ 109
======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (CONTINUED)
1. GENERAL
The condensed consolidated financial statements of Packaged Ice, Inc. and
its wholly owned subsidiaries (the "Company") included herein are unaudited,
except for the balance sheet as of December 31, 1999 that has been prepared from
the audited financial statements for that date. These financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission, and as applicable under such regulations,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. All significant intercompany balances and
transactions have been eliminated upon consolidation, and all adjustments which,
in the opinion of management, are necessary for a fair presentation of the
financial position, results of operations and cash flow for the periods covered
have been made and are of a normal and recurring nature. Accounting measurements
at interim dates inherently involve greater reliance on estimates than at year
end and are not necessarily indicative of results for the full year. The
financial statements included herein should be read in conjunction with the
consolidated financial statements and the related notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1999. On
January 1, 2000, the company changed the useful life of its Ice Factory
equipment from seven to twelve years. If the company had continued using a
seven-year useful life, depreciation and amortization for the three and six
months ended June 30, 2000 would have been $7.9 million and $15.6 million,
respectively. Net income (loss) attributable to common shareholders for the
three and six months ended June 30, 2000 would have been $4.9 million and
$(10.1) million, respectively. Basic net income (loss) per common share for the
three and six months ended June 30, 2000 would have been $0.26 and $(0.53),
respectively, while the diluted net income (loss) per common share for the three
and six months ended June 30, 2000 would have been $0.25 and $(0.53),
respectively. Certain amounts from the prior year have been reclassified to
conform to the current presentation.
2. ACQUISITIONS
During the six months ended June 30, 2000, the Company completed two
previous acquisitions by exercising its option to purchase the real estate upon
which two of the company's ice plants reside for approximately $4.2 million,
and completed six other small tuck-in acquisitions at a cost of approximately
$0.3 million, which were paid in cash from the Acquisition Loan (as defined) or
generated from current operations.
The acquisitions have been accounted for using the purchase method of
accounting, and, accordingly, the purchase price preliminarily has been
allocated to the assets and liabilities acquired based on fair value at the date
of the acquisitions. The acquisitions included, at fair value, property plant
and equipment of $4.4 million. The excess of the aggregate purchase price over
the fair market value of the net assets acquired of approximately $0.1 million
was recorded as goodwill and other intangibles and is being amortized over 40
years. Total amortization expense of goodwill and other intangible assets
resulting from the Company's acquisitions was $1.6 million and $1.4 million for
the three months ended June 30, 2000 and 1999, respectively, and $3.2 million
and $2.9 million for the six months ended June 30, 2000 and 1999, respectively.
The operating results of the acquisitions have been included in the
Company's condensed consolidated financial statements from the date of their
respective purchases. The following unaudited pro forma information presents (i)
a summary of the consolidated results of operations for the three and six months
ended June 30, 2000 and 1999 as if the acquisitions during 2000 and 1999 had
occurred as of January 1, 1999 and (ii) a summary of the consolidated results of
operations for the three and six months ended June 30, 1999 as if the
acquisitions during the first six months of 1999 had occurred as of January 1,
1998.
7
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Acquisitions during 2000 and 1999:
Revenues ...................... $ 76,407 $ 67,811 $ 112,004 $ 99,951
Net loss attributable to common
shareholders ................ 5,746 3,699 (8,622) (10,775)
Basic earnings per share ...... 0.30 0.20 (0.45) (0.67)
Diluted earnings per share .... 0.29 0.19 (0.45) (0.67)
</TABLE>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Acquisitions during 1999:
Revenues ...................................... $ 67,617 $ 99,672
Net income (loss) attributable to common
shareholders................................. 3,682 (10,757)
Basic earnings per share ...................... 0.20 (0.67)
Diluted earnings per share .................... 0.19 (0.67)
3. INVENTORY
Inventories contain raw materials, supplies and finished goods. Raw
materials and supplies consist of ice packaging polyethylene bags, spare parts,
bottled water supplies and merchandiser parts. Finished goods consist of
packaged ice and bottled water. Inventories are valued at the lower of cost or
market basis. Cost is determined using the first-in, first-out and average cost
methods.
JUNE 30, DECEMBER 31,
2000 1999
------- -----------
(IN THOUSANDS)
Raw materials and supplies ................... $ 8,660 $ 7,041
Finished goods ............................... 2,000 1,038
------- -------
Total ..................................... $10,660 $ 8,079
======= =======
4. EARNINGS PER SHARE
The computation of earnings per share is based on net income (loss), after
deducting the dividend requirement of preferred stock, divided by the weighted
average number of shares outstanding. Options and warrants to purchase 3,749,231
and 3,137,198 shares of common stock issuable under stock options or warrants
that are outstanding but exercisable at prices above the Company's average
common stock price for the three months ended June 30, 2000 and 1999 have not
been included in the computation of earnings per share. For the six months ended
June 30, 2000 and 1999, all potentially diluted securities are antidilutive.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Earnings (Loss) for Basic and Diluted Computation:
Net income (loss) before extraordinary
item and preferred dividends ................. $ 6,498 $ 4,390 $ (7,085) $ (8,988)
Preferred dividends ............................ (769) (703) (1,519) (1,611)
-------- -------- -------- --------
Net income (loss) attributable to
common shareholders .......................... $ 5,729 $ 3,687 $ (8,604) $(10,599)
======== ======== ======== ========
</TABLE>
8
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
Basic Earnings (Loss) Per Share:
Weighted average common shares outstanding 19,326 18,145 19,317 15,990
======= ======= ====== =======
Net income (loss) attributable to common
shareholders ............................ $ 0.30 $ 0.20 $(0.45) $ (0.66)
======= ======= ====== =======
Diluted Earnings (Loss) per Share:
Weighted average common shares outstanding 19,326 18,145 19,317 15,990
Shares issuable from assumed conversion of
stock options and warrants .............. 738 751 -- --
------- ------- ------ -------
Weighted average common shares outstanding,
as adjusted .............................. 20,064 18,896 19,317 15,990
======= ======= ====== =======
Net income (loss) attributable to common
shareholders ............................ $ 0.29 $ 0.20 $(0.45) $ (0.66)
======= ======= ====== =======
</TABLE>
5. LONG TERM OBLIGATIONS
On April 30, 1998, the Company entered into an $80 million, five year
senior credit facility with Antares Capital Corporation, as amended, (the
"Credit Facility") consisting of a revolving working capital facility of $25
million (the "Working Capital Loan") and a revolving acquisition loan facility
of $55 million (the "Acquisition Loan").
The outstanding principal balance under the Credit Facility bears interest
per annum, at the Company's option, at LIBOR plus 3.25% per annum or at the
"prime" rate plus 1.5% with interest rates subject to a pricing grid.
Additionally, the Company pays a 0.5% commitment fee quarterly on the average
availability under the Credit Facility. Amounts outstanding under the Working
Capital Loan of the Credit Facility are due March 31, 2003. The Credit Facility
was amended effective June 28, 2000 to defer the initial amortization payment
due June 30, 2000, and to restructure certain of the financial covenant ratios.
Amounts outstanding under the Acquisition Loan of the Credit Facility will
amortize in 10 equal quarterly installments of approximately $4.5 million
commencing September 30, 2000 and one final installment of the remaining balance
on March 31, 2003. The Credit Facility contains financial covenants which
include limitations on capital expenditures and the maintenance of minimum ratio
levels of earnings before interest, taxes and depreciation and amortization
("EBITDA") to fixed charges, interest coverage and leverage, as defined in the
Credit Facility, and is secured by substantially all of the Company's assets and
the capital stock of all of the Company's significant subsidiaries.
At June 30, 2000 and December 31, 1999, long term obligations consisted of
the following:
JUNE 30, DECEMBER 31,
2000 1999
--------- ---------
(IN THOUSANDS)
9 3/4% senior notes .................................. $ 270,000 $ 270,000
Less: Unamortized debt discount on 9 3/4% senior notes (183) (203)
Credit Facility ...................................... 76,163 51,500
Other ................................................ 908 993
--------- ---------
Total ................................................ 346,888 322,290
Less: Current maturities ............................. (18,417) (13,126)
--------- ---------
Long term obligations, net ........................ $ 328,471 $ 309,164
========= =========
9
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (CONTINUED)
6. CAPITAL STOCK
The Company currently is authorized to issue up to 50,000,000 shares of
common stock, par value $0.01 per share, of which 19,333,092 shares were
outstanding at June 30, 2000 and up to 5,000,000 shares of preferred stock, par
value $0.01 per share, of which the board of directors has authorized the
designation of 500,100 shares. As of June 30, 2000, the Company had authorized
500,000 shares of 10% exchangeable preferred stock, of which 315,822 shares are
outstanding. As of June 30, 2000, 393,700 shares and 1,000,000 shares of common
stock have been reserved for issuance upon the exercise of stock options under
the 1994 and 1998 Stock Option Plans, respectively, of which 377,700 and 827,133
are outstanding. In addition, 3,284,076 shares have been reserved for issuance
upon the exercise of outstanding warrants.
On February 3, 1999, the Company completed an initial public offering of
10,750,000 shares of common stock, par value $0.01 per share. The net proceeds
from the sale were approximately $85 million before deducting estimated expenses
related to the offering of approximately $1.9 million. The use of proceeds was
approximately $43.6 million to repurchase the Company's 13% exchangeable
preferred stock, which included approximately $1.3 million of accrued but unpaid
dividends and approximately $39.5 million to pay amounts outstanding under the
Credit Facility. The redemption premium on the 13% exchangeable preferred stock
of approximately $3.8 million was paid with 481,887 shares of common stock at
$7.91 per share.
7. SUBSIDIARY GUARANTORS
The Company's 9 3/4% senior notes are guaranteed, fully, jointly and
severally, and unconditionally, on a senior subordinated 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,
2000 1999
--------- -----------
(IN THOUSANDS)
Balance Sheet Data:
Current assets .......................... $ 51,418 $ 31,484
Property and equipment .................. 184,405 184,306
Total assets ............................ 472,814 450,468
Current liabilities ..................... 22,096 25,257
Long term debt .......................... 659 742
Total shareholders' deficit ............. (11,681) (6,480)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(IN THOUSANDS)
Operating Data:
Net revenues ...... $ 76,213 $ 67,246 $ 111,725 $ 98,667
Gross profit ...... 32,189 28,937 41,785 38,262
Net income (loss) . 7,631 5,561 (5,201) (6,445)
10
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
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.
During the three months ended June 30, 2000, the company entered into
non-cancelable operating leases with aggregate annual commitments of
approximately $2.4 million over the next four years.
9. NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No
133" ("SFAS 137"). SFAS 137, which is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. FASB Statement No. 133, as amended
by SFAS 137, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
The Company is currently evaluating what impact adoption of this statement will
have on the Company's consolidated financial statements.
10. SEGMENT INFORMATION
The Company has two reportable segments: (1) ice products and (2) non-ice
products and services. Ice products include the manufacture and distribution of
packaged ice products through traditional ice manufacturing and delivery and the
Ice Factory. Non-ice products and services include refrigerated warehouses,
bottled water and leasing of ice production equipment. The Company evaluates
performance of each segment based on earnings before interest, taxes,
depreciation and amortization ("EBITDA") and does not allocate assets by
segments. Inter-segment sales are accounted for at current market prices.
Segment information for the three months ended June 30, 2000 and 1999 is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000 THREE MONTHS ENDED JUNE 30, 1999
----------------------------------------- ---------------------------------------
ICE NON-ICE ELIMINATION TOTAL ICE NON-ICE ELIMINATION TOTAL
------- ------- ----------- ------- ------- ------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ............. $71,178 $ 5,035 $ -- $76,213 $61,828 $ 6,181 $ (763) $67,246
Cost of sales ........ 41,199 2,825 -- 44,024 35,153 3,829 (673) 38,309
------- ------- ----------- ------- ------- ------- ----------- -------
Gross profit ......... 29,979 2,210 -- 32,189 26,675 2,352 (90) 28,937
Operating expenses ... 9,406 899 -- 10,305 8,807 721 -- 9,528
Other income (expense) 8 -- -- 8 -- -- -- --
------- ------- ----------- ------- ------- ------- ----------- -------
EBITDA ............ $20,581 $ 1,311 $ -- $21,892 $17,868 $ 1,631 $ (90) $19,409
======= ======= =========== ======= ======= ======= =========== =======
</TABLE>
Segment information for the six months ended June 30, 2000 and 1999 is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 SIX MONTHS ENDED JUNE 30, 1999
------------------------------------------ --------------------------------------------
ICE NON-ICE ELIMINATION TOTAL ICE NON-ICE ELIMINATION TOTAL
-------- -------- ----------- -------- -------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ............. $102,154 $ 9,571 $ -- $111,725 $ 88,519 $ 11,418 $ (1,270) $ 98,667
Cost of sales ........ 64,728 5,212 -- 69,940 54,610 6,867 (1,072) 60,405
-------- -------- --------- -------- -------- -------- -------- --------
Gross profit ......... 37,426 4,359 -- 41,785 33,909 4,551 (198) 38,262
</TABLE>
11
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating expenses ... 16,788 1,735 -- 18,523 16,362 1,434 -- 17,796
Other income (expense) 8 -- -- 8 (3) -- -- (3)
-------- -------- --------- -------- -------- -------- -------- --------
EBITDA ............ $ 20,646 $ 2,624 $- $ 23,270 $ 17,544 $ 3,117 $ (198) $ 20,463
======== ======== ========= ======== ======== ======== ======== ========
</TABLE>
Reconciliation of EBITDA to loss before extraordinary item and preferred
dividends for the three and six month periods ended June 30, 2000 and 1999 is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA ................................... 21,892 19,409 $ 23,270 $ 20,463
Depreciation and amortization ............ (7,125) (7,431) (14,105) (14,246)
Interest expense ......................... (8,269) (7,588) (16,250) (15,205)
Income taxes ............................. -- -- -- --
-------- -------- -------- --------
Income (loss) before extraordinary item
and preferred dividends ............ $ 6,498 $ 4,390 (7,085) $ (8,988)
======== ======== ======== ========
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 in this Form 10-Q and the company's Form 10-K, previously
filed with the Securities and Exchange Commission.
UNCERTAINTY OF FORWARD LOOKING STATEMENTS AND INFORMATION
Other than statements of historical facts, statements made in this Form
10-Q, statements made by us in periodic press releases or oral statements made
by our management to analysts and shareholders in the course of presentations
about our company constitute "forward-looking statements". The words and phrases
"should be", "will be", "believe", "expect", "anticipate" and similar
expressions identify forward-looking statements. We believe the expectations
reflected in such forward-looking statements are accurate. However, we cannot
assure you that such expectations will occur. These forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
actual future results expressed or implied by the forward-looking statements.
You should not unduly rely on these forward-looking statements as they speak
only as of the date of this report. Except as required by law, we are not
obligated to publicly release any revisions to these forward looking statements
to reflect events or circumstances occurring after the date of this report or to
reflect the occurrence of unanticipated events.
GENERAL
Packaged Ice, Inc. is the largest manufacturer and distributor of packaged
ice in the United States and currently serves over 74,000 customer locations in
27 states and the District of Columbia. The company has grown significantly
since its incorporation in 1990, primarily through the implementation of a
consolidation strategy within the highly fragmented packaged ice industry,
principally in the southern half of the United States. These acquisitions have
enabled the company to enter new geographic regions, increase our presence in
established markets, gain additional production capacity, realize cost savings
from economies of scale and leverage the acquired companies' relationships with
grocery and convenience store customers.
The company predominantly operates in two business segments, ice products
and non-ice operations. Ice products accounted for approximately 91% of revenues
in 1999 and approximately 91% for the six months ended June 30, 2000. Ice
products consist of the following two activities:
o The manufacture and delivery of traditional ice from a central point
of production to the point of sale; and
o The installation of Ice Factories, our proprietary machines that
produce, package, store and merchandise ice at the point of sale
through an automated, self-contained system.
Our other business segment, non-ice, consists of refrigerated warehousing,
bottled water and the leasing of ice equipment. The majority of non-ice
operations was acquired through acquisitions completed in 1998.
Our cost of sales includes costs associated with plant occupancy, raw
materials, delivery, labor and utility related expenses. With the Ice Factory,
plant occupancy, delivery and utility costs are eliminated, but costs associated
with customer service representatives and machine technicians are added to the
cost of sales.
Our operating expenses are 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.
13
<PAGE>
At June 30, 2000, the company owned or operated 70 ice manufacturing
plants, one bottled-water manufacturing facility, 44 distribution centers, nine
refrigerated warehouses and had an installed base of 2,550 Ice Factories.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
REVENUES: Revenues increased $9.0 million, from $67.2 million for the
three months ended June 30, 1999 to $76.2 million for the three months ended
June 30, 2000. Revenues increased $7.6 million as a result of revenues
contributed by the traditional ice companies, $1.8 million due to the placement
of Ice Factories and $(0.4) million due to the divestiture of non-ice
manufacturing operations in May 1999. The increases in revenues from traditional
ice operations primarily were due to increased volume from national accounts and
new customers, higher average sales price and acquisitions completed during or
after the second quarter of 1999.
COST OF SALES: Cost of sales increased $5.7 million, from $38.3 million
for the three months ended June 30, 1999 to $44.0 million for the three months
ended June 30, 2000. This increase primarily resulted from increased sales
volume of the traditional ice companies, higher fuel and packaging material
costs than last year and the impact of using operating leases to install new
Ice Factories. Operating leases result in greater charges to cost of sales than
would be incurred if the company had acquired the Ice Factories as property
additions. The use of operating leases causes the company to not incur the
typical expenses of ownership, depreciation and possibily interest. As a
percentage of revenues, cost of sales was 57.0% for the three months ended June
30, 1999 and 57.8% for the three months ended June 30, 2000.
GROSS PROFIT: Gross profit increased $3.3 million, from $28.9 million for
the three months ended June 30, 1999 to $32.2 million for the three months ended
June 30, 2000. This increase primarily resulted from the greater sales volume of
the traditional ice companies. As a percentage of revenues, gross profit was
43.0% for the three months ended June 30, 1999 and 42.2% for the three months
ended June 30, 2000. The decrease in margin resulted from higher fuel and
packaging material costs and the impact of the operating leases for new Ice
Factory installations.
OPERATING EXPENSES: Operating expenses increased $0.8 million, from $9.5
million for the three months ended June 30, 1999 to $10.3 million for the three
months ended June 30, 2000. This increase resulted from acquisitions of
traditional ice companies and increased sales volume. As a percentage of
revenues, operating expenses decreased from 14.2% for the three months ended
June 30, 1999 to 13.5% for the three months ended June 30, 2000. This decrease
was due to greater efficiencies as our current period general and administrative
expenses were spread over the larger base of revenues during the three months
ended June 30, 2000.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization decreased
$0.3 million, from $7.4 million for the three months ended June 30, 1999 to $7.1
million for the three months ended June 30, 2000. This decrease was primarily
due to the change in the useful life of the Ice Factory from 7 to 12 years and
the use of operating leases to install new Ice Factories, which results in no
additional depreciation. As a percentage of revenues, depreciation and
amortization decreased from 11.1% for the three months ended June 30, 1999 to
9.3% for the three months ended June 30, 2000. This decrease resulted from the
change in the useful life of the Ice Factory and the lack of new Ice Factory
additions to property because of the use of operating leases for the new
installations.
INTEREST EXPENSE: Interest expense increased $0.7 million, from $7.6
million for the three months ended June 30, 1999 to $8.3 million for the three
months ended June 30, 2000. As a percentage of revenues, interest expense
decreased from 11.3% for the three months ended June 30, 1999 to 10.8% for the
three months ended June 30, 2000. The dollar increase in interest expense was a
result of higher levels of debt associated with the acquisitions completed
during or after the second quarter of 1999. The company completed its Initial
Public Offering in January 1999, and as a result had significantly less
borrowing in the first quarter of 1999 than in the similar period in 2000.
14
<PAGE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
REVENUES: Revenues increased $13.0 million, from $98.7 million for the six
months ended June 30, 1999 to $111.7 million for the six months ended June 30,
2000. Revenues increased $10.9 million as a result of revenues contributed by
traditional ice plants, $2.7 million due to the placement of Ice Factories and
$(0.6) million due to the divestiture of non-ice manufacturing operations in
May 1999. The increase in traditional ice primarily was due to greater sales
volume from national accounts and new customers, higher average sales price and
acquisitions completed during or after the second quarter of 1999.
COST OF SALES: Cost of sales increased $9.5 million, from $60.4 million
for the six months ended June 30, 1999 to $69.9 million for the six months ended
June 30, 2000. This increase primarily resulted from the greater sales volume at
the traditional ice plants, higher fuel costs than last year and the impact of
the operating leases used for the new Ice Factory installations. As a percentage
of revenues, cost of sales increased from 61.2% for the six months ended June
30, 1999 to 62.6% for the six months ended June 30, 2000. This increase
primarily was due to higher fuel costs than last year and the impact of the
operating leases.
GROSS PROFIT: Gross profit increased $3.5 million, from $38.3 million for
the six months ended June 30, 1999 to $41.8 million for the six months ended
June 30, 2000. This increase was primarily due to the greater volume of
traditional ice plants. As a percentage of revenues, gross profit decreased from
38.8% for the six months ended June 30, 1999 to 37.4% for the six months ended
June 30, 2000. This decrease was the result of higher fuel costs and the costs
associated with the operating leases.
OPERATING EXPENSES: Operating expenses increased $0.7 million, from $17.8
million for the six months ended June 30, 1999 to $18.5 million for the six
months ended June 30, 2000. This increase primarily resulted from acquisitions
of traditional ice companies and the greater sales volume. As a percentage of
revenues, operating expenses decreased from 18.0% for the six months ended June
30, 1999 to 16.6% for the six months ended June 30, 2000. This decrease was due
to greater efficiencies realized as our current period general and
administrative expenses were spread over the larger base of revenues during the
six months ended June 30, 2000.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization decreased
$0.1 million, from $14.2 million for the six months ended June 30, 1999 to $14.1
million for the six months ended June 30, 2000. This decrease was primarily due
to the change in useful life of the Ice Factory from 7 to 12 years, and impact
of using operating leases to install new ice factories, which results in no
property additions. As a percentage of revenues, depreciation and amortization
decreased from 14.4% for the six months ended June 30, 1999 to 12.6% for the six
months ended June 30, 2000. This decrease was primarily due to change in the
useful life of the Ice Factory and the lack of new Ice Factory additions to
property because of the use of operating leases for new installations.
INTEREST EXPENSE: Interest expense increased $1.1 million, from $15.2
million for the six months ended June 30, 1999 to $16.3 million for the six
months ended June 30, 2000. As a percentage of revenues, interest expense
decreased from 15.4% for the six months ended June 30, 1999 to 14.5% for the six
months ended June 30, 2000. The dollar increase in interest expense was a result
of higher levels of debt associated with the acquisitions completed during or
after the second quarter of 1999. The company completed its Initial Public
Offering in January 1999, and as a result had significantly less borrowing in
the first six months of 1999 than in the similar period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The company generates cash primarily from the sale of packaged ice through
traditional delivery methods and through Ice Factories and, to a lesser extent,
through the non-ice operations. Our primary uses of cash are (a) cost of sales,
(b) operating expenses, (c) debt service, (d) capital expenditures related to
replacing
15
<PAGE>
and modernizing other capital equipment and related to the manufacturing and
installation of additional Ice Factories and (e) acquisitions.
Capital expenditures for 2000 are estimated to total an aggregate of
approximately $17.0 million, all of which will be to maintain and expand
traditional ice facilities. There can be no assurance that capital expenditures
will not exceed this estimate.
During the six months ended June 30, 2000, the Company completed two
previous acquisitions by exercising its option to purchase the real estate upon
which two of the company's ice plants resides for approximately $4.2 million,
and completed six other small tuck-in acquisitions at a cost of approximately
$0.3 million, which were paid in cash from the Acquisition Loan or generated
from current operations.
We believe that we will have adequate working capital to meet debt service
requirements and to satisfy working capital and general corporate needs. At June
30, 2000, we had working capital of approximately $5.8 million including
approximately $7.8 million of cash and cash equivalents. In addition, we had
$0.8 million available under the working capital loan of the credit facility.
At June 30, 2000, we had approximately $328.5 million of long term debt,
net of current maturities, outstanding as follows:
o $ 270.0 million of 9 3/4% senior notes due 2005;
o $ 58.0 million outstanding under the company's credit facility; and
o $ 0.5 million of other debt, net of debt discount.
Our credit facility provides for a $80 million line of credit consisting
of a $25 million revolving working capital loan and a $55 million revolving
acquisition loan. At June 30, 2000, we had approximately $21.7 million
outstanding under the working capital loan (excluding $2.5 million of
availability supporting letters of credit) and approximately $54.5 million
outstanding under the acquisition loan. The revolving credit facility bears
interest per annum, at the company's option, at LIBOR plus 3.25% or the "prime"
rate plus 1.5% with interest rates subject to a pricing grid. The amounts under
the working capital loan will be due March 31, 2003. The amounts under the
acquisition loan will be due beginning September 30, 2000 in 10 equal quarterly
installments and one final installment on March 31, 2003.
Covenants contained in the credit facility and the indenture governing the
9 3/4% senior notes require the company to meet certain financial tests, and
other restrictions limit the company's ability to pay dividends, borrow
additional funds or to acquire or dispose of assets. The credit facility is
secured by all of the company's assets and the capital stock of all of the
company's significant subsidiaries. The 9 3/4% senior notes are generally
unsecured obligations of the company and are senior in right of payment to all
existing and future subordinated debt (as defined in the indenture) and PARI
PASSU to all senior indebtedness of the company. The 9 3/4% senior notes are
effectively subordinated to the credit facility.
Although the company has periodically reported negative cash flows from
operations on a historical basis, we believe that its overall treasury
management of cash on hand and available borrowings under the credit facility
will be adequate to meet debt service requirements, fund ongoing capital
requirements and satisfy working capital and general corporate needs.
We may need to raise additional funds through public or private debt or
equity financing to take advantage of opportunities that may become available,
including acquisitions and more rapid expansion. The availability of such
capital will depend upon prevailing market conditions and other factors over
which we have no control, as well as our financial condition and results of
operations. There can be no assurance that sufficient funds will be available to
finance intended acquisitions or capital expenditures to sustain our recent rate
of growth.
16
<PAGE>
On May 5, 2000, the company began trading on the American Stock Exchange
under the symbol "ICY" rather than on the Nasdaq National Market where it
previously traded.
GENERAL ECONOMIC TRENDS AND SEASONALITY
The company's results of operations are generally affected by the economic
trends in its market area but results to date have not been impacted by
inflation. If an extended period of high inflation were to be encountered, we
believe that we will be able to pass on the higher costs to our customers.
The ice business is highly seasonal. We experiences seasonal fluctuations
in our net sales and profitability with a disproportionate amount of our net
sales and a majority of our net income typically realized in its second and
third calendar quarters. We believe that over 60% of our revenues will occur
during the second and third calendar quarters when the weather conditions are
generally warmer and demand is greater, while less than 40% of our revenues will
occur during the first and fourth calendar quarters when the weather is
generally cooler. As a result of seasonal revenue declines and the lack of
proportional corresponding expense decreases, we will most likely experience
lower profit margins and possibly experience losses during the first and fourth
calendar quarters. In addition, because our operating results depend
significantly on sales during our peak season, our quarterly results of
operations during period may fluctuate significantly if the weather is unusually
cool or rainy.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
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 26, 2000, the company issued 24,383 shares of common stock to
employees under the company's Employee Stock Purchase Plan at a price of $3.5063
per share.
On July 19, 2000, the company issued 12,765 shares of common stock in a
cashless exercise of outstanding warrants with an exercise price of $.01 per
share.
On July 20, 2000, the company issued 15,205 shares of common stock to
employees under the company's Employee Stock Purchase Plan at a price of $3.5063
per share.
17
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 25, 2000, the company held its annual meeting of stockholders. At
the annual meeting, the following matters were voted upon:
1. Election of six directors to hold office until the next annual meeting
of shareholders and until their respective successors are duly elected
and qualified; and
2. A proposal to ratify the appointment of the selection of Deloitte &
Touche LLP as the company's independent auditors for the fiscal year
ending December 31, 2000.
3. A proposal to approve the 2000 Employee Stock Purchase Plan.
A total of 19,308,709 shares of the company's common stock, par value
$0.01 per share, were entitled to vote at the meeting. Of these shares,
13,816,439 shares were present at the meeting and voted as follows:
With respect to each of the following eight nominees for election to
the Board of Directors, shares were voted as follows: James F. Stuart
(13,779,759 for and 36,680 against); A. J. Lewis III (13,779,759 for and
36,680 against); Steven P. Rosenberg (13,779,759 for and 36,680 against);
Richard A. Coonrod (13,779,759 for and 36,680 against); Robert G. Miller
(13,779,759 for and 36,680 against); and David J. Losito (13,779,759 for
and 36,680 against).
With respect to the appointment of Deloitte & Touche LLP as the
company's independent auditors for the fiscal year ending December 31,
2000, shares were voted as follows: 13,595,299 for; 9,660 votes against;
and 211,480 votes withheld.
With respect to the approval of the 2000 Employee Stock Purchase
Plan, shares were voted as follows: 13,560,989 for; 202,170 against; and
53,280 withheld.
ITEM 5. OTHER INFORMATION
None.
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.
18
<PAGE>
4.15+ First Amendment, dated July 10, 2000, to Warrant Agreement, dated
April 17, 1997.
27.1+ Financial Data Schedule.
------------------
+ Filed herewith.
(b) REPORTS ON FORM 8-K:
None
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 14, 2000 By: /s/ JAMES F. STUART
-------------------
James F. Stuart
Chief Executive Officer
Date: August 14, 2000 By: /s/ JAMES C. HAZLEWOOD
----------------------
James C. Hazlewood
Chief Financial and Accounting Officer
19
