================================================================================
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 MARCH 31, 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
(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 [ ]
The total number of shares of common stock, par value $0.01 per share,
outstanding as of May 5, 2000 was 19,333,092.
================================================================================
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2000
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000
(Unaudited) and December 31, 1999 ............................. 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2000 and 1999 (Unaudited)......... 4
Condensed Consolidated Statement of Shareholders' Equity
as of March 31, 2000 (Unaudited) .............................. 5
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 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 ........................................ 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 15
Item 2. Changes in Securities and Use of Proceeds............................ 15
Item 4. Submission of Matters to Vote of Security Holders.................... 16
Item 6. Exhibits and Reports on Form 8-K..................................... 16
SIGNATURES................................................................... 17
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACKAGED ICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
2000 1999
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 4,574 $ 3,619
Accounts receivable, net .............................. 16,700 19,002
Inventories ........................................... 10,310 8,079
Prepaid expenses ...................................... 6,235 4,658
--------- ---------
Total current assets ............................... 37,819 35,358
PROPERTY, net ............................................ 188,003 184,311
GOODWILL AND OTHER INTANGIBLES, net ...................... 240,573 242,421
OTHER ASSETS ............................................. 255 242
--------- ---------
TOTAL .................................................... $ 466,650 $ 462,332
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term obligations .............. $ 18,415 $ 13,126
Accounts payable ...................................... 7,964 6,010
Payable to affiliates ................................. 1,088 89
Accrued expenses ...................................... 12,807 20,985
--------- ---------
Total current liabilities .......................... 40,274 40,210
LONG TERM OBLIGATIONS .................................... 327,002 309,164
COMMITMENTS AND CONTINGENCIES ............................ -- --
MANDATORILY REDEEMABLE PREFERRED STOCK:
10% Exchangeable - 300,861 shares issued and
outstanding at March 31, 2000 and
December 31, 1999, liquidation preference
of $100 per share ................................. 31,339 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; 19,606,940 shares issued at
March 31, 2000, and December 31, 1999 .............. 196 196
Additional paid-in capital ............................ 123,736 124,487
Less: 298,231 shares of treasury stock, at cost ...... (1,491) (1,491)
Accumulated deficit ................................... (54,406) (40,823)
--------- ---------
Total shareholders' equity ......................... 68,035 82,369
--------- ---------
TOTAL .................................................... $ 466,650 $ 462,332
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
-------- --------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Revenues ................................... $ 35,512 $ 31,421
Cost of sales .............................. 25,916 22,096
-------- --------
Gross profit ............................... 9,596 9,325
Operating expenses ......................... 8,218 8,269
Depreciation and amortization expense ...... 6,980 6,815
-------- --------
Loss from operations ....................... (5,602) (5,759)
Other income (expense), net ................ -- (2)
Interest expense ........................... (7,981) (7,617)
-------- --------
Loss before income taxes ................... (13,583) (13,378)
Income taxes ............................... -- --
-------- --------
Net loss before preferred dividends ........ (13,583) (13,378)
Preferred dividends ........................ (750) (908)
-------- --------
Net loss attributable to common shareholders $(14,333) $(14,286)
======== ========
Net loss per share of common stock:
Basic and diluted ....................... $ (0.74) $ (1.03)
======== ========
Weighted average common shares outstanding:
Basic and diluted ....................... 19,309 13,810
======== ========
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
Redemption of Series C
Preferred stock ............. -- -- (1) -- -- (1)
Dividends accumulated on
10% exchangeable
preferred stock ............. -- -- (750) -- -- (750)
Net loss ....................... -- -- -- -- (13,583) (13,583)
--------- --------- --------- --------- --------- ---------
Balance at March 31, 2000 ...... 19,607 $ 196 $ 123,736 $ (1,491) $ (54,406) $ 68,035
========= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................... $(13,583) $(13,378)
Adjustments to reconcile net loss to net cash
used in operating activities (excluding working
capital from acquisitions):
Depreciation and amortization .................. 6,980 6,815
Amortization of debt discount, net ............. 10 10
Loss from disposal of assets ................... -- 2
Change in assets and liabilities:
Accounts receivable, inventory and
prepaid expenses ......................... (1,534) (1,303)
Accounts payable and accrued expenses ...... (5,224) (7,714)
-------- --------
Net cash used in operating activities .............. (13,351) (15,568)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions ................................. (5,466) (6,603)
Cost of acquisitions ............................... (3,217) (130)
Decrease (increase) in other noncurrent assets ..... (127) 445
Proceeds from disposition of property .............. -- 196
-------- --------
Net cash used in investing activities .............. (8,810) (6,092)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock -- 82,996
Proceeds from conversion of warrants ............... -- 1
Repurchase of common and preferred stock ........... (1) (43,606)
Borrowings from lines of credit .................... 23,163 23,435
Repayment of lines of credit ....................... -- (39,500)
Repayment of debt .................................. (46) (13)
-------- --------
Net cash provided by financing activities .......... 23,116 23,313
-------- --------
NET INCREASE IN CASH AND EQUIVALENTS .................. 955 1,653
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........ 3,619 3,427
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD .............. $ 4,574 $ 5,080
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest ......................... $ 14,449 $ 14,010
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
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
======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
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 months ended
March 31, 2000 would have been $7.7 million and net loss attributable to common
shareholders and basic and diluted loss per common share would have been $15.1
million and $0.78, respectively. Certain amounts from the prior year have been
reclassified to conform to the current presentation.
2. ACQUISITIONS
During the three months ended March 31, 2000, the company completed one
previous acquisition by exercising its option to purchase the real estate upon
which one of the Company's traditional ice plants resided for $3.0 million, and
completed four other small tuck-in acquisitions at a cost of approximately $0.2
million. The real estate was financed through the acquisition loan of the
Antares facility, while the four acquisitions were funded through current
operations.
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 market value, property
plant and equipment of approximately $3.1 million. The excess of aggregate
purchase price over the fair market value of the net assets acquired of $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 $1.5
million for the three months ended March 31, 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 months ended
March 31, 2000 and 1999 as if the acquisitions during such periods had occurred
as of January 1, 1999 and (ii) a summary of the consolidated results of
operations for the three months ended March 31, 1999 as if the acquisitions
during such periods had occurred as of January 1, 1998.
7
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (CONTINUED)
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
2000 and 1999 Acquisitions:
Revenues ..................................... $ 35,584 $ 31,506
Net loss attributable to common shareholders . (14,329) (14,281)
Basic and diluted earnings per share ......... (0.74) (1.03)
THREE MONTHS
ENDED
MARCH 31, 1999
--------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
1999 Acquisitions:
Revenues................................................ $31,434
Net loss attributable to common shareholders............ (14,286)
Basic and diluted earnings per share.................... (1.03)
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 awaiting sale. Inventories are valued at the
lower of cost or market basis. Cost is determined using the first-in, first-out
and average cost methods.
MARCH 31, DECEMBER 31,
2000 1999
-------- -----------
(IN THOUSANDS)
Raw materials and supplies................... $ 8,158 $ 7,041
Finished goods .............................. 2,152 1,038
------- -------
Total .................................. $10,310 $ 8,079
======= =======
4. EARNINGS PER SHARE
The computation of earnings per share is based on net loss, after
deducting the dividend requirement of preferred stock ($0.8 million in 2000 and
$0.9 million in 1999), divided by the weighted average number of shares
outstanding. Shares of common stock issuable under stock options have not been
included in the computation of earnings per share as their effect is
anti-dilutive. For the three months ended March 31, 2000 and 1999, all
potentially dilutive securities are anti-dilutive and, therefore, are not
included in the earnings per share calculation.
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
-------- --------
(IN THOUSANDS)
Basic and Diluted Earnings Per Share:
Weighted average common shares outstanding ..... 19,309 13,810
======== ========
Basic and diluted loss attributable to
common shareholders .......................... $ (0.74) $ (1.03)
======== ========
8
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (CONTINUED)
Earnings for Basic and Diluted Computation:
Net loss before extraordinary item and
preferred dividends ........................... $(13,583) $(13,378)
Preferred share dividends ....................... (750) (908)
-------- --------
Net loss attributable to common
shareholders ............................... $(14,333) $(14,286)
======== ========
5. LONG TERM OBLIGATIONS
At March 31, 2000 and December 31, 1999, long term obligations consisted
of the following:
MARCH 31, 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 ................. (193) (203)
Credit Facility .......................... 74,663 51,500
Other .................................... 947 993
-------- --------
Total .................................... 345,417 322,290
Less: Current maturities ................ (18,415) (13,126)
-------- --------
Long term obligations, net ............ $327,002 $309,164
======== ========
The outstanding principal balance under the Credit Facility bears interest
per annum, at the Company's option, at LIBOR plus 2.75% per annum or at the
"prime" rate plus 1.0% 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. Amounts outstanding
under the Acquisition Loan of the Credit Facility will amortize in 12 equal
quarterly installments commencing June 30, 2000. The Credit Facility, as
amended, 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 agreement, and is
secured by substantially all of the Company's assets and the capital stock of
all of the Company's significant subsidiaries.
6. CAPITAL STOCK
On March 1, 2000, the Company redeemed all of the Series C Preferred Stock
by cash payment of $1,000. In addition, as of March 31, 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, and 3,168,992 shares have been reserved for issuance upon the
exercise of outstanding warrants.
9
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (CONTINUED)
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.
MARCH 31, DECEMBER 31,
2000 1999
--------- -----------
(IN THOUSANDS)
Balance Sheet Data:
Current assets................................ $ 32,980 $ 31,484
Property and equipment........................ 187,999 184,306
Total assets.................................. 454,389 450,468
Current liabilities........................... 17,026 15,257
Long term debt................................ 699 742
Total shareholders' equity.................... (19,311) (6,480)
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- -------
(IN THOUSANDS)
Operating Data:
Net revenues.................................. $ 35,512 $31,421
Gross profit.................................. 9,596 9,325
Net loss...................................... (12,831) (12,006)
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 March 31, 2000, the company entered into
non-cancellable operating leases with aggregate annual commitments of
approximately $1.3 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 is effective for all 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 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
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (CONTINUED)
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 manufacturing and distribution and leasing of ice production
equipment other than the Ice Factory. 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.
For the Three Months Ended March 31, 2000:
<TABLE>
<CAPTION>
ICE NON-ICE ELIMINATION TOTAL
------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues ...................................... $30,976 $ 4,536 $ -- $35,512
Cost of sales ................................. 23,529 2,387 -- 25,916
------- ------- -------- -------
Gross profit .................................. 7,447 2,149 -- 9,596
Operating expenses ............................ 7,382 836 -- 8,218
Other income (expense) ........................ -- -- -- --
------- ------- -------- -------
EBITDA ..................................... $ 65 $ 1,313 $ -- $ 1,378
======= ======= ======== =======
For the Three Months Ended March 31, 1999:
ICE NON-ICE ELIMINATION TOTAL
------- ------- -------- -------
(IN THOUSANDS)
Revenues ...................................... $26,691 $ 5,237 $ (507) $ 31,421
Cost of sales ................................. 19,457 3,038 (399) 22,096
------- ------- -------- --------
Gross profit .................................. 7,234 2,199 (108) 9,325
Operating expenses ............................ 7,556 713 -- 8,269
Other income (expense) ........................ (2) -- -- (2)
------- ------- -------- --------
EBITDA ..................................... $ (324) $ 1,486 $ (108) $ 1,054
======= ======= ======== ========
</TABLE>
Reconciliation of EBITDA to loss before extraordinary item and preferred
dividends:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
EBITDA ........................................................... $ 1,378 $ 1,054
Depreciation and amortization .................................... (6,980) (6,815)
Interest expense ................................................. (7,981) (7,617)
Income taxes ..................................................... -- --
-------- --------
Loss before extraordinary item and preferred dividends ........ $(13,583) $(13,378)
======== ========
</TABLE>
11
<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 company's 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 its 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. 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, the company's proprietary machines
that produce, package, store and merchandise ice at the point of sale
through an automated, self-contained system.
The company's other business segment, non-ice, consists of refrigerated
warehousing, bottled water and the sale and leasing of ice making equipment
other than the Ice Factory. The majority of non-ice operations was acquired
through acquisitions completed in 1998.
The company's 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.
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.
12
<PAGE>
At March 31, 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 2,450 Ice Factories.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES: Revenues increased $4.1 million, from $31.4 million for the
three months ended March 31, 1999 to $35.5 million for the three months ended
March 31, 2000. Revenues increased $3.4 million as a result of revenues
contributed by traditional ice companies and $0.9 million due to the placement
of Ice Factories, while non-ice operations decreased by $0.2 million. The
increases in traditional ice resulted primarily from acquisitions in 1999, an
excellent weather pattern in March and a higher average selling price than last
year. The decrease in non-ice revenues is due to the divestiture in 1999 of two
non-core manufacturing facilities.
COST OF SALES: Cost of sales increased $3.8 million, from $22.1 million
for the three months ended March 31, 1999 to $25.9 million for the three months
ended March 31, 2000. As a percentage of revenues, cost of sales increased from
70.3% for the three months ended March 31, 1999 to 73.0% for the three months
ended March 31, 2000. This increase in cost of sales and the relative percentage
is attributable to (i) the effect of greater revenues from acquisitions made in
1999 with very high relative cost of sales in the first quarter, (ii) increases
in fuel and employee health benefits and (iii) the timing of expenditures for
ordinary preventative maintenance.
GROSS PROFIT: Gross profit increased $0.3 million, from $9.3 million for
the three months ended March 31, 1999 to $9.6 million for the three months ended
March 31, 2000. This increase primarily resulted from greater revenues than last
year. As a percentage of revenues, gross profit decreased from 29.7% for the
three months ended March 31, 1999 to 27.0% for the three months ended March 31,
2000. The decrease in margin is attributable to the dilutive effect of first
quarter revenues from the 1999 acquisitions, which produce very little gross
profit. The gross profit margin of a typical ice company is at its lowest in the
first quarter. In addition the Company began in the fourth quarter of 1999
utilizing operating leases from third-party owners for Ice Factory
installations. The result is the movement of the costs of ownership
(depreciation) and financing (interest) from below gross margin to the cost of
sales category as operating lease expense. Gross margin from ice operations
decreased from 27.1% to 24.0%, while gross margin on non-ice operations
increased from 42.0% in 1999 to 47.4% in 2000.
OPERATING EXPENSES: Operating expenses decreased $0.1 million, from $8.3
million for the three months ended March 31, 1999 to $8.2 million for the three
months ended March 31, 2000. This decrease primarily resulted from the closure
of plants and the consolidation of administrative positions. As a percentage of
revenues, operating expenses decreased from 26.3% for the three months ended
March 31, 1999 to 23.1% for the three months ended March 31, 2000. This decrease
was due to the Company's success in holding operating expenses at slightly below
last year's level while increasing revenues. Operating expenses from ice
operations decreased from 28.3% of revenues to 23.8%. Operating expenses on
non-ice operations increased from 13.6% of revenues to 18.4%.
DEPRECIATION AND AMORTIZATION EXPENSES: Depreciation and amortization
increased $0.2 million, from $6.8 million for the three months ended March 31,
1999 to $7.0 million for the three months ended March 31, 2000. This increase
was primarily due to property additions as a result of acquisitions of
traditional ice companies and installations of Ice Factories partially offset by
the change in useful lives of the Ice Factories from 7 to 12 years. As a
percentage of revenues, depreciation and amortization decreased from 21.7% for
the three months ended March 31, 1999 to 19.7% for the three months ended March
31, 2000. This decrease was primarily due to the relatively lower depreciation
from the new useful lives of the Ice Factories as compared to the larger base of
revenues.
INTEREST EXPENSE: Interest expense increased $0.4 million, from $7.6
million for the three months ended March 31, 1999 to $8.0 million for the three
months ended March 31, 2000. As a percentage of revenues, interest expense
decreased from 24.2% for the three months ended March 31, 1999 to 22.5% for the
three months ended March 31, 2000. The dollar increase in interest expense was a
result of higher levels of borrowings under the
13
<PAGE>
company's credit facility (average outstanding in the quarter was $9.6 million
higher than last year), the proceeds of which were used to consummate 1999
acquisitions and new installations of Ice Factories and higher interest rates
(average for first quarter was 44 basis points higher than last year). The
decrease in interest expense as a percentage of revenues reflects higher
relative sales growth during the three-months ended March 31, 2000 than the
increase in interest expense.
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. The company's primary uses of cash are (a) cost
of sales, (b) operating expenses, (c) debt service, (d) capital expenditures
related to replacing and modernizing the company's 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 spent to maintain and expand
traditional ice facilities. The Ice Factory installations will be leased from
third-party owners under operating leases. There can be no assurance that
capital expenditures will not exceed this estimate.
During the three months ended March 31, 2000, the company completed one
previous acquisition by exercising its option to purchase the real estate upon
which one of the Company's traditional ice plants resided for $3.0 million, and
completed four other small tuck-in acquisitions at a cost of approximately $0.2
million. The real estate was financed through the acquisition loan of the
Antares facility, while the four acquisitions were funded through current
operations.
The company believes that it will have adequate working capital to meet
debt service requirements and to satisfy working capital and general corporate
needs. At March 31, 2000, the company had a negative working capital of
approximately $2.5 million (including $18.4 of current maturities of long-term
debt) and had approximately $4.6 million of cash and cash equivalents. In
addition, the company had $2.4 million available under the working capital loan
of the credit facility and $0.5 million available under the acquisition loan of
the credit facility.
At March 31, 2000, the company had approximately $327.0 million of long
term debt, net of current maturities, outstanding as follows:
o $270 million of 9 3/4% senior notes due 2005;
o $56.3 million outstanding under the company's credit facility; and
o $0.7 million of other debt, net of debt discount.
The company's 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 March 31, 2000, the company had $20.2 million
outstanding under the working capital loan (excluding approximately $2.5 million
of availability supporting letters of credit) and $54.5 million outstanding
under the acquisition loan. The revolving credit facility bears interest per
annum, at the company's option, at LIBOR plus 2.75% or the "prime" rate plus
1.0% 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 June 30, 2000 in 12 equal quarterly
installments.
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
14
<PAGE>
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. The company was in compliance with all the covenants as of March 31,
2000.
Although the company has periodically reported negative cash flows from
operations on a historical basis, the company believes 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.
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 assurance that
sufficient funds will be available to finance intended acquisitions or capital
expenditures to sustain the company's recent rate of growth.
On May 5, 2000, the company began trading its common stock on the American
Stock Exchange under the symbol "ICY" rather than on the Nasdaq Exchange where
it previously was 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 is encountered, the company
believes that it will be able to pass on its higher costs to its customers.
The ice business is highly seasonal. 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. 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 less than
40% of its 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, the company will
most likely 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 if the weather
is unusually cool or rainy.
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 March 1, 2000, the company exercised its right to redeem its $0.01 par
value Series C preferred stock. The 100 outstanding shares were redeemed for $10
per share.
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.
15
<PAGE>
On May 1, 2000, the company elected to pay in-kind dividends on the 10%
exchangeable preferred stock, which totaled 14,961 shares of 10% exchangeable
preferred stock and 115,083 warrants to purchase common stock at $13 per share.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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.
EXHIBIT NO. DESCRIPTION
- ----------- -------------------------------------------------------------------
3.1 Restated Articles of Incorporation of Packaged Ice filed with the
Secretary of State of the State of Texas on February 5, 1992.
(Exhibit 3.2)(1)
3.2 Articles of Amendment to the Restated Articles of Incorporation of
Packaged Ice filed with the Secretary of State of the State of
Texas on August 11, 1998. (Exhibit 3.2) (6)
3.3 Amended and Restated Bylaws of Packaged Ice, effective as of
January 20, 1997. (Exhibit 3.5)(1)
4.1 Certificate of Designation of Series C Preferred Stock. (Exhibit
4.1)(4)
4.2 Amended and Restated Certificate of Designation of 10% Exchangeable
Preferred Stock. (Exhibit 4.12)(5)
4.3 Indenture by and among Packaged Ice, as Issuer, the Subsidiary
Guarantors and U.S. Trust Company of Texas, N.A. as Trustee dated
as of January 28, 1998, Amended and Restated as of April 30, 1998.
(Exhibit 4.1)(5)
4.4 Registration Rights Agreement dated April 30, 1998 by and among
Packaged Ice, Ares and Silver Brands Partners, L.P. (formerly SV
Capital Partners, L.P.). (Exhibit 4.8)(5)
4.5 Common Stock Purchase Warrant, dated July 17, 1997, executed by
Packaged Ice for the benefit of Silver Brands Partners. (Exhibit
10.39)(2)
4.6 Registration Rights Agreement by and between Packaged Ice and Ares,
dated February 3, 1999. (7)
4.7 Registration Rights Agreement by and between Packaged Ice and
Silver Brands Partners, L.P., dated February 3, 1999. (7)
4.8 Registration Rights Agreement by and among Packaged Ice, and Dale
Johnson, Alan Bernstein and Robert Miller, dated as of April 17,
1997. (Exhibit 10.9)(1)
4.9 Warrant Agreement among Packaged Ice and U.S. Trust Company of
Texas, N.A., a national banking association, as Warrant Agent,
dated as of April 17, 1997. (Exhibit 10.12)(1)
4.10 Registration Rights Agreement, dated as of July 17, 1997, by and
between Packaged Ice and Silver Brands Partners. (Exhibit 10.41)(2)
4.11 Warrant Agreement among Packaged Ice and U.S. Trust Company of
Texas, N.A., a national banking association, as Warrant Agent,
dated as of October 16, 1997. (Exhibit 10.7)(3)
4.12 Common Stock Purchase Warrant Agreement issued by Packaged Ice and
issued to Culligan Water Technologies, Inc. issuing 1,807,692 fully
paid and nonassessable shares of Packaged Ice's common stock at an
exercise price of $13.00 per share dated December 2, 1997. (Exhibit
10.3)(4)
4.13 Registration Rights Agreement by and among Packaged Ice, Culligan
Water Technologies, Inc. and Erica Jesselson. (Exhibit 10.5)(4)
4.14 Registration Rights Agreement by and among Packaged Ice, A. J.
Lewis III and Liza B. Lewis, dated as of April 17, 1997. (Exhibit
10.5)(1)
11.1+ Computation of Earnings Per Share.
27.1+ Financial Data Schedule.
- --------------------------------
16
<PAGE>
+ Filed herewith.
(1) Filed as an Exhibit to Packaged Ice's Registration Statement on Form
S-4 (File No. 333-29357), filed with the Commission on June 16, 1997.
(2) Filed as an Exhibit to the Amendment No. 1 to Packaged Ice's
Registration Statement on Form S-4 (No. 333-29357), filed with the
Commission on July 29, 1997.
(3) Filed as an Exhibit to Packaged Ice's Third Quarter Disclosure on Form
10-Q with the Commission on November 14, 1997.
(4) Filed as an Exhibit to Form 8-K filed on behalf of Packaged Ice with
the Commission on December 15, 1997.
(5) Filed as an Exhibit to Form 8-K/A filed on behalf of Packaged Ice with
the Commission on May 12, 1998.
(6) Filed as an Exhibit to Amendment No. 1 to Packaged Ice's Registration
Statement on Form S-1 (File No. 333-60627), filed with the Commission
on October 2, 1998.
(7) Filed as an Exhibit to Form 10-K, filed with the Commission on March
30, 1999.
(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: May 8, 2000 By: /s/ JAMES F. STUART
James F. Stuart
Chief Executive Officer
Date: May 8, 2000 By: /s/ JAMES C. HAZLEWOOD
James C. Hazlewood
Chief Financial and Accounting Officer
17
EXHIBIT 11.1
PACKAGED ICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Loss before extraordinary item
and preferred dividends .............................. $(13,583) $(13,378)
Less: Dividends on 10% exchangeable
and 13% exchangeable preferred stock ................. (750) (908)
-------- --------
Net loss attributable to common shareholders ........... $(14,333) $(14,286)
======== ========
Weighted average common shares outstanding ............. 19,309 13,810
Incremental shares attributable to outstanding
stock options and warrants ........................... 740 764
-------- --------
As adjusted for diluted earnings per share calculation . 20,049 14,574
======== ========
Net loss per common share:
Basic ............................................ $ (0.74) $ (1.03)
Diluted (1) ...................................... $ (0.71) $ (0.98)
- ----------------------
(1)This calculation is submitted in accordance with Regulation S-K; although it
is contrary to paragraphs 13 and 27 of the Financial Accounting Standards
Board's Statement of Financial Standard No. 128 because it produces an
antidilutive result.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM COMPANY'S
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED IN THE COMPANY'S FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,574
<SECURITIES> 0
<RECEIVABLES> 17,165
<ALLOWANCES> 465
<INVENTORY> 10,310
<CURRENT-ASSETS> 37,819
<PP&E> 233,393
<DEPRECIATION> 45,390
<TOTAL-ASSETS> 466,650
<CURRENT-LIABILITIES> 40,274
<BONDS> 327,002
31,339
0
<COMMON> 196
<OTHER-SE> 67,839
<TOTAL-LIABILITY-AND-EQUITY> 466,650
<SALES> 35,512
<TOTAL-REVENUES> 35,512
<CGS> 25,916
<TOTAL-COSTS> 41,114
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,981
<INCOME-PRETAX> (13,583)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,583)
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<NET-INCOME> (13,583)
<EPS-BASIC> (0.74)
<EPS-DILUTED> (0.74)
</TABLE>
