UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period _______ to _______
Commission file number 333-29357
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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) (Zip Code)
(713) 464-9384
(Issuer's telephone number, including area code)
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share
Securities registered pursuant to Section 12(g) of the Act
Preferred Share Purchase Rights
Indicate by check mark 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is approximately $54.8 million as of March 10, 2000. The total number
of shares of common stock, par value $0.01 per share, outstanding as of March
10, 2000 was 19,308,709.
Documents Incorporated By Reference
Items 10, 11, 12 and 13 of Part III have been omitted from this report, since
Packaged Ice, Inc. will file with the Securities and Exchange Commission, not
later than 120 days after the close of its fiscal year, a definitive proxy
statement, pursuant to Regulation 14A, which involves the election of directors.
The information required by Items 10, 11, 12 and 13 of Part III of this report,
which will appear in the definitive proxy statement, is incorporated by
reference into this Annual Report.
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business............................................... 2
Item 2. Properties............................................. 10
Item 3. Legal Proceedings...................................... 11
Item 4. Submission of Matters to a Vote of Security Holders.... 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................. 12
Item 6. Selected Financial Data................................ 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 18
Item 8. Financial Statements and Supplementary Data............ 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................... 28
<PAGE>
PART I
ITEM 1. BUSINESS
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. Packaged Ice has grown significantly
since its incorporation in 1990, primarily through the implementation of a
consolidation strategy within the highly fragmented packaged ice industry. Since
April 1997, Packaged Ice has completed 76 acquisitions of traditional ice
companies, principally in the southern half of the United States. These
acquisitions have enabled Packaged Ice 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.
Packaged Ice predominantly operates in two business segments: ice products
and non-ice operations. Ice products accounted for approximately 93% and 91% of
revenues in 1998 and 1999, respectively, and 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, Packaged Ice's proprietary
machines that produce, package, store and merchandise ice at the
point of sale through an automated, self-contained system.
Packaged Ice's other business segment, non-ice, consists of refrigerated
warehousing, bottled water and the leasing of ice production equipment. The
majority of non-ice operations was acquired through acquisitions completed in
1998.
At December 31, 1999, Packaged Ice owned or operated 70 ice manufacturing
plants, one bottled water manufacturing facility, 44 distribution centers and
nine refrigerated warehouses. Including an installed base of 2,354 Ice
Factories, Packaged Ice had a combined, rated ice manufacturing capacity of
approximately 14,400 tons of ice per day.
TRADITIONAL ICE MANUFACTURING
The packaged ice industry is highly fragmented and is led by Packaged Ice
and several regional, multi-facility competitors. In addition, the industry
includes numerous local and regional companies of varying size and competitive
resources. Traditional ice manufacturers produce and package ice at centrally
located facilities and normally distribute to a limited radius of approximately
100 miles from the point of production. Due to high product transportation and
storage costs, the ice business has historically been a regional service
business. As a result of geographic constraints, success in the ice business
depends upon an efficient manufacturing and distribution system with
high-density customer distribution routes in a region; high customer
concentration within a market area; and the ability to ensure prompt and
reliable delivery during peak seasonal months. Management believes that Packaged
Ice's consolidation of traditional ice manufacturers within a geographic region
provides efficiencies in manufacturing and distribution largely due to higher
density of customer sites and the flexibility to shift production among its
manufacturing plants within a region. These efficiencies give Packaged Ice an
advantage over its competitors.
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Packaged Ice believes that packaged ice products are purchased as needed
by consumers and that such purchases are relatively price insensitive due
principally to the low cost of the product and absence of substitute products.
The industry is seasonal, characterized by peak demand occurring during the
warmer months of May through September, with an extended selling season
occurring in the southern United States. On a year-to-year basis, demand remains
stable and is generally only adversely affected by abnormally cool or rainy
weather within a region. Management believes that Packaged Ice's geographic
diversification helps mitigate the potential adverse impact of abnormal weather
patterns in any particular market.
THE ICE FACTORY
The Ice Factory is an automated system that is capable of producing,
packaging and storing up to 40,000 bags of ice per year. It is most frequently
used in high volume supermarkets, and other commercial locations, such as
construction staging areas and large manufacturing plants. The placement of the
Ice Factory at customer locations is based upon a thorough review of each site,
which primarily focuses on historical ice sales at the site. Also included in
the site review is an analysis of the surrounding trade area, the level of
overall retail activity, the level of direct competition and the proximity of
the site to other Ice Factories. Upon completion of this review, a determination
is made as to the viability of the location and whether single or multiple
machines are required at the time of initial installation. Packaged Ice owns or
leases from a third party the machines and charges its customers for empty bags
purchased and delivered. Packaged Ice generally pays for all installation and
maintenance costs, while the retailer provides and pays for the cost of
utilities.
The Ice Factory, when combined with traditional delivery methods, provides
Packaged Ice numerous advantages compared to companies with only traditional ice
manufacturing and delivery. Some of these advantages include:
o a flexible delivery system designed to supply high volume locations
and capable of cost-effectively servicing a market in excess of 100
miles from traditional ice manufacturing facilities;
o the ability to redistribute production from Packaged Ice's
traditional ice facilities to new customers as well as satisfy
seasonal peak demand at stores with Ice Factories; and
o higher operating margins, due to significantly reduced production
(customer pays for electricity and water), storage and distribution
costs.
An Ice Factory typically consists of one or more standard ice cubers, an
ice merchandiser built to Packaged Ice's specifications and a bagging machine.
Lancer Corporation, a shareholder of Packaged Ice, manufactures the bagging
component, the heart of the Ice Factory, under an exclusive original equipment
manufacturing agreement. To guard against product contamination and satisfy
consumer demand for high quality, sanitary ice, the Ice Factory has been
engineered to meet all National Sanitation Foundation specifications for ice
production, contains a patented automatic sanitizing system and is U.L.
approved. Packaged Ice has obtained patents on certain of the technologies used
in the bagging device component of the Ice Factory. Management believes that
these patents cover all patentable technology of a material nature currently
being used in the bagging device.
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BUSINESS STRATEGY
Packaged Ice's business strategy is to strengthen its position as the
leading packaged ice company in North America. Packaged Ice plans to increase
revenues and profitability through a combination of selective acquisitions of
traditional ice companies, new placements of Ice Factories, internal growth and
margin enhancement. Management believes that Packaged Ice's size, national
scope, industry experience, ability to complete and integrate acquisitions and
its proprietary Ice Factory give it significant competitive advantages in
pursuing its business strategy. These advantages have enabled Packaged Ice to
develop an efficient regional production and distribution network and to service
national accounts through an expanded geographic presence. As a result,
management believes Packaged Ice competes effectively with smaller, local
packaged ice companies.
ACQUISITIONS
Packaged Ice's acquisition strategy is focused on expanding its
traditional ice operations into new markets across the United States and
increasing its presence in markets it currently serves. In substantially all
acquisitions, Packaged Ice requires the seller or its principal shareholders to
enter into a covenant not to compete. In addition, Packaged Ice seeks to retain
key management of the acquired companies in many instances. Acquired traditional
ice companies generally can be classified into one of two categories as follows:
o MARKET LEADERS. As part of its strategy to expand its traditional
ice operations into new markets and strengthen its national
presence, Packaged Ice focuses its acquisition efforts on companies
with a leading market share position in an identified market area.
These acquisitions may represent an initial entry into a geographic
area, or, alternatively, be made subsequent to the placement of Ice
Factories with key customer accounts in a region. Acquiring a
leading competitor is designed to give Packaged Ice critical mass
required to provide a high level of service, additional customer
relationships for the potential placement of Ice Factories and a
platform to integrate tuck-in acquisitions.
o TUCK-INS. Tuck-in acquisitions are smaller acquisitions intended to
add incremental production and/or distribution capabilities in an
established market. Since existing operations can be leveraged,
substantial cost savings can be realized while generating
incremental revenues and enhancing Packaged Ice's market presence
and ability to service customer accounts. If the tuck-in acquisition
results in redundant ice manufacturing capacity, the related
production equipment can be readily dismantled and redeployed to a
region in need of additional capacity or sold.
Since April 1997, Packaged Ice has completed 76 acquisitions. Significant
acquisitions have included the purchase of Reddy Ice Corporation from Suiza
Foods Corporation in April 1998 for approximately $180.8 million in cash, and
the purchase of Cassco Ice & Cold Storage, Inc. in July 1998 for approximately
$59 million in cash. Reddy, prior to the acquisition, had been active in the
consolidation of the packaged ice industry, having made 28 acquisitions from
January 1997 to April 1998. Cassco was a leading regional producer and
distributor of packaged
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ice products and was an owner/operator of refrigerated warehouses in the
Mid-Atlantic region. Packaged Ice's acquisitions have provided:
o increased cash flow;
o a national scope to better service large customers;
o economies of scale and cost savings through the consolidation of
redundant manufacturing and distribution facilities and the
consolidation of redundant administrative and selling functions; and
o improved access to key markets and new customers.
DISTRIBUTION
Due to high product transportation and shipping costs, the ice business
has historically been a regional service business in which manufacturers produce
and package ice at centrally-located facilities and distribute to a limited
market radius of approximately 100 miles. Due to these geographic constraints
and the limited amount of product differentiation in the packaged ice industry,
Packaged Ice focuses on maintaining an efficient service, distribution and
pricing system in each of its markets. Packaged Ice delivers ice through both
traditional distribution and the on-site Ice Factory system. Packaged Ice
believes that this unique combination of distribution platforms enables it to
redistribute ice production efficiently from its traditional ice facilities to
additional customers and to supplement Ice Factory production during seasonal
peak demand.
TRADITIONAL DISTRIBUTION. Packaged Ice produces and bags ice at its
centrally located manufacturing facilities and subsequently stores the ice or
transports it directly to retail and commercial customers. To store ice
inventory, Packaged Ice owns or rents appropriate freezer space. During the peak
summer months, Packaged Ice may lease additional trucks and purchase additional
ice from other producers to maintain high service levels and customer goodwill.
Packaged Ice currently serves over 74,000 customer locations principally
through, among other things, the use of its approximately 67,000 ice
merchandisers (small cold storage boxes) that are installed at store locations.
Packaged Ice's growth has allowed it to develop an efficient production and
distribution network by providing it with customer density, additional
production capacity and dedicated distribution centers. Because of increased
customer density, Packaged Ice has improved routing efficiencies and reduced its
transportation costs, which represents its largest cost component. In addition,
the acquisition of additional production capacity in selected markets has
allowed Packaged Ice to avoid "stock outs" and lost sales during peak periods.
Further, by acquiring dedicated distribution centers and refrigerated warehouse
facilities, Packaged Ice has reduced its storage costs. Packaged Ice also sells
to wholesale distributors, who resell the ice to retail customers.
ICE FACTORY. By producing and bagging the ice at the customer's location,
the Ice Factory reduces Packaged Ice's distribution, labor and energy costs
because retailers provide and pay for the cost of utilities. The transportation
costs which are characteristic of traditional ice delivery are also eliminated
by on-site production. As a result of these cost savings, management believes
that the Ice Factory provides Packaged Ice with superior operating margins in
high volume locations compared to traditional ice delivery.
Packaged Ice believes that providing frequent, regular and reliable
service and support is one of the most important elements in operating its Ice
Factory network. Packaged Ice announced on February 15, 2000 the selection of
Isochron Data Corporation as its exclusive
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supplier of wireless remote monitoring services for the Ice Factories.
Isochron's PolarCast system is a wireless remote monitoring system that employs
the Internet to efficiently and effectively monitor refrigerator and freezer
equipment. Because the Isochron system employs wireless technology, the need for
and cost of dedicated telephone lines is removed from the communication process.
The result is a better service level of communication from the Ice Factories to
Packaged Ice's service center at a fraction of the previous system's cost.
Additionally, Packaged Ice has a routine route servicing system, using trained
service representatives to perform the regularly scheduled service procedures,
and Packaged Ice maintains toll-free telephone support for responding to
customer calls regarding repairs and maintenance.
ICE PRODUCTS
Packaged Ice markets its ice products to satisfy a broad range of
customers, primarily under the Reddy Ice brand name. Packaged Ice produces its
ice in cube, half-moon, cylindrical and crushed forms to satisfy customer
demands. Packaged Ice's primary ice product is cocktail ice packaged in seven
and eight pound bags, which it sells principally to convenience stores and
supermarkets. Packaged Ice also sells cocktail ice in assorted bag sizes ranging
from 16 to 50 pounds to restaurants, bars, stadiums, vendors and caterers. In
addition, Packaged Ice sells block ice in 10, 25 and 300 pound sizes, primarily
to commercial, agricultural and industrial customers.
NON-ICE OPERATIONS
Packaged Ice also derives revenues from other goods and services including
refrigerated warehousing, the manufacturing and sale of bottled water and sale
and leasing of ice production equipment other than the Ice Factory.
RAW MATERIALS
Packaged Ice has not experienced any material supply problems in the past
with respect to its business segments. Except with respect to its water supply
and electricity in specific markets, Packaged Ice is not dependent upon any
single supplier for materials used in the manufacturing and packaging of its ice
products.
Packaged Ice uses large quantities of plastic bags. Bag usage for 2000 is
expected to approximate 425 million bags. There are numerous plastic bag
manufacturers throughout the United States with the capability of providing
Packaged Ice's plastic bag needs. Arrow Industries, Inc. and Bemis Company, Inc.
currently manufacture the majority of plastic bags used by Packaged Ice.
Historically, market prices for plastic bags have fluctuated in response to a
number of factors, including changes in polyethylene prices. Packaged Ice
historically has not attempted to pass through changes in the price of plastic
bags; therefore, a large, abrupt change in the price of plastic bags could have
a material adverse effect on Packaged Ice's operating margins, although such
adverse effects historically have been temporary. There can be no assurance that
significant changes in plastic bag, fuel or other commodity prices would not
have a material adverse effect on Packaged Ice's business, results of operations
and debt service capabilities.
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<PAGE>
CUSTOMERS
Packaged Ice markets its ice products to a broad range of customers,
including supermarket chains, convenience stores, wholesale ice and food
distributors, commercial users, resorts and restaurants, agricultural buyers and
competitive producers and self-suppliers who experience supply shortages. The
primary purchasers of Packaged Ice's traditional ice products and users of its
Ice Factory are retailers with no internal ice production capacity. Management
believes that reasonable pricing, when combined with quality service, results in
customer loyalty.
Packaged Ice has a diversified customer base, with its largest customer
accounting for less than 6% of sales in 1999. In addition, Packaged Ice has a
geographically diversified customer base, with customer locations in 27 states
throughout the southern half of the United States and the District of Columbia.
Some of Packaged Ice's larger national accounts include convenience and
petroleum store chains Circle K, 7-Eleven, Texaco, Exxon/Mobil, and Chevron and
grocery store chains Albertson's, Kroger, Safeway and Wal-Mart/Sam's Club. Major
regional customers include convenience and petroleum store chains L'il Champs
and Diamond Shamrock and grocery store chains Publix, Winn-Dixie and HEB.
Packaged Ice believes the geographic breadth of its customer base helps to
protect it from the effects of adverse weather in a particular region, such as
reduced sales due to abnormally cool or rainy conditions.
COMPETITION
Competition in the packaged ice industry is based primarily on service,
price and quality. To compete successfully, an ice manufacturer must be able to
increase production and distribution capacity substantially on a seasonal basis
while maintaining cost efficiency. Management believes that Packaged Ice's high
quality traditional production facilities, financial resources, high regional
market share and associated route density and proprietary Ice Factory capability
provide it with numerous competitive advantages. Management also believes that
Packaged Ice's geographic diversification and the advantages of the Ice Factory
for high volume retailers have helped develop relationships with certain
national supermarket chains and will continue to assist Packaged Ice in its
penetration of this market.
The traditional packaged ice industry is highly competitive. In addition
to Packaged Ice's direct competition, numerous convenience and grocery retailers
operate commercial ice plants for internal use or manufacture and bag ice at
their store locations. Because only one ice manufacturer typically serves a
retail site, Packaged Ice's ice products generally do not face competition
within a particular store. The traditional packaged ice industry in the United
States is led by Packaged Ice and several regional, multi-facility competitors
and, in addition, includes numerous local and regional companies of varying
sizes and competitive resources.
INFORMATION SYSTEMS
Internal information systems are critical to Packaged Ice's ability to
operate efficiently. Packaged Ice is able to monitor individual manufacturing
plant and Ice Factory performance on a daily basis through automated reporting
systems. This information enables management to track profitability, identify
opportunities to redistribute traditional manufacturing capacity among markets,
assess the cost-effectiveness of an Ice Factory at a particular location and
analyze market sales trends. In addition, Packaged Ice has converted its
accounting and financial reporting functions to its satellite-based system that
is installed in all operating locations, which
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facilitates centralized cash management, timely financial reporting, consistent
reporting formats and improved inventory tracking.
INTELLECTUAL PROPERTY
Packaged Ice regards the Ice Factory as proprietary and relies primarily
on a combination of patents, nondisclosure and confidentiality agreements and
other copyright protection methods to secure and protect its intellectual
property rights. Packaged Ice holds or has exclusive rights to several patents
relating to the Ice Factory. In addition, Packaged Ice has developed or acquired
a number of trademarks (both registered and common law) and trade names for use
in its ice business and holds licenses for the use of additional trademarks from
third parties. Although Packaged Ice's use of its trademarks has created
goodwill and results in product differentiation, management does not believe
that the loss of any of Packaged Ice's trademarks would have a material adverse
effect on its operations.
GOVERNMENT REGULATION
The packaged ice industry is subject to various federal, state and local
laws and regulations. These require Packaged Ice, among other things, to obtain
licenses for its plants and machines, to pay annual license and inspection fees,
to comply with certain detailed design and quality standards regarding its
plants and the Ice Factories and to control the quality and quantity of its ice
continuously.
Packaged Ice's packaged ice products are subject to federal and state
regulation as a food pursuant to the Federal Food, Drug and Cosmetic Act,
regulations promulgated thereunder by the Food and Drug Administration and
analogous state statutes. These statutes and regulations impose comprehensive
food manufacturing practices governing the sanitary conditions of the facilities
where ice is manufactured, the design and maintenance of the equipment used to
manufacture the ice, the quality of source water and the sanitary practices of
employees during ice production. The State of Florida has imposed additional
requirements including (a) quarterly testing of the ice for the presence of
microbes and certain substances regulated under the federal Safe Drinking Water
Act, (b) specific requirements for keeping ice packaging operations separate
from other activities and (c) labeling requirements for the bags used, including
the name of the company and the net weight. Certain of Packaged Ice's Ice
Factories and ice manufacturing facilities are subject to routine and random
safety, health and quality inspections. Packaged Ice believes that its
facilities, manufacturing practices and Ice Factories are in substantial
compliance with all applicable federal, state and local laws and regulations and
that Packaged Ice will be able to maintain such substantial compliance in the
future.
Packaged Ice is subject to certain health and safety regulations including
Occupational Safety and Health Act regulations. These regulations require
Packaged Ice to comply with certain manufacturing, health and safety standards
to protect its employees from accidents.
ENVIRONMENTAL MATTERS
Packaged Ice's ice manufacturing and ice storage operations are subject to
federal, state and local environmental laws and regulations. As a result,
Packaged Ice has the potential to be involved from time to time in
administrative or legal proceedings relating to environmental matters. There can
be no assurance that the aggregate amount of any environmental liabilities that
might be asserted in any such proceeding will not be material. Packaged Ice
cannot predict the types of environmental laws or regulations that may be
enacted in the future by federal, state
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or local governments; how existing or future laws or regulations will be
interpreted or enforced; or what types of environmental conditions may be found
to exist at its facilities. The enactment of more stringent laws or regulations
or a stricter interpretation of existing laws and regulations may require
additional expenditures by Packaged Ice, some of which could be material.
Packaged Ice generates and handles certain hazardous substances in
connection with the manufacture and storage of packaged ice. The handling and
disposal of these substances and wastes is subject to federal, state and local
regulations, and site contamination originating from the release or disposal of
such substances or wastes can lead to significant liabilities. In addition,
although Packaged Ice has historically used freon refrigerants, which have been
banned from production; several alternate unregulated refrigerants exist which
have similar or better economic basis. The most prominent banned product used by
Packaged Ice was R-12 freon, which has been easily exchanged by Packaged Ice's
own qualified service personnel during the course of ordinary servicing of ice
merchandising equipment. Packaged Ice believes that the numerous, economically
neutral refrigerants available assures that the ban will have little, if any,
effect on the results of Packaged Ice's operations.
Certain of Packaged Ice's current and former facilities are located in
industrial areas and have been in operation for many years. As a consequence, it
is possible that historical activities on these properties or current or
historical activities on adjacent properties have affected properties that are
currently or formerly owned by Packaged Ice. As a result, additional
environmental issues may arise in the future as a result of these activities,
the precise nature of which Packaged Ice cannot predict.
Packaged Ice thus may become liable for site contamination at properties
currently or formerly owned by Packaged Ice. Although such liability has not had
a material adverse affect on the financial condition or operating results of
Packaged Ice in the past and management has no knowledge of claims that could be
expected to have a material adverse affect on its financial condition or
operations, there can be no assurance that Packaged Ice will not incur
significant costs in connection with historical handling or disposal of such
substances and wastes.
EMPLOYEES AND LABOR RELATIONS
At December 31, 1999, Packaged Ice employed approximately 2,000 employees,
of which 14 were represented by a union or were subject to a collective
bargaining agreement. Packaged Ice generally has not experienced difficulty in
meeting its seasonal employment needs. Packaged Ice has never experienced a work
stoppage due to labor difficulties, and management believes its relationship
with its employees is good.
GENERAL ECONOMIC TRENDS AND SEASONALITY
Packaged Ice'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, Packaged Ice
believes that it will be able to pass on its higher costs to its customers.
The ice business is highly seasonal. Packaged Ice experiences seasonal
fluctuations in its net sales and profitability with a disproportionate amount
of Packaged Ice's net sales and a majority of its net income typically realized
in its second and third calendar quarters. Packaged Ice 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
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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, Packaged Ice will most
likely experience lower profit margins and possibly even losses during the first
and fourth calendar quarters. In addition, because Packaged Ice's operating
results depend significantly on sales during its peak season, Packaged Ice'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.
ITEM 2. PROPERTIES
Packaged Ice maintains its principal executive offices in Houston, Texas,
where it leases approximately 13,050 square feet of space. The lease expires on
April 30, 2001. At December 31, 1999, Packaged Ice owned or leased 70
manufacturing plants, one bottled water manufacturing facility, 44 distribution
facilities and nine refrigerated warehouses. Including an installed base of
2,354 Ice Factories, Packaged Ice had a combined, rated ice manufacturing
capacity of approximately 14,400 tons per day. In addition, Packaged Ice has
regional service centers for its Ice Factories located throughout its market
areas.
Certain manufacturing and distribution facilities may be permanently
closed in conjunction with Packaged Ice's continuing consolidation plans, while
others may be closed on a seasonal basis depending upon production demand. The
following is a list of the facilities as of March 10, 2000:
<TABLE>
<CAPTION>
TRADITIONAL
MANUFACTURING
NO. OF BOTTLED WATER NO. OF NO. OF COLD CAPACITY
MANUFACTURING MANUFACTURING DISTRIBUTION STORAGE (RATED TONS
FACILITIES FACILITY FACILITIES FACILITIES PER DAY)
------------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Alabama.............. 4 1 1 - 682
Arkansas............. 1 - 5 - 240
Arizona.............. 5 - 1 1 1,085
California........... 2 - 1 1 240
Colorado............. 1 - - 1 200
Florida.............. 12 - 4 - 2,247
Georgia.............. 3 - 4 - 970
Louisiana............ 4 - 5 - 820
Mississippi.......... 1 - 1 - 60
Missouri............. 1 - - - 180
Maryland............. 1 - - - 9
New Mexico........... 1 - 1 - 160
Nevada............... 1 - - 1 200
North Carolina....... - - - 1 -
Oklahoma............. 3 - 2 - 470
Tennessee............ 3 - - - 244
Texas................ 18 - 16 - 3,068
Utah................. 1 - - - 120
Virginia............. 6 - 3 3 912
West Virginia........ 1 - - 1 96
Washington, D.C...... 1 - - - 98
----- ----- ----- ----- ---------
Total........... 70 1 44 9 12,101
===== ===== ===== ===== =========
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
Packaged Ice 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 Packaged Ice's consolidated financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended December 31, 1999, no matters were submitted to a
vote of security holders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Packaged Ice's common stock began trading on the Nasdaq National Market
System under the symbol "ICED" upon the pricing of Packaged Ice's initial public
offering in January 1999. The following table sets forth the high and low
closing prices of our common stock, for the periods indicated:
PRICE RANGE
---------------------
HIGH LOW
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1999
First Quarter................ $ 8.59 $ 6.00
Second Quarter............... $ 6.63 $ 3.88
Third Quarter................ $ 6.00 $ 3.31
Fourth Quarter............... $ 3.63 $ 2.38
On March 10, 2000, the closing sales price of the common stock as reported
by Nasdaq was $3.75 per share. As of March 10, 2000, Packaged Ice had
approximately 157 shareholders of record. Management estimates that there were
approximately 2,285 beneficial holders of Packaged Ice's common stock as of
March 10, 2000.
Packaged Ice has never declared or paid any cash dividends on its common
stock. In addition, provisions of Packaged Ice's revolving credit facility, the
10% exchangeable preferred stock and, in some instances, the 9 3/4% senior notes
prohibit Packaged Ice from paying dividends. Further, Packaged Ice intends to
retain any future earnings to fund growth. Accordingly, Packaged Ice does not
anticipate paying any cash dividends in the foreseeable future.
The following information relates to sales and other issuances by Packaged
Ice within the past three fiscal years of Packaged Ice securities, the sales and
issuances of which were not registered pursuant to the Securities Act. Unless
otherwise indicated, all of the following issuances were exempt from
registration under Section 4(2) of the Securities Act.
On January 17, 1997, Packaged Ice issued 124,831 shares of Series B
convertible preferred stock to The Food Fund Limited Partnership, Norwest Equity
Fund V and an accredited investor for an aggregate cash consideration of
$757,761. All of the shares of Series B convertible preferred stock were
converted into common stock upon the close of the initial public offering at a
conversion price of $6.07 per share.
On February 18, 1997, Packaged Ice issued 6,000 shares of common stock to
an employee for aggregate cash consideration of $45,000.
On April 17, 1997, Packaged Ice issued a total of 955,000 shares of common
stock valued at $10 per share to the former shareholders of Southwest Texas
Packaged Ice, Inc., Mission Party Ice, Inc. and Southwestern Ice, Inc. as
partial consideration for Packaged Ice's acquisition of Southwest Texas Packaged
Ice, Inc., Mission Party Ice, Inc. and Southwestern Ice, Inc. On the same day,
Packaged Ice issued $50 million of 12% senior notes due 2004 with detachable
warrants to purchase 511,885 shares of common stock for $0.01 per share. In
connection with such issuance, Packaged Ice issued warrants to purchase 127,972
shares of common stock for $0.01 per share to Jefferies & Company, Inc., the
initial purchaser of the 12% senior notes, as partial consideration for its
services.
-12-
<PAGE>
On May 22, 1997, in connection with its acquisition of various assets of
The Pipkin Company d/b/a The Ice Company, Packaged Ice issued a total of 2,500
shares of common stock valued at $10 per share to H.O. Pipkin and Joy E. Pipkin
as partial consideration for the acquisition. On the same day, Packaged Ice
issued 18,271 shares of common stock to James M. Raines in exchange for the
return of warrants entitling James M. Raines to purchase 43,296 shares of common
stock at an exercise price of $5.78 per share. This issuance to Mr. Raines was
exempt from registration under Section 3(a)(9) of the Securities Act.
On May 30, 1997, as partial consideration for its acquisition of various
assets of Apache Ice Company, Packaged Ice issued 4,500 shares of common stock
valued at $10 per share to an accredited investor.
On June 2, 1997, Packaged Ice issued 2,628 shares of common stock to
Lancer Corporation for aggregate cash consideration of $26,280.
On July 17, 1997, Packaged Ice issued 300,000 shares of common stock to
Silver Brands Partners, L.P. for an aggregate cash consideration of $3 million.
In connection with such issuance and without additional consideration, Packaged
Ice also issued a warrant to purchase up to 100,000 shares of common stock for
$14 per share.
On August 21, 1997, as partial consideration for its acquisition of
various assets of Whitted Ice Service, Packaged Ice issued a total of 15,411
shares of common stock valued at $10 per share to the former shareholders of
Whitted Ice Service.
On September 3, 1997, Packaged Ice issued a total of 15,000 shares of
common stock valued at $10 per share to the former shareholders of First Ice
Company and Codorus Leasing Company as partial consideration for Packaged Ice's
acquisition of both First Ice Company and Codorus Leasing Company.
On September 4, 1997, as partial consideration for its acquisition of
various assets of A-Alaska Ice, Inc., Packaged Ice issued a total of 56,500
shares of common stock valued at $10 per share to A-Alaska, Inc.
On September 10, 1997, Packaged Ice issued a total of 15,000 shares of
common stock, valued at $10 per share, to the former shareholders of
McGehee-Neutze, Inc. as partial consideration for the Packaged Ice's acquisition
of McGehee-Neutze, Inc.
On September 12, 1997, Packaged Ice issued a total of 51,000 shares of
common stock valued at $10 per share to the former shareholders of Century Ice
of Tulsa, Inc. and Ice Cold Enterprises, Inc. as partial consideration for
Packaged Ice's acquisition of both Century Ice of Tulsa, Inc. and Ice Cold
Enterprises, Inc.
On September 27, 1997, as partial consideration for its acquisition of
various assets of A-Arctic Ice, Packaged Ice issued to Donald S. Olsen and
Christopher S. Olsen a total of 30,000 shares of common stock valued at $10 per
share.
On October 16, 1997, Packaged Ice issued to Jefferies & Company, Inc., the
initial purchaser, $25 million of 12% senior notes due 2004 with detachable
warrants to purchase 255,943 shares of common stock for $0.01 per share, for an
aggregate of $25 million in cash. This issuance was exempt from registration
under Rule 144A of the rules promulgated under the Securities Act.
-13-
<PAGE>
On October 19, 1997, as partial consideration for its acquisition of
various assets of Ed's Refrigeration, Inc., Packaged Ice issued to Edmond Paques
and True Dee Paques a total of 10,000 shares of common stock valued at $10 per
share.
On October 27, 1997, Packaged Ice issued a total of 127,800 shares of
common stock valued at $10 per share to the former shareholders of Central
Arkansas Cold Storage, Inc. and Golden Eagle Ice Company as partial
consideration for Packaged Ice's acquisition of both Central Arkansas Cold
Storage, Inc. and Golden Eagle Ice Company.
On December 2, 1997, Packaged Ice issued to Culligan Water Technologies,
Inc. 100,000 shares of 10% exchangeable preferred stock, 40 shares of Series C
preferred stock, and warrants, having an exercise price of $13 per share, to
purchase 1,807,692 shares of common stock, for an aggregate of $10 million. On
the same date, Packaged Ice issued to an accredited investor 15,000 shares of
10% exchangeable preferred stock, 6 shares of Series C preferred stock and
warrants to purchase an aggregate of 115,385 shares of common stock, for an
aggregate of $1.5 million. The 10% exchangeable preferred stock may be exchanged
for subordinated notes in an aggregate principal amount equal to the liquidation
preference of the shares exchanged.
On December 15, 1997, Packaged Ice issued to Culligan 135,000 shares of
10% exchangeable preferred stock and 54 shares of Series C preferred stock for
an aggregate purchase price of $13.5 million.
On January 15, 1998, Packaged Ice issued 4,500 shares of common stock for
an aggregate cash consideration of $27,990 and issued 1,800 shares of common
stock for aggregate cash consideration of $12,150 upon exercise of options by a
former employee. These issuances were exempt from registration under Section
3(a)(9) of the Securities Act.
On January 28, 1998, Packaged Ice issued to Jefferies & Company, Inc., the
initial purchaser, $145 million of 9 3/4% Series A senior notes due 2005.
On February 6, 1998, Packaged Ice issued 10,000 shares of common stock,
valued at $10 per share, to the former shareholders of Fiesta Fun Ice Co. as
partial consideration for Packaged Ice's acquisition of Fiesta Fun Ice Co.
On February 13, 1998, Packaged Ice issued a total of 188,308 shares of
common stock valued at $13 per share to the former shareholders of Scianna's
Party Ice, Inc. as partial consideration for Packaged Ice's acquisition of
Scianna's Party Ice, Inc.
On March 5, 1998, Packaged Ice issued a total of 38,460 shares of common
stock valued at $13 per share to the former shareholders of Party Time Ice, Co.
as partial consideration for Packaged Ice's acquisition of Party Time Ice, Co.
On March 6, 1998, Packaged Ice issued a total of 91,565 shares of common
stock valued at $13 per share to the former shareholders of J.P. Albert Ice,
Co., as partial consideration for Packaged Ice's acquisition of J.P. Albert Ice,
Co.
On March 11, 1998, Packaged Ice issued to Arthur Biggs, Charlotte Biggs
and other accredited investors a total of 379,619 shares of common stock valued
at $10 per share as partial consideration for Packaged Ice's acquisition of
Artic Ice Corporation.
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<PAGE>
On March 24, 1998, Packaged Ice issued a total of 192,308 shares of common
stock valued at $13 per share to the former shareholders of Anniston Ice & Coal
Company, Inc. as partial consideration for Packaged Ice's acquisition of
Anniston Ice & Coal Company, Inc.
On April 30, 1998, Packaged Ice issued to Jefferies & Company, Inc., the
initial purchaser, $125 million of 9 3/4% Series A senior notes due 2005. On the
same date, Packaged Ice issued to Ares and SV 400,000 shares of Series A 13%
preferred stock and warrants to purchase 975,752 shares of common stock for
aggregate cash consideration of $40 million.
On June 30, 1998, Packaged Ice issued to Tim D. Davis a warrant to
purchase 15,000 shares of common stock at an exercise price of $15 per share as
partial consideration for Packaged Ice's acquisition of Clinton Ice Company,
Inc.
On July 29, 1998, Packaged Ice issued 3,000 shares of common stock valued
at $10 per share to Carroll E. Summers, Jr. as partial consideration for
Packaged Ice's acquisition of a certain tract of real property located in
Laredo, Texas.
On February 3, 1999, Packaged Ice completed an initial public offering of
its common stock by issuing 10,750,000 shares at a price of $8.50 per share. The
gross proceeds from the public sale of $91.4 million were reduced by fees and
costs to underwriters and professionals by $8.3 million, resulting in net
proceeds to Packaged Ice of $83.1 million. Simultaneously, Packaged Ice utilized
$43.6 million of these proceeds to redeem the 13% exchangeable preferred stock
and issued 481,887 shares of common stock in payment of the redemption premium.
In conjunction with the registration of the common stock, the Series A and
Series B preferred stock with put redemption and the common stock with put
redemption were converted to 994,831 shares of common stock. Packaged Ice also
issued 974,603 shares of common stock in exchange for the warrants to purchase
such shares at $0.01 per share of common stock, which were held by the owners of
the 13% exchangeable preferred stock.
On March 5, 1999, Packaged Ice issued 130,528 shares of common stock in
exchange for warrants to purchase such shares for $0.01 per share. On May 17,
1999 and July 2, 1999, Packaged Ice issued 12,797 (total of 25,594 shares)
shares of common stock in exchange for warrants to purchase such shares for
$0.01 per share. All of these warrants were issued in 1997 in association with
the $75 million of 12% senior notes.
On April 15, 1999, Packaged Ice issued 38,298 shares of common stock
valued at $5.88 per share as partial consideration for the acquisition of Space
Ice Company in Melbourne, Florida.
On April 30, 1999, Packaged Ice issued 179,592 shares of common stock
valued at $6.13 per share as partial consideration for Packaged Ice's
acquisition of Farmer's Ice Company in Paris, Texas and 24,490 share valued at
$6.13 per share as partial consideration for Packaged Ice's acquisition of Red
River Ice in Paris, Texas.
On May 17, 1999, Packaged Ice issued 15,856 shares of common stock valued
at $6.31 per share as partial consideration for Packaged Ice's acquisition of
Superior Ice Company, Inc. in Longview, Texas.
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<PAGE>
On December 20, 1999, Packaged Ice issued 19,500 shares of common stock
valued at $5.05 per share as consideration for Packaged Ice's purchase of
certain real estate located in Nashville, Tennessee.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, for the periods and dates indicated,
selected consolidated data derived from Packaged Ice's audited consolidated
financial statements. The following information should be read in conjunction
with the consolidated financial statements of Packaged Ice, including the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues .................................................. $ 231,723 $ 179,861 $ 29,632 $ 4,609 $ 2,905
Cost of sales ............................................. 139,386 108,276 18,724 2,035 1,251
--------- --------- --------- --------- ---------
Gross profit .............................................. 92,337 71,585 10,908 2,574 1,654
Operating expenses ........................................ 37,738 31,741 7,636 1,981 1,515
Depreciation and amortization expense ..................... 30,526 20,729 5,130 1,456 751
Other income (expense) .................................... 21 4 4 3 --
Interest expense .......................................... (30,409) (24,705) (6,585) (130) (76)
Extraordinary loss on refinancing ......................... -- (17,387) -- -- --
--------- --------- --------- --------- ---------
Net loss .................................................. $ (6,315) $ (22,973) $ (8,439) $ (990) $ (688)
========= ========= ========= ========= =========
Net loss attributable to common shareholders .............. $ (9,393) $ (28,891) $ (8,637) $ (990) $ (688)
========= ========= ========= ========= =========
LOSS PER BASIC AND DILUTED SHARE OF COMMON STOCK (1):
Net loss before extraordinary item
attributable to common shareholders ..................... $ (0.53) $ (2.35) $ (2.40) $ (0.35) $ (0.26)
Extraordinary item ........................................ -- (3.56) -- -- --
--------- --------- --------- --------- ---------
Net loss attributable to common shareholders .............. $ (0.53) $ (5.91) $ (2.40) $ (0.35) $ (0.26)
========= ========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted ......................................... 17,565 4,886 3,600 2,826 2,682
OTHER FINANCIAL DATA:
Cash flows - operating activities ......................... $ 14,409 $ 16,320 $ (3,292) $ 1,094 $ 148
Cash flows - investing activities ......................... (37,128) (314,788) (61,541) (5,925) (2,961)
Cash flows - financing activities ......................... 22,911 287,070 79,488 3,968 3,034
EBITDA (2) ................................................ 54,620 39,848 3,276 596 139
Capital expenditures (3) .................................. 30,413 22,830 10,765 5,745 2,717
BALANCE SHEET DATA:
Total assets .............................................. $ 462,332 $ 440,257 $ 122,300 $ 11,523 $ 8,050
Total long term obligations ............................... 309,164 338,150 67,501 3,582 211
Total exchangeable preferred stock ........................ 30,589 66,546 25,198 -- --
Total preferred stock with put redemption option .......... -- 3,223 3,223 2,497 2,497
Total common stock with put redemption option ............. -- 1,972 1,972 1,972 1,972
Total shareholders' equity ................................ 82,369 1,300 15,819 1,597 2,582
</TABLE>
(1) Shares of common stock issuable under stock options have not been included
in the computation of earnings per share as their effect is antidilutive.
(2) EBITDA represents earnings before interest, income taxes, depreciation,
amortization and extraordinary items. Packaged Ice has included EBITDA
data (which are not measures of financial performance under generally
accepted accounting principles) because it understands such data are used
by certain investors to determine a company's historical ability to
service its indebtedness. EBITDA should not be considered by an investor
as an alternative to net income, as an indicator of Packaged Ice's
operating performance or as an alternative to cash flow as a measure of
liquidity. EBITDA may not be comparable to similarly captioned items
presented by other companies.
(3) Includes all cash and non-cash amounts paid by Packaged Ice except
expenditures used to acquire traditional ice businesses.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED
FINANCIAL DATA," AND PACKAGED ICE'S CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING
THE NOTES THERETO AND OTHER INFORMATION APPEARING ELSEWHERE IN THIS REPORT.
GENERAL
Packaged Ice views the manufacture and distribution of ice through
traditional ice manufacturing and through the Ice Factory as its predominant
business segment. Packaged Ice's other business segment, non-ice, consists of
refrigerated warehousing, bottled water and sales and leasing of ice and
commercial food service equipment, other than the Ice Factory. The majority of
non-ice operations was acquired through acquisitions completed in 1998.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues increased $51.8 million, from $179.9 million for the
year ended December 31, 1998 to $231.7 million for the year ended December 31,
1999. Revenues increased $39.2 million as a result of revenue contributed by
traditional ice companies, $4.5 million due to the placement of additional Ice
Factories and $8.1 million due to non-ice operations. The increase in
traditional ice products and non-ice operations primarily was due to the
significant number of acquisitions completed in 1998, which had a full year of
operating results in 1999 versus a partial year in 1998.
COST OF SALES. Cost of sales increased $31.1 million, from $108.3 million
for the year ended December 31, 1998 to $139.4 million for the year ended
December 31, 1999. This increase was primarily due to the full year effect of
the 1998 acquisitions. The cost of sales as a percentage of revenues remained
constant at 60.2%.
GROSS PROFIT. Gross profit increased $20.7 million, from $71.6 million for
the year ended December 31, 1998, and to $92.3 million for the year ended
December 31, 1999. This increase primarily resulted from the full year effect of
the 1998 acquisitions and the Ice Factory installations. As a percentage of
revenues, gross profit from ice products decreased from 40.0% to 39.6%. The
timing of Packaged Ice's major 1998 acquisitions, Reddy Ice Corporation and
Cassco Ice and Cold Storage, Inc., was such that the gross profit margins
realized by Packaged Ice in 1998 was greater than would have been recognized had
the acquisitions been a part of Package Ice for the entire year. The result of
this pro forma effect is a lower gross profit margin for ice products in 1999
than 1998. Gross profit on non-ice operations increased from 34.7% to 40.6%,
principally due to the impact of better gross profit margins in the acquired
cold storage operations than the company's historical gross profit margin in
non-ice operations.
OPERATING EXPENSES. Operating expenses increased $6.0 million, from $31.7
million for the year ended December 31, 1998, and to $37.7 million for the year
ended December 31, 1999. This increase primarily was due to acquisitions. As a
percentage of revenues, operating expenses for ice products decreased from
17.6% to 16.4%. This decrease was primarily due to the relatively smaller
increase in overhead related expense (infrastructure) being spread over a
greater increase in revenues from acquisitions and Ice Factory installations.
Operating expenses as a percentage of revenues for non-ice operations decreased
from 15.9% to 14.3%.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$9.8 million, from $20.7 million for the year ended December 31, 1998, to $30.5
million for the year ended December 31, 1999. The increase in depreciation and
amortization was primarily due to acquisitions. As a percentage of revenues,
depreciation and amortization increased from 11.5% to 13.2%. This increase was
due primarily to the full year effect of the 1998 acquisitions.
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<PAGE>
INTEREST EXPENSE. Interest expense increased $5.7 million, from $24.7
million for the year ended December 31, 1998, to $30.4 million for the year
ended December 31, 1999. This increase was a result of greater average
borrowings outstanding due to the funding of acquisitions.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues increased $150.3 million, from $29.6 million for the
year ended December 31, 1997 to $179.9 million for the year ended December 31,
1998. Revenues increased $134.4 million as a result of revenue contributed by
traditional ice companies, $5.0 million due to the placement of additional Ice
Factories and $10.9 million due to non-ice operations. The increase in
traditional ice and non-ice operations primarily was due to acquisitions.
Additionally, unprecedented hot, dry weather during the 1998 summer period
throughout the southeastern portion of the United States and Texas resulted in
greater sales than during 1997 and more than offset the shortfall of sales
experienced during the first quarter of 1998.
COST OF SALES. Cost of sales increased $89.6 million, from $18.7 million
for the year ended December 31, 1997 to $108.3 million for the year ended
December 31, 1998. This increase was primarily due to acquisitions. To a lesser
extent, ice operations increased due to additional costs directly related to the
cumulative effect of the unprecedented heat experienced during the 1998 summer
period. Such additional costs included the cost of purchasing ice from third
parties and transporting both purchased and company-produced ice into regions
that were unable to meet demand with local capacity. The cost of sales as a
percentage of revenues decreased from 63.2% to 60.2%. This relative decrease
primarily was due to improvements in operating efficiencies that Packaged Ice
has experienced during the integration of acquisitions.
GROSS PROFIT. Gross profit increased $60.7 million, from $10.9 million for
the year ended December 31, 1997, and to $71.6 million for the year ended
December 31, 1998. This increase primarily resulted from acquisitions completed
during 1998. As a percentage of revenues, gross profit from ice operations
increased from 36.4% to 40.0%. Gross profit on non-ice operations was
approximately 34.7% during 1998.
OPERATING EXPENSES. Operating expenses increased $24.1 million, from $7.6
million for the year ended December 31, 1997, to $31.7 million for the year
ended December 31, 1998. This increase primarily was due to acquisitions
completed during 1998. As a percentage of revenues, operating expenses for ice
operations decreased from 25.3% to 17.6%. This decrease was due to greater
efficiencies realized by Packaged Ice, as its general and administrative
expenses were spread over the larger base of revenues that resulted from
Packaged Ice's acquisitions. Operating expenses as a percentage of revenues for
non-ice operations was approximately 15.9% during 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$15.6 million, from $5.1 million for the year ended December 31, 1997, to $20.7
million for the year ended December 31, 1998. Although goodwill and other
intangibles increased from $55.2 million in 1997 to $247.9 million in 1998, the
increase in depreciation and amortization was primarily due to property
additions as a result of acquisitions of traditional ice companies. As a
percentage of revenues, depreciation and amortization decreased from 17.3% to
11.5%. This decrease was due primarily to the lower historical depreciation and
amortization percentages of traditional ice and non-ice businesses Packaged Ice
has acquired, as compared to Ice Factories.
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<PAGE>
These percentages also reflect the longer estimated useful lives of traditional
ice and non-ice plant and equipment, as compared to Ice Factories.
INTEREST EXPENSE. Interest expense increased $18.1 million, from $6.6
million for the year ended December 31, 1997, to $24.7 million for the year
ended December 31, 1998. This increase was a result of higher levels of debt
outstanding during 1998, resulting from the debt financing used in connection
with Packaged Ice's 1998 acquisition program.
EXTRAORDINARY LOSS ON REFINANCING. During the first quarter of 1998,
simultaneously with the issuance of the 9 3/4% senior notes and in conjunction
with the repurchase of $75 million of Series B notes and Series C notes,
Packaged Ice recorded an extraordinary loss on refinancing of $17.4 million for
such debt extinguishment, which related to the write-off of the debt discount,
associated redemption premiums and issuance costs.
LIQUIDITY AND CAPITAL RESOURCES
Packaged Ice generates cash from the sale of packaged ice through
traditional delivery methods, whereby ice is manufactured, packaged and stored
at a central facility and transported to retail locations when needed, and
through Ice Factories, which manufacture, package and store ice in retail
locations. Packaged Ice's primary uses of cash are (a) cost of sales, (b)
operating expenses, (c) debt service, (d) capital expenditures related to
acquiring and installing additional Ice Factories and replacing and modernizing
Packaged Ice's other capital equipment and (e) acquisitions.
Capital expenditures for 2000 are estimated to total an aggregate of
approximately $17 million, which primarily will be used to maintain and expand
traditional ice operations. There can be no assurance that capital expenditures
will not exceed this estimate. In addition, Packaged Ice initiated a leasing
program for some of its Ice Factory installations in late 1999 and plans to
install approximately 500 Ice Factories during 2000. As Packaged Ice has
consolidated acquisitions into the existing company infrastructure, excess
assets have been identified, and Packaged Ice is actively marketing these
non-core assets.
During 1999, Packaged Ice acquired certain traditional ice companies at a
cost of $18.2 million. These acquisitions were financed primarily with the
proceeds of debt issuance and amounts available under Packaged Ice's revolving
credit facility and to a lesser extent with common stock.
Packaged Ice believes that it will have adequate working capital to meet
debt service requirements and to satisfy working capital and general corporate
needs. At December 31, 1999, Packaged Ice had a working capital deficit of
approximately $4.9 million (surplus of $8.3 million exclusive of current
maturities of long-term debt) and had approximately $3.6 million of cash and
cash equivalents and $23.0 million available under the working capital loan of
the revolving credit facility.
Our business is highly seasonal. Although Packaged Ice has experienced a
significant increase in positive cash flow from operations attributable to the
acquisitions, it has, and may in the future, report negative cash flows during
the first and fourth quarters when the weather is generally cooler. Packaged Ice
believes, however, that its overall treasury management of cash on hand and
available borrowings under the revolving credit facility will be adequate to
meet debt service requirements, fund ongoing capital requirements and satisfy
working capital and general corporate needs.
-20-
<PAGE>
At December 31, 1999, Packaged Ice had approximately $309.2 million of
long term debt, net of current maturities, outstanding as follows:
o $270 million of 9 3/4% senior notes due 2005;
o $38.6 million outstanding under Packaged Ice's credit facility; and
o $0.6 million of other debt, net of debt discount.
Our credit facility provides for an $80 million line of credit consisting
of a $25 million revolving working capital loan and a $55 million revolving
acquisition loan. At December 31, 1999, Packaged Ice had no amounts outstanding
under the working capital loan (approximately $2.0 million utilized as stand by
letters of credit to vendors) and $51.5 million outstanding under the
acquisition loan. As of December 31, 1999, the credit facility bears interest
per annum, at Packaged Ice'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. Amounts outstanding under the
Acquisition Loan of the Credit Facility will amortize in 12 equal quarterly
installments commencing June 30, 2000.
Covenants contained in the credit facility and the indenture governing the
9 3/4% senior notes require Packaged Ice to meet certain financial tests, and
other restrictions limit Packaged Ice's ability to pay dividends, borrow
additional funds or to acquire or dispose of assets. The credit facility is
secured by all of Packaged Ice's assets and the capital stock of all of Packaged
Ice's significant subsidiaries. The 9 3/4% senior notes are generally unsecured
obligations of Packaged Ice 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 Packaged Ice. The 9 3/4% senior notes are effectively
subordinated to the revolving credit facility.
On February 3, 1999, Packaged Ice completed its initial public offering of
10,750,000 shares of common stock at $8.50 per share. The net proceeds of the
sale of approximately $85 million were applied as follows: (i) $43.6 million to
repurchase Packaged Ice's 13% exchangeable preferred stock (including repurchase
premium) plus accrued and unpaid dividends, (ii) $39.5 million to pay amounts
outstanding under the working capital loan and the acquisition loan of the
credit facility and (iii) approximately $1.9 million of estimated expenses
related to the offering.
In connection with this offering of common stock, the redemption feature
on the 420,000 shares of common stock with put redemption options was satisfied.
In addition, the holders of the Series A and Series B preferred stock with put
redemption options exercised their respective conversion features to obtain
450,000 and 124,831 shares of common stock, respectively.
During 1999, the pace of our acquisition activities slowed significantly,
in large part due to the decline in the price of our common stock from the price
at the time of our initial public offering. We expect to continue acquiring
traditional ice companies on a selective basis using a combination of cash and
common stock as appropriate opportunities present themselves. There can be no
assurance that acquisitions based upon Packaged Ice's criteria can be obtained
or funds will be available in sufficient amounts to finance such acquisitions.
In 1999, in connection with possible future acquisitions, Packaged Ice filed an
"acquisition shelf" registration statement to register the sale of up to five
million shares of common stock of which 3,953,780 remain unissued.
-21-
<PAGE>
Packaged Ice may need to raise additional funds through public or private
debt or equity financing to take advantage of opportunities that may become
available to Packaged Ice, including acquisitions and more rapid expansion. The
availability of such capital will depend upon prevailing market conditions and
other factors over which Packaged Ice has no control, as well as Packaged Ice'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 Packaged Ice's recent rate of growth.
YEAR 2000
The Year 2000 issue is the result of computer programs using two digits to
define the applicable year. These programs were designed without consideration
for the effect of the change in century, and if not corrected, could have failed
or created erroneous results at the turn of the century. Essentially all of
Packaged Ice's information technology ("IT") infrastructure and embedded
manufacturing control technology ("Non IT") systems were potentially affected by
the Year 2000 issue.
In order to prepare for the Year 2000 issue, Packaged Ice implemented the
following remediation plan for IT and Non IT systems:
o Identification of all applications and hardware with potential Year
2000 issues.
o For each item identified, perform an assessment to determine an
appropriate action plan and timetable for remediation of each item.
o Implementation of the specific action plan.
o Test each application upon completion.
o Place the new process into production and conduct system integration
testing.
Packaged Ice successfully implemented the above remediation plan for all
affected IT and Non IT systems. Following the arrival of the Year 2000, Packaged
Ice experienced no problems with any of its systems as a result of the Year 2000
issue. There was no interruption in Packaged Ice's ability to transact business
with its suppliers and customers. Packaged Ice continues to monitor its systems,
suppliers and customers for any unanticipated issues that may not have
manifested yet. The implementation of the remediation plan was entirely funded
from operations, the cost of which was immaterial to the financial statements.
UNCERTAINTY OF FORWARD LOOKING STATEMENTS AND INFORMATION
Other than statements of historical facts, statements made in this Form
10-K, statements made by us in periodic press releases or oral statements made
by our management to analysts and shareholders within the meaning of such terms
under the Private Securities Litigation Reform Act of 1995, in the course of
presentations about our company, constitute "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
-22-
<PAGE>
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. Factors you should consider that could cause these differences are:
o general economic trends and seasonality;
o substantial leverage and ability to service debt;
o availability of credit facilities and restrictive covenants under
the credit facilities;
o risks associated with acquisitions and failure to integrate acquired
businesses;
o availability of capital sources; and
o competitive practices in the industry in which Packaged Ice
competes.
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. Important factors that could
cause our actual results to differ materially from our expectations are
discussed elsewhere in this report.
RISK FACTORS
OUR SUBSTANTIAL DEBT MAY PREVENT US FROM FUNDING CERTAIN ACTIVITIES, AND
MAY DIMINISH OUR ABILITY TO REACT TO CHANGES IN THE ECONOMY AND OUR INDUSTRY.
We have financed much of our acquisition activities through the incurrence
of debt, and consequently, we have substantial debt service requirements. At
December 31, 1999, Packaged Ice's total indebtedness was approximately $322
million. Our high level of debt could have important consequences to Packaged
Ice. The following are factors you should consider:
o A substantial portion of our cash flow must be dedicated to paying
interest and principal. This reduces the level of cash flow
available to fund capital expenditures, acquisitions and working
capital.
o The indentures that govern the 9 3/4% senior notes and the credit
agreement for our revolving credit facility require us to meet
financial tests. Additionally, there are other restrictions that
limit our ability to pay dividends, borrow additional funds or to
dispose of assets. These covenants and restrictions may affect our
flexibility in planning for and reacting to changes in our business,
including possible acquisition activities.
o Our high level of debt diminishes our ability to react to changes in
general economic, industry and competitive conditions.
If we are unable to generate enough cash flow to make debt service
payments, we may be required to:
o seek additional debt or equity financing, or renegotiate our
existing debt arrangements on terms which may be less favorable;
o sell selected assets; or
o reduce or delay planned capital expenditures.
There can be no assurance that we could accomplish any of these measures.
-23-
<PAGE>
THE SEASONAL NATURE OF THE ICE BUSINESS OFTEN RESULTS IN LOWER PROFITS AND
EVEN LOSSES IN THE FIRST AND FOURTH QUARTERS OF THE YEAR.
We experience seasonal fluctuations in our sales and profitability with a
disproportionate amount of our sales and a majority of our net income typically
realized in the second and third calendar quarters when the weather is generally
warmer. As a result of these seasonal revenue declines and the lack of a
corresponding decrease in expenses during the first and fourth quarters, we will
likely experience lower profit margins and possibly even losses during these
periods. In addition, because our operating results depend significantly on
sales during the second and third calendar quarters, our results of operations
during these periods may fluctuate significantly if the weather is unusually
cool or rainy.
THE RESULTS OF OUR OPERATIONS MAY BE ADVERSELY EFFECTED BY WEATHER. COLD
OR RAINY WEATHER CAN DECREASE SALES, WHILE EXTREMELY HOT WEATHER MAY INCREASE
OUR EXPENSES, EACH RESULTING IN A NEGATIVE IMPACT TO OUR OPERATING RESULTS AND
CASH FLOW.
Ice consumers, the ultimate user of our products, demand ice for a variety
of reasons, but many of them buy ice in connection with outdoor-related
activities, both commercial and recreational. As a result, demand for ice
increases in hotter, sunnier weather, and conversely, demand decreases in
colder, wetter weather. However, extremely hot weather does not necessarily
result in greater profits. During extended periods of extremely hot weather, our
profits and cash flow may decline because of an increase in expenses in response
to excess demand. We may have to transport ice from one plant to another, and in
some cases even purchase ice from third party sources and transport to a
specific market to meet this excess demand.
ACQUISITIONS CAN DISTRACT MANAGEMENT AND MAY DEPRESS OUR RESULTS
OF OPERATIONS AND CASH FLOW.
Because our growth strategy includes acquiring other companies, we may
have to devote significant management resources to integrating the newly
acquired businesses. As a result, acquisitions can distract management from
running our existing operations. In addition, we can have lower income and cash
flow in the short term while the newly acquired business is integrated into our
existing operations. Finally, if the integration of the new business is not
successful, our results of operations may be adversely affected over the longer
term.
THE MARKET VALUE OF OUR COMMON STOCK COULD BE ADVERSELY EFFECTED
IF WE CONTINUE TO REPORT NET OPERATING LOSSES.
Since Packaged Ice was formed in 1990, we have reported substantial net
operating losses. This has been due primarily to the following:
o interest expense associated primarily with our 9 3/4% senior notes
and debt under our revolving credit facility;
o substantial amortization of goodwill and other intangible assets
associated with our acquisitions; and
o substantial depreciation of property, plant and equipment.
As of December 31, 1999, we had an accumulated deficit of $40.8 million,
and we cannot guarantee that we will be profitable in the future.
-24-
<PAGE>
While many factors cause our stock price to fluctuate (perceived industry
prospects, general economic conditions, for example), continued reporting of net
operating losses could depress our stock price.
OUR SHARE PRICE MAY DECLINE BECAUSE WE HAVE A SUBSTANTIAL NUMBER
OF UNREGISTERED SHARES ELIGIBLE FOR FUTURE SALE.
As of March 10, 2000, holders of restricted common stock owned 6,747,658
shares, representing approximately 35% of the outstanding common stock. In
addition, a total of 3,969,981 shares of common stock have been reserved for
issuance upon the exercise of outstanding warrants and stock options at exercise
prices of $0.01 per share to $15.00 per share (and a weighted average exercise
price of $10.31 per share). The sale of a substantial number of formerly
restricted shares or shares issued pursuant to warrants or stock options could
depress our stock price because of the increased number of shares publicly
available for sale.
INCREASES IN THE PRICE OF CERTAIN RAW MATERIALS COULD HAVE AN ADVERSE
EFFECT ON OUR RESULTS OF OPERATIONS.
Our business is sensitive to increases in the cost of polyethylene, which
in turn increases the cost of our bags, and increases in the cost of fuel to
operate the refrigerated trucks we use to deliver ice. If the prices for these
resources should increase, we would experience increased costs that we may not
be able to pass along to our customers. There can be no assurance that
significant change in plastic bag, water, fuel or other commodity prices would
not have a material adverse effect on our business, results of operations and
cash flow.
OUR DEPENDENCE ON A SINGLE MANUFACTURER FOR THE PROPRIETARY-BAGGING DEVICE
USED IN THE ICE FACTORY EXPOSES US TO A RISK OF NOT MEETING INSTALLATION
COMMITMENTS TO CUSTOMERS.
Lancer Corporation manufactures our proprietary-bagging device used in the
Ice Factory under an exclusive original equipment manufacturing agreement. This
device is highly technical in nature, and there can be no assurance that we
could quickly locate, or ever locate, alternative sources of supply for the
bagging device if Lancer was unable to meet our requirements. A shortage of the
bagging device could restrict our ability to grow by entering new markets
through the installation of the Ice Factory.
IF ANY OF OUR KEY PERSONNEL LEAVE, OUR PROFITS COULD DECLINE.
The future success of our business is dependent in part on the efforts and
skills of certain key members of management, including (a) James F. Stuart,
Chairman of the Board and Chief Executive Officer, (b) A. J. Lewis III,
President and (c) Jimmy C. Weaver, Executive Vice President and Chief Operating
Officer. The loss of any of these key members of management could have an
adverse effect on Packaged Ice.
WE COULD BE EXPOSED TO SIGNIFICANT ENVIRONMENTAL LIABILITIES.
Our ice manufacturing and storage operations could create conditions,
which might result in environmental accidents, and cause us to be named as
defendants in lawsuits. We currently carry liability insurance that we believe
is adequate to cover our losses in these situations.
-25-
<PAGE>
However, this insurance may be insufficient to pay for all or a large part of
these losses. If our insurance failed to cover these losses, our profits and our
cash flow would decrease.
WE MAY NOT HAVE THE ABILITY TO REPURCHASE THE 9 3/4% SENIOR NOTES IN THE
EVENT OF A CHANGE OF CONTROL.
The majority of our debt consists of $270 million of 9 3/4% senior notes.
If there is a change of control of Packaged Ice, the holders of the 9 3/4%
senior notes have the right to require us to purchase the outstanding 9 3/4%
senior notes at 101% of the principal amount plus any accrued and unpaid
interest. We may not have the ability to raise the funds necessary to finance
the repurchase of the 9 3/4% senior notes if the holders require the repurchase.
If we were required to repurchase the 9 3/4% senior notes, the repurchase could
also result in a default under other debt agreements, including our revolving
credit facility.
ACCIDENTS INVOLVING OUR PRODUCTS AND EQUIPMENT COULD EXPOSE US TO
CLAIMS FOR DAMAGES.
We are subject to a risk of product liability claims and adverse publicity
if a consumer is allegedly harmed by using our products or equipment. If someone
gets hurt using our products or equipment, we could lose revenues, face higher
costs or be sued. Litigation arising from such an occurrence could result in
Packaged Ice being named as a defendant in lawsuits asserting large claims.
We currently carry product liability insurance that we believe is adequate
to cover our losses in these situations. However, this insurance may be
insufficient to pay for all or a large part of these losses. If our insurance
did not pay for these losses, our profits and cash flow would decrease.
OUR LIMITED PATENT PROTECTION MAY NOT PREVENT COMPETITORS FROM USING OUR
PROPRIETARY BAGGING DEVICE OR DEVELOPING A SIMILAR MACHINE, WHICH COULD REDUCE
OUR COMPETITIVE ADVANTAGE.
Other than patents that we own or licenses we have on the bagging device
in the Ice Factory, we currently do not have patents on any of our products. We
believe the patents on the bagging device are important to the Ice Factory as a
whole, but there can be no assurance that any issued patent will provide us with
a meaningful competitive advantage. It also is our practice to protect certain
of our proprietary materials and processes by relying on trade secret laws and
non-disclosure and confidentiality agreements. There can be no assurance that
confidentiality or trade secrets will be maintained or that others will not
independently develop or obtain access to such materials or processes.
As the sole company using an on-site ice production and delivery system,
we believe that we have a significant competitive advantage. Last year a
competitor announced that it was developing an automated ice production and
delivery system similar to the Ice Factory. As a result, we may lose sales and
profits, or have our competitive advantage diminished, which could in turn lead
to a reduction of our ability to grow by entering new markets through the
installation of the Ice Factory, and ultimately, negatively impact our profits
and cash flow.
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<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Market risk generally represents the risk that losses may occur in the
value of financial instruments as a result of movements in interest rates,
foreign currency exchange rates and commodity prices.
Packaged Ice is exposed to some market risk due to the floating interest
rate under its revolving credit facility. Under the revolving credit facility,
the principal balance under the working capital loan is due in March 2003.
Amounts outstanding under the Acquisition Loan of the Credit Facility will
amortize in 12 equal quarterly installments commencing June 30, 2000. As of
December 31, 1999, the revolving credit facility had an outstanding principal
balance of $51.5 million at an interest rate of 9.2188% per annum. A 1.0%
increase in interest rates could result in a $0.5 million annual increase in
interest expense on the existing principal balance. Management has determined
that it is not necessary to participate in interest rate-related derivative
financial instruments because it does not believe the savings benefits are
greater than the costs associated with such financial instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required hereunder are
included in this report as set forth in Item 14(a) hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report or are
incorporated by reference:
1. Financial Statements
As to financial statements and supplementary information, reference is
made to "INDEPENDENT AUDITORS REPORT" on Page F-1 of this Annual Report.
2. Financial Statement Schedules
None. All financial statement schedules are omitted because the
information is not required, is not material or is otherwise included in
the consolidated financial statements or notes thereto included elsewhere
in this Annual Report.
3. Exhibits
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 SV. (Exhibit 4.8)(5)
4.5 Common Stock Purchase Warrant, dated July 17, 1997, executed by
Packaged Ice for the benefit of SV. (Exhibit 10.39)(2)
4.6 Registration Rights Agreement by and between Packaged Ice and Ares,
dated February 3, 1999. (Exhibit 4.6) (8)
4.7 Registration Rights Agreement by and between Packaged Ice and Silver
Brands Partners, L.P. (formerly SV), dated February 3, 1999. (Exhibit
4.7)(8)
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 SV. (Exhibit 10.41)(2)
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<PAGE>
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)
10.1 Noncompetition Agreement by and among Packaged Ice, Packaged Ice
Mission, Inc., Packaged Ice STPI, Inc. and A. J. Lewis III, dated as
of April 17, 1997. (Exhibit 10.4)(1)
10.2+ Packaged Ice, Inc. 2000 Employee Stock Purchase Plan.
10.3 Form of Noncompetition Agreement among Packaged Ice, Packaged Ice
Southwestern, Inc., and each of Dale Johnson, Alan Bernstein and
Robert Miller individually, dated as of April 17, 1997. (Exhibit
10.8)(1)
10.4 1994 Stock Option Plan, dated July 26, 1994. (Exhibit 10.10)(1)
10.5 Form of Stock Option Plan Agreements issued under Stock Option Plan.
(Exhibit 10.11)(1)
10.6 Form of Indemnification Agreement entered into by Packaged Ice in
favor of members of the Board of Directors. (Exhibit 10.31)(1)
10.7 Development and Manufacturing Agreement by and between Lancer
Corporation and Packaged Ice, dated April 13, 1993. (Exhibit
10.32)(1)
10.8 License Agreement by and among Packaged Ice, Hoshizaki Electric Co.,
Ltd. and Hoshizaki America, Inc., dated May 28, 1993. (Exhibit
10.37)(1)
10.9 Securities Purchase Agreements with Culligan Water Technologies, Inc.
dated December 2, 1997. (Exhibit 10.1)(4)
10.10 Credit Agreement dated April 30, 1998 by and among Packaged Ice and
Antares Leveraged Capital Corp., individually, and as agent for The
Other Financial Institutions. (Exhibit 10.1)(5)
10.11 Security Agreement dated April 30, 1998, by and among Packaged Ice
and Antares Leveraged Capital Corp. (Exhibit 10.2)(5)
10.12 Security Agreement dated April 30, 1998, by and among Reddy Ice
Corporation, Golden Eagle Ice-Texas, Inc., Packaged Ice, Southeast,
Inc., Packaged Ice Leasing, Inc., Southco Ice, Inc., Southwest Texas
Packaged Ice, Southwestern Ice, Inc., Southern Bottled Water Company,
Inc., Mission Party Ice, Inc. and Antares Leveraged Capital Corp.
(Exhibit 10.3)(5)
10.13 Guaranty dated April 30, 1998 by and among Reddy Ice Corporation,
Mission Party Ice, Inc., Southwest Texas Packaged Ice, Southwestern
Ice, Inc., Golden Eagle Ice-Texas. Inc., Packaged Ice Southeast,
Inc., Packaged Ice Leasing, Inc., Southern Bottled Water Company,
Inc., and Southco Ice, Inc. (Exhibit 10.4)(5)
10.14 Stock Purchase Agreement between Packaged Ice and Suiza Foods
Corporation dated March 27, 1998. (Exhibit 2.1)(5)
10.15 Employment Agreement of James F. Stuart dated effective August 1,
1998. (Exhibit 10.29)(6)
10.16 Employment Agreement of A. J. Lewis III dated effective August 1,
1998. (Exhibit 10.30)(6)
10.17 Employment Agreement of Jimmy C. Weaver dated effective May 1, 1998.
(Exhibit 10.31)(6)
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<PAGE>
10.18 Employment Agreement of James C. Hazlewood dated effective November
1, 1997. (Exhibit 10.32)(6)
10.19 1998 Stock Option Plan, dated June 19, 1998. (Exhibit 10.34)(7)
11.1+ Statement of earnings per share.
21.1+ List of subsidiaries.
23.1+ Consent of Deloitte & Touche LLP.
27.1+ Financial Data Schedule.
- --------------
+ 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 Amendment No. 2 to Packaged Ice's
Registration Statement on Form S-1 (File No. 333-60627), filed with
the Commission on January 4, 1999.
(8) Filed as an Exhibit to Packaged Ice's Form 10-K filed with the
Commission on March 30, 1999.
(b) Reports on Form 8-K. None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March ___, 2000 /S/ JAMES C. HAZLEWOOD
James C. Hazlewood
Chief Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
/S/ JAMES F. STUART Chairman of the Board and March ___, 2000
James F. Stuart Chief Executive Officer
/S/ A. J. LEWIS III President, Secretary and March ___, 2000
A. J. Lewis III Director
/S/ STEVEN P. ROSENBERG Director March ___, 2000
Steven P. Rosenberg
/S/ RICHARD A. COONROD Director March ___, 2000
Richard A. Coonrod
/S/ ROBERT G. MILLER Director March ___, 2000
Robert G. Miller
/S/ DAVID J. LOSITO Director March ___, 2000
David J. Losito
-31-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Packaged Ice, Inc.:
We have audited the accompanying consolidated balance sheets of Packaged
Ice, Inc. and its subsidiaries (the "Company") as of December 31, 1999 and 1998,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
/s/ Deloitte & Touche LLP
- --------------------------
Houston, Texas
March 17, 2000
F-1
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................................................. $ 3,619 $ 3,427
Accounts receivable, net ................................................................... 19,002 16,692
Inventories ................................................................................ 8,079 7,695
Prepaid expenses ........................................................................... 4,658 1,688
--------- ---------
Total current assets .................................................................. 35,358 29,502
PROPERTY, net .................................................................................... 184,311 169,208
GOODWILL AND OTHER INTANGIBLES, net .............................................................. 242,421 240,750
OTHER ASSETS ..................................................................................... 242 797
--------- ---------
TOTAL ............................................................................................ $ 462,332 $ 440,257
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term obligations ................................................... $ 13,126 $ 231
Accounts payable ........................................................................... 6,010 5,714
Payable to affiliates ...................................................................... 89 615
Accrued expenses ........................................................................... 20,985 22,506
--------- ---------
Total current liabilities ............................................................. 40,210 29,066
LONG TERM OBLIGATIONS ............................................................................ 309,164 338,150
COMMITMENTS AND CONTINGENCIES (Note 15) .......................................................... -- --
MANDATORILY REDEEMABLE PREFERRED STOCK:
10% Exchangeable - 300,861 shares issued and outstanding at December 31,
1999 and 272,890 shares issued and outstanding at
December 31, 1998, liquidation preference of $100 per share ............................ 30,589 27,745
13% Exchangeable - 423,525 shares issued and outstanding at
December 31, 1998, liquidation preference of $100 per share ............................ -- 38,801
PREFERRED STOCK WITH PUT REDEMPTION OPTION:
Series A Convertible - 450,000 shares issued and outstanding at
December 31, 1998 ..................................................................... -- 2,497
Series B Convertible - 124,831 shares issued and outstanding at
December 31, 1998 ..................................................................... -- 726
COMMON STOCK WITH PUT REDEMPTION OPTION:
420,000 shares issued and outstanding at December 31, 1998 ................................. -- 1,972
SHAREHOLDERS' EQUITY:
Preferred stock, Series C, $0.01 par value, 100 shares authorized and outstanding .......... -- --
Common stock, $0.01 par value, 50,000,000 shares authorized; 19,606,940 shares
issued at December 31, 1999, and 4,925,541 shares issued at December 31, 1998 ......... 196 49
Additional paid-in capital ................................................................. 124,487 37,250
Less: 298,231 shares of treasury stock, at cost ........................................... (1,491) (1,491)
Accumulated deficit ........................................................................ (40,823) (34,508)
--------- ---------
Total shareholders' equity ............................................................ 82,369 1,300
--------- ---------
TOTAL ............................................................................................ $ 462,332 $ 440,257
========= =========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues .................................................................. $ 231,723 $ 179,861 $ 29,632
Cost of sales ............................................................. 139,386 108,276 18,724
--------- --------- ---------
Gross profit .............................................................. 92,337 71,585 10,908
Operating expenses ........................................................ 37,738 31,741 7,636
Depreciation and amortization expense ..................................... 30,526 20,729 5,130
--------- --------- ---------
Income (loss) from operations ............................................. 24,073 19,115 (1,858)
Other income, net ......................................................... 21 4 4
Interest expense .......................................................... (30,409) (24,705) (6,585)
--------- --------- ---------
Loss before income taxes .................................................. (6,315) (5,586) (8,439)
Income taxes .............................................................. -- -- --
--------- --------- ---------
Loss before extraordinary item
and preferred dividends ............................................. (6,315) (5,586) (8,439)
Extraordinary loss on refinancing ......................................... -- (17,387) --
--------- --------- ---------
Net loss before preferred dividends ....................................... (6,315) (22,973) (8,439)
Preferred dividends ....................................................... (3,078) (5,918) (198)
--------- --------- ---------
Net loss attributable to common shareholders .............................. $ (9,393) $ (28,891) $ (8,637)
========= ========= =========
Net loss per share of common stock:
Basic and diluted:
Net loss before extraordinary item
attributable to common shareholders ....................... $ (0.53) $ (2.35) $ (2.40)
Extraordinary item ............................................. -- (3.56) --
--------- --------- ---------
Net loss attributable to common shareholders ................... $ (0.53) $ (5.91) $ (2.40)
========= ========= =========
Basic and diluted weighted average common shares outstanding .............. 17,565 4,886 3,600
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<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, 1996 ............................... 2,406 $ 24 $ 4,669 $ -- $ (3,096) $ 1,597
Issuance of common stock ................................... 1,610 16 15,768 -- -- 15,784
Issuance of detachable warrants to
purchase common stock ................................... -- -- 9,422 -- -- 9,422
Accretion of 10% exchangeable
preferred stock ......................................... -- -- (856) -- -- (856)
Dividends accumulated on 10%
exchangeable preferred stock ............................ -- -- (198) -- -- (198)
Purchase of treasury stock ................................. -- -- -- (1,491) -- (1,491)
Net loss ................................................... -- -- -- -- (8,439) (8,439)
--------- ----- --------- -------- ----------- --------
Balance at December 31, 1997 ............................... 4,016 40 28,805 (1,491) (11,535) 15,819
Issuance of common stock ................................... 910 9 10,596 -- -- 10,605
Dividends accumulated on 10%
exchangeable preferred stock ............................ -- -- (2,546) -- -- (2,546)
Dividends accumulated on 13%
exchangeable preferred stock ............................ -- -- (3,372) -- -- (3,372)
Issuance costs on 13% exchangeable
preferred stock ......................................... -- -- (804) -- -- (804)
Warrants issued in connection with 13%
exchangeable preferred stock ............................ -- -- 4,878 -- -- 4,878
Amortization of warrants ................................... -- -- (307) -- -- (307)
Net loss ................................................... -- -- -- -- (22,973) (22,973)
--------- ----- --------- -------- ----------- --------
Balance at December 31, 1998 ............................... 4,926 49 37,250 (1,491) (34,508) 1,300
Issuance of common stock, net of issuance
costs ................................................... 10,750 108 82,671 -- -- 82,779
Conversion of preferred and common
stock with put redemption option ........................ 995 10 5,185 -- -- 5,195
Conversion of warrants ..................................... 1,131 11 (9) -- -- 2
Common stock issued for redemption premium on
13% exchangeable preferred stock ........................ 482 5 (5) -- -- --
Common stock issued in consideration
for acquisitions ........................................ 1,304 13 6,945 -- -- 6,958
Common stock issued in consideration for property additions. 19 -- 99 -- -- 99
Dividends accumulated on 10%
exchangeable preferred stock ............................ -- -- (2,844) -- -- (2,844)
Dividends accumulated on 13%
exchangeable preferred stock ............................ -- -- (234) -- -- (234)
Net fair value of warrants issued in
connection with 13% exchangeable
preferred stock ......................................... -- -- (4,571) -- -- (4,571)
Net loss ................................................... -- -- -- -- (6,315) (6,315)
--------- ----- --------- -------- ----------- --------
Balance at December 31, 1999 ............................... 19,607 $ 196 $ 124,487 $ (1,491) $ (40,823) $ 82,369
========= ===== ========= ======== =========== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................................... $ (6,315) $ (22,973) $ (8,439)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities (excluding working capital from acquisitions):
Depreciation and amortization ............................................. 30,526 20,729 5,130
Amortization of debt discount, net ........................................ 40 120 577
Gain from disposal of assets .............................................. (21) -- (4)
Extraordinary loss from refinancing ....................................... -- 17,387 --
Change in assets and liabilities:
Accounts receivable, inventory and prepaid expenses .................. (6,558) 407 (997)
Accounts payable and accrued expenses ................................ (3,263) 650 441
-------- --------- --------
Net cash provided by (used in) operating activities ............................ 14,409 16,320 (3,292)
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions ............................................................. (30,314) (22,830) (10,765)
Cost of acquisitions ........................................................... (11,284) (294,814) (44,569)
Proceeds from (purchase of) short-term cash investments ........................ -- 4,544 (4,499)
Increase in other noncurrent assets ............................................ (26) (1,688) (1,856)
Proceeds from disposition of property .......................................... 4,496 -- 148
-------- --------- --------
Net cash used in investing activities .......................................... (37,128) (314,788) (61,541)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock ........................... 82,779 39,237 27,101
Proceeds from conversion of warrants ........................................... 2 -- --
Repurchase of common and preferred stock ....................................... (43,607) -- (1,491)
Proceeds from debt issuance, net ............................................... -- 259,765 69,562
Proceeds from issuance and conversion of convertible demand notes .............. -- -- (24)
Borrowings from lines of credit ................................................ 52,845 90,550 9,900
Repayment of lines of credit ................................................... (68,845) (23,050) (13,385)
Repayment of debt .............................................................. (263) (75,494) (12,175)
Cost of refinancing ............................................................ -- (3,938) --
-------- --------- --------
Net cash provided by financing activities ...................................... 22,911 287,070 79,488
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................. 192 (11,398) 14,655
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ....................................... 3,427 14,825 170
-------- --------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................. $ 3,619 $ 3,427 $ 14,825
======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest ..................................................... $ 30,752 $ 14,712 $ 4,748
======== ========= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued in consideration for business acquisitions ................. $ 6,958 $ 10,565 $ 12,814
======== ========= ========
Common stock issued in consideration for property additions .................... $ 99 $ -- $ --
======== ========= ========
Common stock issued in exchange for preferred stock ............................ $ 5 $ -- $ --
======== ========= ========
Fair value of warrants issued in connection with debt .......................... $ -- $ -- $ 9,442
======== ========= ========
Fair value of warrants issued in connection with preferred stock ............... $ -- $ 4,878 $ --
======== ========= ========
Amortization of warrants issued in connection with
preferred stock ........................................................... $ 43 $ 307 $ --
======== ========= ========
Conversion of preferred stock, common stock with put redemption
option and warrants to common stock ....................................... $ 5,204 $ -- $ --
======== ========= ========
Long-term debt incurred to purchase assets ..................................... $ 109 $ -- $ 189
======== ========= ========
Demand notes converted to preferred stock ...................................... $ -- $ -- $ 750
======== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Packaged Ice, Inc. and its wholly owned subsidiaries (the "Company")
manufacture and distribute packaged ice products and bottled water, owns and
operates refrigerated warehouses and sells and leases ice production equipment.
Packaged ice products are distributed by traditional delivery methods and
stand-alone automated merchandising ice systems (the "Ice Factory") that
produce, package, store and merchandise ice at the point of sale. At December
31, 1999, the Company served over 74,000 customer locations in 27 states and the
District of Columbia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Packaged Ice, Inc. and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated upon
consolidation.
ACCOUNTS RECEIVABLE. Accounts receivable are net of allowances for
doubtful accounts of $0.5 million and $0.2 million at December 31, 1999 and
1998, respectively.
INVENTORIES. 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.
PROPERTY. Property is carried at cost and is being depreciated on a
straight-line basis over an estimated life of 2.5 to 40 years. Maintenance and
repairs are charged to expense as incurred, while capital improvements that
extend the useful lives of the underlying assets are capitalized.
GOODWILL AND OTHER INTANGIBLES. Goodwill and other intangibles
include the following that are amortized over their useful lives:
INTANGIBLE ASSETS USEFUL LIFE
- --------------------------- ------------------
Goodwill and other acquisition costs.... Straight line method over 40 years
Trade names............................. Straight line method over 40 years
Ice system patents...................... Straight line method over 17 years
Debt issue costs........................ Straight line method over 5 to 7 years
Other intangibles ...................... Straight line method over the terms of
the agreements
LONG-LIVED ASSETS. The Company records impairment losses on long-lived
assets, including goodwill, used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts of
those assets.
INCOME TAXES. The Company accounts for income taxes under the liability
method, which requires, among other things, recognition of deferred income tax
liabilities and assets for the expected future tax consequences of events that
have been recognized in the Company's consolidated financial statements or tax
returns. Under this method, deferred income tax liabilities and assets are
determined based on the temporary differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities and the
recognition of available tax carryforwards.
REVENUE RECOGNITION. Revenue is recognized when product (packaged ice, ice
packaging bags, bottled water and ice equipment) is delivered to and accepted by
customers. There is no right of return
F-6
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
with respect to the packaged ice, bags delivered and bottled water. Revenue
resulting from cold storage and leased ice equipment is recognized as earned
under contract terms.
EARNINGS PER SHARE. The computation of earnings (loss) per share is based
on net income (loss), after deducting the dividend requirement of preferred
stock ($3.1 million, $5.9 million and $0.2 million in 1999, 1998 and 1997,
respectively), divided by the weighted average number of shares outstanding.
Options to purchase 900,989 shares and warrants to purchase 2,329,314 shares of
common stock issuable under stock options and warrants that are outstanding but
exercisable at prices above the Company's average common stock price have not
been included in the computation of earnings per share. For the years ended
December 31, 1999, 1998 and 1997, all potentially dilutive securities are
anti-dilutive and, therefore, are not included in the earnings per share
calculation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
-------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net loss per share of common stock:
Basic and diluted weighted average common shares outstanding ............... 17,565 4,886 3,600
======== ======== =======
Net loss before extraordinary item
attributable to common shareholders ................................... $ (0.53) $ (2.35) $ (2.40)
======== ======== =======
Basic and diluted net loss attributable to common shareholders ............. $ (0.53) $ (5.91) $ (2.40)
======== ======== =======
Net loss for basic and diluted computation:
Net loss before extraordinary item and
preferred dividends ................................................... $ (6,315) $ (5,586) $(8,439)
Extraordinary item ......................................................... -- (17,387) --
Preferred share dividends .................................................. (3,078) (5,918) (198)
-------- -------- -------
Net loss attributable to common shareholders ............................... $ (9,393) $(28,891) $(8,637)
======== ======== =======
</TABLE>
CASH FLOWS. The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
FAIR VALUES OF FINANCIAL INSTRUMENTS. The Company's financial instruments
consist primarily of cash, cash equivalents, accounts receivable, accounts
payable and debt obligations. The carrying amount of cash, cash equivalents,
trade accounts receivable and trade accounts payable are representative of their
respective fair values due to the short-term maturity of these instruments. It
is not practicable to estimate the fair values of the affiliate amounts due to
their related party nature. The fair values of the Company's debt obligations
(see Note 8) are representative of their carrying values based upon the variable
rate terms for the Credit Facility and management's opinion that the current
rates offered to the Company for fixed-rate long term debt with the same
remaining maturities and security structure are equivalent to that of the
Company's 9 3/4% Senior Notes.
USE OF ESTIMATES. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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 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 and for hedging activities. The
F-7
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company is currently evaluating what impact adoption of this statement will have
on the Company's consolidated financial statements.
RECLASSIFICATION. Certain amounts from previous years have been
reclassified to conform to the current presentation.
3. ACQUISITIONS
Since April 1997, the Company has completed 76 acquisitions for an
aggregate cost of $381.0 million. Significant acquisitions have included the
purchase of all of the outstanding stock of Reddy Ice Corporation from Suiza
Foods Corporation for approximately $180.8 million in cash in April 1998 and the
purchase of all of the outstanding stock of Cassco Ice & Cold Storage, Inc. from
WLR Foods, Inc. for approximately $59 million in cash in July 1998. The
Company's acquisition program has been financed almost exclusively through the
incurrence of debt and the issuance of capital stock.
The acquisitions have been accounted for using the purchase method of
accounting, and accordingly, the purchase price 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 current assets of $26.1 million,
property, plant and equipment of $151.9 million, other assets of $0.6 million,
current liabilities of $28.5 million and long-term debt, primarily paid at
closings, of $13.3 million. The excess of the aggregate purchase price over the
fair market value of the net assets acquired, including acquisition costs, of
approximately $244.2 million was recorded as goodwill and other intangibles and
is being amortized over 40 years. Total amortization expense for goodwill and
other intangible assets resulting from the Company's acquisitions was $6.0
million, $4.2 million and $0.4 million for the three years ended December 31,
1999, 1998 and 1997, respectively.
The operating results of the acquisitions have been included in the
Company's consolidated financial statements from the date of their respective
purchases. The following unaudited pro forma information presents (i) a summary
of the consolidated results of operations for the years ended December 31, 1999
and 1998 as if the 1999 acquisitions had occurred as of January 1, 1998 and (ii)
a summary of the consolidated results of operations for the years ended December
31, 1998 and 1997 as if the 1998 acquisitions had occurred as of January 1,
1997.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
1999 Acquisitions:
Revenues ............................................................................... $ 238,114 $ 193,484
Net income (loss) attributable to common shareholders .................................. (9,304) (27,236)
Basic earnings per share ............................................................... (0.51) (4.40)
Diluted earnings per share ............................................................. (0.51) (4.40)
<CAPTION>
1998 1997
----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
1998 Acquisitions:
Revenues ................................................................................ $ 218,531 $ 156,514
Net income (loss) attributable to common shareholders ................................... (34,415) 464
Basic earnings per share ................................................................ (6.82) 0.10
Diluted earnings per share .............................................................. (6.82) 0.09
</TABLE>
F-8
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES
DECEMBER 31,
-----------------------
1999 1998
------ ------
(IN THOUSANDS)
Raw materials and supplies ................... $7,041 $6,560
Finished goods ............................... 1,038 1,135
------ ------
Total .................................. $8,079 $7,695
====== ======
5. PROPERTY AND EQUIPMENT
DECEMBER 31,
-------------------------
1999 1998
-------- --------
(IN THOUSANDS)
Land ......................................... $ 18,826 $ 15,458
Buildings .................................... 52,088 46,290
Plant, equipment and machinery ............... 150,086 122,714
Construction in progress ..................... 3,773 4,510
-------- --------
Total property and equipment ................. 224,773 188,972
Less: Accumulated depreciation .............. 40,462 19,764
-------- --------
Total .................................. $184,311 $169,208
======== ========
Depreciation expense for the three years ended December 31, 1999 was $20.9
million, $14.1 million and $3.8 million, respectively.
6. GOODWILL AND OTHER INTANGIBLES
DECEMBER 31,
-----------------------
1999 1998
-------- --------
(IN THOUSANDS)
Goodwill and other acquisition costs ............. $216,452 $205,710
Trade names ...................................... 27,500 27,500
Debt issue costs ................................. 10,330 10,227
Other intangibles ................................ 2,185 4,471
-------- --------
256,467 247,908
Less: Accumulated amortization .................. 14,046 7,158
-------- --------
Total ...................................... $242,421 $240,750
======== ========
7. ACCRUED LIABILITIES
DECEMBER 31,
------------------------
1999 1998
------- -------
(IN THOUSANDS)
Accrued interest ............................. $11,366 $11,749
Accrued compensation ......................... 4,668 4,258
Accrued acquisition costs .................... -- 1,620
Accrued taxes ................................ 1,726 1,594
Other accruals ............................... 3,225 3,285
------- -------
Total .................................. $20,985 $22,506
======= =======
F-9
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG TERM OBLIGATIONS
On January 28, 1998, the Company completed a private offering of $145
million aggregate principal amount of its 9 3/4% Senior Notes. The 9 3/4% Senior
Notes were issued pursuant to the indenture dated January 28, 1998, as amended,
(the "Indenture"). The 9 3/4% Senior Notes are general unsecured obligations of
the Company and are senior in right of payment to all existing and future
Subordinated Indebtedness of the Company and PARI PASSU to all senior
indebtedness of the Company. The 9 3/4% Senior Notes are effectively
subordinated to the Company's bank credit facility established in April 1998.
The 9 3/4% Senior Notes contain certain covenants that, among other things,
limit the ability of the Company and its restricted subsidiaries to pay any cash
dividends or make distributions with respect to the Company's capital stock, to
incur indebtedness or to create liens. Net proceeds from the sale of the 9 3/4%
Senior Notes were used for (i) repurchase of $75 million of previously issued
long-term debt; (ii) repayment of all outstanding obligations under the
revolving credit facility; (iii) funding of acquisitions of traditional ice
companies; and (iv) working capital and general corporate purposes.
Simultaneous with the issuance of the 9 3/4% Senior Notes and in
conjunction with the purchase and retirement of $75.0 million of long-term debt,
the Company recorded an extraordinary charge of $17.4 million for such debt
extinguishment relating to the write-off of the debt discount, associated
redemption premiums and issuance costs.
On April 30, 1998, the Company issued an additional $125 million of
Tack-on-Notes. The Tack-on-Notes were issued pursuant to the Indenture and are
identical in terms to the $145 million of 9 3/4% Senior Notes issued January 28,
1998. In connection with issuing the Tack-on-Notes, the Company obtained the
consent of a majority of the holders of the original 9 3/4% Senior Notes to
certain amendments to the Indenture. The Company paid consent fees aggregating
$1.4 million to the 9 3/4% Senior Note Holders. The principal amendments to the
Indenture allowed the issuance of the Tack-on-Notes and allowed the Company to
enter into the Credit Facility. The Company's 9 3/4% Senior Notes, including the
Tack-on-Notes, are guaranteed, fully, jointly and severally, and
unconditionally, on a senior unsecured basis by each of the Company's current
and future wholly owned subsidiaries. The net proceeds of the Tack-on-Notes were
used to fund a portion of the cash consideration for the acquisition of Reddy
Ice Corporation.
In July 1998, the Company completed an offer to exchange the 9 3/4% Senior
Notes, including the Tack-on-Notes with new debt registered under the Securities
Act of 1933. The forms and terms of the new 9 3/4% Senior Notes are identical in
all material respects to the forms and terms of the original 9 3/4% Senior Notes
and the Tack-on-Notes, except for certain transfer restrictions and registration
rights.
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 Credit Facility replaced the
Company's previous line of credit. The outstanding principal balance under the
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. 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
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.
F-10
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1999 and 1998, long term obligations consisted of the
following:
DECEMBER 31,
-----------------------
1999 1998
--------- ---------
(IN THOUSANDS)
9 3/4% Senior Notes ................................ $ 270,000 $ 270,000
Unamortized debt discount on 9 3/4% Senior Notes ... (203) (243)
Revolving credit facility .......................... 51,500 67,500
Other .............................................. 993 1,124
--------- ---------
Total .............................................. 322,290 338,381
Less: Current maturities .......................... (13,126) (231)
--------- ---------
Long term obligations, net ................... $ 309,164 $ 338,150
========= =========
As of December 31, 1999, principal maturities of long term obligations for
the next five years are as follows:
(IN THOUSANDS)
2000........................................................... $ 13,126
2001........................................................... 17,420
2002........................................................... 17,359
2003........................................................... 4,363
2004........................................................... 45
And thereafter................................................. 269,977
-------------
Total.................................................... $ 322,290
=============
See Note 13 for information regarding subsidiary guarantors of long term
obligations.
9. INCOME TAXES
The Company incurred losses for each of the three years ended December 31,
1999, 1998 and 1997 for both financial reporting and tax return purposes. Due to
the uncertainty of being able to utilize such losses to reduce future taxes, a
valuation allowance has been provided to reduce to zero the net deferred tax
assets resulting primarily from the loss carryforwards available.
F-11
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The total provision for income taxes varied from the U.S. federal
statutory rate due to the following:
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- -------
(IN THOUSANDS)
Federal income tax benefit at statutory rate ...$ (2,147) $ (7,811) $(2,869)
State income taxes, net of federal income tax
benefits ..................................... (208) (659) (269)
Acquired tax liability ......................... -- -- 2,837
Increase in valuation allowance ................ 823 7,590 201
Non-deductible expenses and other .............. 1,532 880 100
-------- -------- -------
Total provision for income taxes .........$ -- $ -- $ --
======== ======== =======
Deferred tax assets and liabilities computed at the statutory rate related to
temporary differences were as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- -------
(IN THOUSANDS)
Deferred Tax Liability:
Property and equipment ................ $(12,351) $(11,027) $(4,169)
======== ======== =======
Deferred Tax Asset:
Other assets .......................... $ 619 $ 272 $ 21
Net operating loss carryforwards ...... 21,352 19,552 5,355
-------- -------- -------
Total deferred tax assets ........ $ 21,971 $ 19,824 $ 5,376
======== ======== =======
Net deferred tax assets ..................... $ 9,620 $ 8,797 $ 1,207
Valuation allowance ......................... (9,620) (8,797) (1,207)
-------- -------- -------
Total deferred taxes .................. $ -- $ -- $ --
======== ======== =======
At December 31, 1999, the Company had approximately $57 million of net
operating loss carryforwards that expire between 2005 and 2019. There will be an
annual limitation on the utilization of the outstanding NOLs due to an ownership
change, as defined by Internal Revenue Code Section 382.
10. CAPITAL STOCK
PREFERRED STOCK. The Company's Board of Directors authorized 450,000
shares of $0.01 par value Series A convertible preferred stock ("Series A"). The
Company issued 450,000 shares of $0.01 par value Series A convertible preferred
stock in a private placement offering during 1995. Series A has no sinking fund
provisions, but upon liquidation of the Company, the Company must pay the Series
A holders $5.56 per share (aggregate of $2,502,000) before any amounts may be
paid to the holders of common stock. Series A holders are entitled to vote on
all matters upon which the holders of common stock have the right to vote and
are generally entitled to vote as a class on any matters adversely affecting
their rights as holders of this series of preferred stock. Each Series A holder
is entitled to vote the number of equivalent common shares that underlie their
respective Series A investment. Each Series A share is convertible into common
stock without payment of additional consideration at a conversion price of $5.56
per share.
In conjunction with the private placement of the Series A convertible
preferred stock, the Company also issued 700,000 shares of common stock of which
420,000 shares contain a "put" option that provides the respective shareholders
with the ability to require the Company to repurchase the common shares if
certain registration rights with respect to the Series A are not effected by
September, 2004. The put price would be at the fair market value, as defined, at
the time the put option is exercised. The 420,000
F-12
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
common shares subject to this redemption feature are shown on the consolidated
balance sheets under the heading "Common Stock With Put Redemption Option".
During January 1997, the Company's Board of Directors authorized and the
shareholders approved the designation of 200,000 shares of $0.01 par value
Series B convertible preferred stock ("Series B"). The Company issued 124,831
Series B shares in full satisfaction of 10% convertible demand notes. Series B
has no sinking fund provisions, but upon liquidation of the Company, the Company
must pay the Series B holders $6.07 per share (aggregate $757,724) before any
amounts may be paid to the holders of common stock. Series B holders are
entitled to vote on all matters upon which the holders of common stock have the
right to vote and are generally entitled to vote as a class on any matters
adversely affecting their rights as holders of this series of preferred stock.
Each Series B holder is entitled to vote the number of equivalent common shares
that underlie their respective Series B investment. Each Series B share is
convertible into common stock without payment of additional consideration at a
conversion price of $6.07 per share.
The Series A and Series B shares are also subject to the same put
redemption option described above for the 420,000 common shares. This redemption
feature would be available beginning September, 2004 if the preferred
stockholder has converted its holding to common shares and if certain
registration rights with respect to the common shares are not effected by
September, 2004. The Series A and Series B shares are shown on the consolidated
balance sheets under the heading "Preferred Stock With Put Redemption Option".
In connection with the Company's offering of common stock on February 3,
1999, as discussed below, the holders of Series A and Series B exercised their
convertibility rights and received 450,000 and 124,831 common shares,
respectively, and the put redemption feature on the 420,000 common shares
referred to above was satisfied.
On December 2, 1997, the Company's Board of Directors authorized the
designation of 500,000 shares of $0.01 par value 10% exchangeable preferred
stock, and 100 shares of $0.01 par value Series C preferred stock. Holders of
the 10% exchangeable preferred stock shall be entitled to receive dividends
equal to 10% of the liquidation preference of $100 per share, and all dividends
shall be fully cumulative. Dividends may be paid in cash or in kind by issuing a
number of additional shares of the 10% exchangeable preferred stock. If
dividends are paid in kind, the Company shall also issue to holders of the 10%
exchangeable preferred stock, additional warrants to purchase common stock at an
exercise price of $13.00 per share. Holders of the 10% exchangeable preferred
stock have no voting rights other than approval rights with respect to the
issuance of parity or senior securities. The Company may redeem the 10%
exchangeable preferred stock at any time subject to contractual and other
restrictions. The Company is obligated to redeem the 10% exchangeable preferred
stock for cash on April 15, 2005.
On December 2, 1997, the Company entered into a securities purchase
agreement with Culligan Water Technologies, Inc. and an existing shareholder
pursuant to which the Company issued 250,000 shares of the 10% exchangeable
preferred stock, 100 shares of Series C preferred stock and warrants, with an
exercise price of $13.00 per share, to purchase 1,923,077 shares of the
Company's common stock, in exchange for an aggregate price of $25.0 million less
issuance cost of $856,017. The warrants are valid until the earlier to occur of
(a) April 15, 2005 or (b) the first anniversary of the last day of the first
period of 20 consecutive days following a qualifying IPO, as defined, during
which there is a closing price on each such trading day and the closing price on
each such trading day equals or exceeds the threshold price, as defined. The
Series C preferred stock was created to provide Culligan and the existing
shareholder the right to vote a number of shares equal to the number of warrants
issued to them, such rights to be effective only at such time or times that
Culligan owns less than twenty percent of the fully diluted common stock of the
Company. The Company may redeem the outstanding Series C preferred stock (but
not less than 100%) at such time as the original investors cease to own at least
50% of the warrants.
F-13
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On April 30, 1998, the Company entered into a securities purchase with
Ares Leveraged Investment Fund, L.P. ("Ares") and SV Capital Partners, L.P.
("SV") to acquire 400,000 shares of the Company's 13% exchangeable preferred
stock at $100 per share for an aggregate amount of $40 million. Holders of the
13% exchangeable preferred stock have no voting rights other than approval
rights with respect to the issuance of parity or senior securities. In addition,
there are various situations in which the Company may either elect or be
required to redeem the 13% exchangeable preferred stock. The Company is
obligated to redeem the 13% exchangeable preferred stock for cash on May 1,
2005. In connection with the securities purchase agreement, Ares and SV entered
into warrant agreements granting warrants to purchase an aggregate of 975,752
shares of the Company's common stock with an exercise price of $0.01 per share.
The warrants are valid until May 31, 2005 but are exercisable only under certain
conditions, such as an initial public offering of common stock, change of
control, merger, asset sale or default. The 13% exchangeable preferred stock
bears a dividend rate of 13% per annum; however, during the first 12 months
following issuance, the dividend rate will be 11.5%, and during the second 12
months, the dividend rate will be 12.25%. Dividends shall be fully cumulative
and payable quarterly in cash, except that during the first five years after
issuance, dividends may be payable in kind by issuing additional shares of 13%
exchangeable preferred stock. In the event the Company is unable for any reason
to pay dividends in cash after the fifth anniversary or in the event of a
default, the holders of the 13% exchangeable preferred will have the right to
add up to two directors to the Board of Directors and the dividend rate will be
increased until the default is cured. The securities purchase agreement contains
certain restrictive administrative covenants and requires a vote of two-thirds
of the Board of Directors before the Company may take certain actions. The
Company may exchange the 13% exchangeable preferred stock for subordinated notes
at the Company's discretion.
In July 1998, the Company completed an offer to exchange the 13%
exchangeable preferred stock with new 13% exchangeable preferred stock
registered under the Securities Act of 1933. The form and terms of the
registered stock are identical in all material respects, except for certain
transfer restrictions and registration rights.
In connection with the Company's offering of common stock on February 3,
1999, as discussed below, the Company repurchased the 13% exchangeable preferred
stock for $43.6 million that included accrued but unpaid dividends and a
redemption premium. The holders of the 13% exchangeable preferred stock also
exercised warrants to purchase 974,603 shares of common stock in a cashless
transaction.
During 1998 and 1999, the Company paid no cash dividends on the 10%
exchangeable preferred stock or the 13% exchangeable preferred stock, electing
to pay in kind dividends on the respective dividend dates. Payments for the year
ended December 31, 1999 totaled 27,971 shares of 10% exchangeable preferred
stock and warrants to purchase 215,163 shares of common stock at $13 per share.
Payments for the year ended December 31, 1998 totaled 23,525 shares of 13%
exchangeable preferred stock, 22,890 shares of 10% exchangeable preferred stock
and 176,074 warrants to purchase common stock at $13 per share.
COMMON STOCK. Holders of the Company's common stock are entitled to one
vote per share on all matters to be voted on by shareholders and are entitled to
receive dividends, if any, as may be declared from time to time by the Board of
Directors of the Company. Upon any liquidation or dissolution of the Company,
the holders of common stock are entitled, subject to any preferential rights of
the holders of preferred stock, to receive a pro rata share of all of the assets
remaining available for distribution to shareholders after payment of all
liabilities.
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
F-14
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$39.5 million to pay amounts outstanding under the Company's revolving 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.
11. RELATED PARTIES
In connection with certain acquisitions, some former owners have become
shareholders of the Company. Some of these shareholders have leased real estate
or facilities to the Company as part of the acquisition transaction. Expenses
related to these leases were $0.4 million in 1999, $0.4 million in 1998 and $0.1
million in 1997. (See Note 15)
Certain affiliates of the Company's shareholders sell equipment and
inventory to the company. Total expenditures incurred related to these entities
were $6.9 million in 1999, $4.7 million in 1998 and $4.8 million in 1997. At
December 31, 1999 and 1998, accrued liabilities to these entities totaled $0.1
million and $0.6 million, respectively.
Law firms associated with certain company shareholders provided services
totaling $1.2 million in 1999, $1.7 million in 1998 and $0.9 million in 1997.
A shareholder is the owner of the insurance agency that acts on behalf of
the Company in connection with the Company's group health and life insurance,
benefit plans and key-man life insurance.
A shareholder provided investment banking services to the Company in
connection with the Company's acquisition of Reddy Ice Corporation in 1998. This
shareholder received an investment banking fee from the investment banking firm
for such services.
12. EMPLOYEE BENEFIT PLANS
401(K) PLAN. The Company has established a 401(k) defined contribution
savings plan for the benefit of all employees who have completed one year of
service and have met the eligibility requirements to participate. Employees may
contribute up to the maximum amount allowed by the Internal Revenue Service,
while Company contributions are made at the discretion of the Board of
Directors. The Company contributed $498,092 in 1999, $290,592 in 1998 and
$49,012 in 1997.
1994 STOCK OPTION PLAN. During 1994, the shareholders have approved the
Packaged Ice, Inc. 1994 Stock Option Plan that reserved for issuance 400,000
shares of common stock. This plan provides for the granting of incentive awards
in the form of stock options to employees, outside directors and consultants and
advisors to the Company or any of its subsidiaries. The plan provides for the
underlying shares that are no longer subject to purchase pursuant to an option
previously granted to be reoptioned. Stock options have an exercise price equal
to the fair market value of the shares of common stock at the date of grant,
vest in equal annual installments over five years and expire 10 years from the
date of grant. All outstanding options became fully vested at the date of the
Company's initial public offering.
F-15
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table indicates share and exercise price information with
respect to the 1994 Stock Option Plan for the three years ended December 31,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year . 391,200 $ 11.01 256,000 $ 9.16 63,500 $ 6.53
Granted .......................... -- 0.00 154,700 13.67 194,500 10.00
Exercised ........................ -- 0.00 (6,300) 6.37 -- 0.00
Forfeited ........................ (5,500) 10.91 (13,200) 8.48 (2,000) 6.75
-------- -------- -------- -------- -------- --------
Outstanding at end of year ....... 385,700 $ 11.01 391,200 $ 11.01 256,000 $ 9.16
======== ======== ======== ======== ======== ========
Weighted average fair value of
options granted during the year $ 0.00 $ 3.92 $ 3.99
======== ======== ========
</TABLE>
1998 STOCK OPTION PLAN. During 1998, the shareholders have approved the
Packaged Ice, Inc. 1998 Stock Option Plan that reserved for issuance 1,000,000
shares of common stock. This plan provides for the granting of incentive awards
in the form of stock options, stock appreciation rights, restricted stock and
stock bonuses to officers, employees, outside directors and consultants and
advisors to the Company or any of its subsidiaries at the discretion of the
Compensation Committee of the Board of Directors. Stock options have an exercise
price equal to the fair market value of the shares of common stock at the date
of grant, become exercisable in annual increments for up to five years
commencing one year after the date of grant and expire not more than 10 years
from the date of grant.
The following table indicates share and exercise price information with
respect to the 1998 Stock Option Plan for the two years ended December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year ............. 243,070 $ 15.00 -- $ 0.00
Granted ...................................... 184,682 8.01 244,220 15.00
Exercised .................................... -- 0.00 -- 0.00
Forfeited .................................... (12,463) 13.33 (1,150) 15.00
-------- -------- -------- --------
Outstanding at end of year ................... 415,289 $ 11.94 243,070 $ 15.00
======== ======== ======== ========
Weighted average fair value of options granted
during the year ........................ $ 4.59 $ 6.23
======== ========
</TABLE>
The Company's reported net income and earnings per share would have been
reduced had compensation cost for the company's stock-based compensation plans
been determined using the fair value method of accounting as set forth in SFAS
No. 123 "Accounting for Stock-Based Compensation". For purposes of estimating
the fair value disclosure below, the fair value of each stock option has been
F-16
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
estimated on the grant date using the "minimum value" method for option-pricing
during the years ended December 31, 1998 and 1997, as there was no public market
for the Company's common stock. The "Black-Scholes" method was used during the
year ended December 31, 1999. Calculations used the following weighted average
assumptions:
1999 1998 1997
-------- -------- -------
Dividend yield......................... 0.00% 0.00% 0.00%
Volatility............................. 82.10% 0.00% 0.00%
Risk free interest rate................ 5.63% 5.51% 6.40%
Expected lives......................... 10 years 10 years 8 years
The effects of using the fair value method of accounting on net income and
earnings per share are indicated in the pro forma amounts below:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net Loss Attributable to Common Shareholders:
As reported..................................... $ (9,393) $ (28,891) $ (8,637)
Pro forma....................................... (9,916) (30,282) (8,828)
Basic and Diluted Earnings Per Share:
As reported..................................... $ (0.53) $ (5.91) $ (2.40)
Pro forma....................................... (0.56) (6.20) (2.45)
</TABLE>
13. 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 subsidiaries (the "Subsidiary
Guarantors"), all wholly owned. 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.
DECEMBER 31,
--------------------------
1999 1998
--------- ---------
(IN THOUSANDS)
Balance Sheet Data:
Current assets ......................... $ 31,484 $ 29,373
Property and equipment ................. 184,306 169,208
Total assets ........................... 450,468 429,508
Current liabilities .................... 15,257 14,864
Long term debt ......................... 742 893
Total shareholders' equity ............. (6,480) (5,959)
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
Operating Data:
Net revenues ............. $ 231,723 $ 177,491 $ 24,811
Gross profit ............. 92,337 74,193 9,756
Net loss ................. (521) (2,493) (8,878)
F-17
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT INFORMATION
The Company has two reportable segments: (1) ice products and (2) non-ice
operations. Ice products include the manufacture and distribution of packaged
ice products through traditional ice manufacturing and delivery and the Ice
Factory. Non-ice operations include refrigerated warehouses, manufacturing and
distribution of bottled water and sale and leasing of ice production equipment
other than the Ice Factory. The accounting policies of the segments are the same
as those described in Note 2. 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 years ended
December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999:
ICE NON-ICE ELIMINATION TOTAL
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues....................................................... $ 211,763 $ 21,230 $ (1,270) $ 231,723
Cost of sales.................................................. 127,848 12,610 (1,072) 139,386
------------- ------------- ------------ -------------
Gross profit................................................... 83,915 8,620 (198) 92,337
Operating expenses............................................. 34,707 3,031 - 37,738
Other income................................................... 21 - - 21
------------- ------------- ------------ -------------
EBITDA................................................... $ 49,229 $ 5,589 $ (198) $ 54,620
============= ============= ============ =============
For the Year Ended December 31, 1998:
ICE NON-ICE ELIMINATION TOTAL
------------- ------------- ------------ -------------
(IN THOUSANDS)
Revenues....................................................... $ 168,074 $ 13,115 $ (1,328) $ 179,861
Cost of sales.................................................. 100,765 8,561 (1,050) 108,276
------------- ------------- ------------ -------------
Gross profit................................................... 67,309 4,554 (278) 71,585
Operating expenses............................................. 29,662 2,079 - 31,741
Other income................................................... 4 - - 4
------------- ------------- ------------ -------------
EBITDA................................................... $ 37,651 $ 2,475 $ (278) $ 39,848
============= ============= ============ =============
For the Year Ended December 31, 1997:
ICE NON-ICE ELIMINATION TOTAL
------------- ------------- ------------ -------------
(IN THOUSANDS)
Revenues....................................................... $ 28,790 $ 842 $ - $ 29,632
Cost of sales.................................................. 18,304 420 - 18,724
------------- ------------- ------------ -------------
Gross profit................................................... 10,486 422 - 10,908
Operating expenses............................................. 7,298 338 - 7,636
Other income................................................... 4 - - 4
------------- ------------- ------------ -------------
EBITDA................................................... $ 3,192 $ 84 $ - $ 3,276
============= ============= ============ =============
</TABLE>
F-18
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reconciliation of EBITDA to net loss before extraordinary item and
preferred dividends for the three years ended December 31, 1999, 1998 and 1997
is as follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
EBITDA......................................................................... $ 54,620 $ 39,848 $ 3,276
Depreciation and amortization.................................................. (30,526) (20,729) (5,130)
Interest expense............................................................... (30,409) (24,705) (6,585)
Income taxes................................................................... - - -
------------- ------------ -------------
Net loss before extraordinary item and preferred dividends............... $ (6,315) $ (5,586) $ (8,439)
============= =========== =============
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
In April 1993, the Company entered into an agreement to purchase the
bagging component of the Ice Factory from a shareholder for a period of three
years or until a minimum of 3,600 components is purchased. Since inception of
this agreement, the Company has purchased 2,298 components.
The Company entered into employment contracts with certain executive
officers and key employees of the Company with terms of one to two years. The
aggregate annual commitment for base salary under these agreements is
approximately $1.2 million.
As a result of the acquisitions, the Company entered into certain
employment contracts with former employees of the acquired companies with terms
of one to five years. The aggregate annual commitment under these agreements is
approximately $0.6 million.
The Company has leased certain facilities and equipment. Under these and
other operating leases, future minimum annual rentals at December 31, 1999 were
approximately $5.8 million in 2000, $5.4 million in 2001, $5.1 million in 2002,
$4.2 million in 2003, $3.4 in 2004 and $9.7 million thereafter. Rent expense was
$5.0 million, $3.3 million and $1.2 million for the years ended December 31,
1999, 1998 and 1997, respectively.
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.
In June 1999, the Company entered into an exclusive supply agreement with
a merchandiser manufacturer in which the Company has committed to purchase 4,000
merchandisers and/or Ice Factory merchandisers and a minimum of $1.5 million of
replacement parts per twelve-month period commencing June 1, 1999 for the five
years ending May 31, 2004. As of December 31, 1999, the Company had purchased
1,557 merchandisers and $0.4 million of parts.
16. SUBSEQUENT EVENTS
In January 2000, the Company adopted the 2000 Employee Stock Purchase Plan
(the "ESPP"). The ESPP is designed to be a tax qualified plan under Internal
Revenue Code Section 423, and will offer employees of the Company and its
subsidiaries the right to purchase shares of the Company's common stock each
quarter. The purchase price will be the lesser of 85% of the fair market value
at the offering date or the exercise date. The Company has reserved for issuance
250,000 shares under the ESPP.
F-19
<PAGE>
PACKAGED ICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
17. QUARTERLY INFORMATION (UNAUDITED)
The following table summarizes the unaudited quarterly information for the
years ended December 31, 1999 and 1998. In the opinion of management, all
adjustments necessary for a fair presentation of the unaudited results for the
periods are included.
<TABLE>
<CAPTION>
1999 1ST 2ND 3RD 4TH YEAR
- ---- ------------- ------------- ------------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues....................................... $ 31,421 $ 67,246 $ 87,400 $ 45,656 $ 231,723
Gross profit................................... 9,325 28,937 38,692 15,383 92,337
Net income (loss) attributable to
common shareholders......................... (14,286) 3,687 12,342 (11,136) (9,393)
Earnings per Share:
Basic....................................... (1.03) 0.20 0.65 (0.58) (0.53)
Diluted..................................... (1.03) 0.20 0.63 (0.58) (0.53)
<CAPTION>
1998 1ST 2ND 3RD 4TH YEAR
- ---- ------------- ------------- ------------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues....................................... $ 8,402 $ 51,154 $ 78,588 $ 41,717 $ 179,861
Gross profit................................... 2,008 22,075 33,027 14,475 71,585
Net income (loss) before extraordinary
item attributable to common
shareholders................................ (7,407) 2,175 7,096 (13,368) (11,504)
Extraordinary loss on refinancing.............. (17,387) - - - (17,387)
Net income (loss) attributable to
common shareholders......................... $ (24,794) $ 2,175 $ 7,096 $ (13,368) $ (28,891)
Earnings per Share:
Basic:
Net income (loss) before
extraordinary item attributable
to common shareholders................. $ (1.69) $ 0.43 $ 1.41 $ (2.65) $ (2.35)
Extraordinary loss on refinancing........ (3.95) - - - (3.56)
Net income (loss) attributable to
common shareholders.................... $ (5.64) $ 0.43 $ 1.41 $ (2.65) $ (5.91)
Diluted:
Net income (loss) before
extraordinary item attributable
to common shareholders................. $ (1.69) $ 0.31 $ 0.97 $ (2.65) $ (2.35)
Extraordinary loss on refinancing........ (3.95) - - - (3.56)
Net income (loss) attributable to
common shareholders.................... $ (5.64) $ 0.31 $ 0.97 $ (2.65) $ (5.91)
</TABLE>
The sum of the individual quarters earnings per share do not agree with
year-to-date earnings per share as each quarter's computation is based on the
weighted average number of shares outstanding during the quarter, the weighted
average stock price during the quarter and the dilutive effects of options and
warrants in each quarter. In periods of loss, dilutive effects become
antidilutive and are not considered in the computation of loss per share. In
April 1998, the company acquired Reddy Ice Corporation from Suiza Foods
Corporation. In July 1998, the Company acquired Cassco Ice and Cold Storage,
Inc. from WLR Foods, Inc.
F-20
EXHIBIT 10.2
PACKAGED ICE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the Packaged Ice, Inc. 2000 Employee Stock
Purchase Plan (the "Plan") is to provide Employees of Packaged Ice, Inc. (the
"Company") and its Designated Subsidiaries with an opportunity to acquire an
interest in the Company through the purchase of common stock of the Company,
$.01 par value per share (the "Common Stock"), with accumulated payroll
deductions. The Company intends the Plan to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code of
1986, as amended (the "Code"), and the provisions of the Plan shall be construed
in a manner consistent with the requirements of Section 423 of the Code.
2. DEFINITIONS.
a. "Authorization Form" shall mean a form supplied by and delivered to the
Company by a Participant in the form of Attachment A hereto authorizing payroll
deductions as set forth in Section 5 hereof and such other terms and conditions
as the Company from time to time may determine.
b. "Board" shall mean the Board of Directors of the Company.
c. "Committee" shall mean a committee of at least three members of the
Board appointed by the Board to administer the Plan and to perform the functions
set forth herein and who are "non-employee directors" within the meaning of Rule
16b-3 as promulgated under Section 16 of the Securities Exchange Act of 1934
(the "Exchange Act").
d. "Company" shall mean Packaged Ice, Inc. and any Designated Subsidiary.
e. "Compensation" shall mean gross compensation for the relevant pay
period, including overtime pay, but excluding all bonuses, severance pay, any
extraordinary pay, expense allowances/reimbursements, moving expenses and income
from restricted stock or stock option awards. For these purposes, gross
compensation includes any amount that would be included in taxable income but
for the fact that it was contributed to a qualified plan pursuant to an elective
deferral under Section 401(k) of the Code or contributed under a salary
reduction agreement pursuant to Section 125 of the Code.
f. "Designated Subsidiary" shall mean any Subsidiary designated by the
Board from time to time, in its sole discretion, as eligible to participate in
the Plan.
g. "Eligible Employee", shall mean any Employee excluding: (i) any
Employee who is customarily scheduled to work 20 hours per week or less, and
(ii) any Employee who customarily is employed for not more than five (5) months
in any calendar year.
h. "Employee" shall mean any person, including an officer, who, for tax
purposes, is an employee of the Company or one of its Designated Subsidiaries.
<PAGE>
i. "Exercise Date" shall mean, with respect to each Offering Period, the
last business day prior to the next Offering Date in which payroll deductions
are made under the Plan.
j. "Fair Market Value" per share as of a particular date shall mean: (i)
the last reported sale price (on that date) of the Common Stock on the NASDAQ
Stock Market or such other established stock exchange or national market system
on which the Common Stock is listed; or (ii) if the Common Stock is regularly
quoted by a recognized securities dealer but selling prices are not reported,
its Fair Market Value shall be the mean of the closing bid and asked prices for
the Common Stock on the date of such determination, as reported in the Wall
Street Journal or such other source as the Board deems reliable; or (iii) in the
absence of an established market for the Common Stock, the Fair Market Value
thereof shall be determined in good faith by the Board.
k. "Offering Date" shall mean the first business day of January, April,
July and October of each Plan Year, provided that the Committee shall have the
power to change the Offering Date.
l. "Offering Period" shall mean a period of time during the effectiveness
of the Plan, commencing on each Offering Date and ending on the Exercise Date
thereof.
m. "Participant" shall mean an Employee who participates in the Plan.
n. "Plan Year" shall mean the period beginning on January 1, 2000 and
ending on December 31, 2000 and each calendar year thereafter.
o. "Subsidiary" shall mean any corporation, if any, having the
relationship to the Company described in Section 424(f) of the Code.
3. ELIGIBILITY AND PARTICIPATION.
a. Any person who is an Eligible Employee on an Offering Date shall be
eligible to become a Participant in the Plan beginning on that Offering Date and
shall become a Participant as of that Offering Date by completing an
Authorization Form and filing it with the Company by the date required by the
Company. Such authorization will remain in effect for subsequent Offering
Periods, until modified or terminated by the Participant.
b. Any person who first becomes an Eligible Employee during an Offering
Period shall be eligible to become a Participant in the Plan as of the first day
of the Offering Period beginning after the date on which that person became an
Eligible Employee and shall become a Participant as of such date by completing
an Authorization Form and filing it with the Company by the date required by the
Company. Such authorization will remain in effect for subsequent Offering
Periods, until modified or terminated by the Participant.
c. A person shall cease to be a Participant upon the earliest to occur of:
i) the date the Participant ceases to be an Eligible Employee, for
any reason;
ii) the first day of the Offering Period beginning after the date on
which the Participant ceases payroll deductions under the Plan; or
iii) the date of a withdrawal from the Plan by the Participant.
<PAGE>
4. GRANT OF OPTION.
a. On each Offering Date the Company shall grant each Eligible Employee an
option to purchase shares of Common Stock, subject to the limitations set forth
in Sections 3.b, 3.c and 10 hereof.
b. The option price per share of the Common Stock subject to an offering
shall be the lesser of: (i) eighty-five percent (85%) of the Fair Market Value
of a share of Common Stock on the Offering Date or (ii) eighty-five percent
(85%) of the Fair Market Value of a share of Common Stock on the Exercise Date.
c. No Participant shall be granted an option which permits his rights to
purchase Common Stock under all employee stock purchase plans of the Company to
accrue at a rate which exceeds $25,000 of the Fair Market Value of the Common
Stock (determined at the time the option is granted) for each calendar year in
which such stock option is outstanding at any time.
d. No Participant may be granted an option if, upon such grant, such
Participant would own immediately after the grant of an option under the Plan
and applying the rules of Section 424(d) of the Code in determining stock
ownership shares, and/or hold outstanding options to purchase shares, possessing
five percent (5%) or more of the total combined voting power or value of all
classes of shares of the Company.
5. PAYROLL DEDUCTIONS AND LUMP SUM PAYMENTS.
a. An Eligible Employee may become a Participant in the Plan through
payroll deduction on an Offering Date by delivering an Authorization Form to the
Company within the time specified in rules adopted by the Committee. Each such
Authorization Form shall authorize payroll deductions of up to the maximum
amount or percentage of Compensation specified by the Committee (if any such
maximum amount or percentage of Compensation is lower than the amount
established by operation of section 4(c) hereof) of such Employee's Compensation
during the Offering. Payroll deductions shall not be less than five dollars for
Employees paid on a weekly basis nor less than ten dollars for Employees paid on
a bi-weekly basis. A Participant may increase or decrease such payroll deduction
(including a cessation of payroll deductions) effective as of the start of the
next Offering Period, provided the Participant files with the Company the
Authorization Form requesting such change by the date required by the Company.
An Eligible Employee may also become a Participant for an Offering Period by
making one lump sum payment into his or her account if lump sum payments are not
specifically prohibited by the Committee for such Offering Period. Such a
lump-sum amount shall be due by the date prescribed by the Committee and shall
not exceed any maximum amount established by the Committee. Participants who
have enrolled through an Authorization Form may also make one lump sum payment
per Offering Period by the date prescribed by the Committee as long as they have
not already reached the maximum amount permitted for such Offering Period.
b. All payroll deductions and lump-sum payments (if any) made by a
Participant shall be credited to such Participant's account under the Plan.
6. EXERCISE OF OPTION.
a. Unless a Participant withdraws from the Plan as provided in Section 8
hereof, such Participant's election to purchase shares will be exercised
automatically on the Exercise Date, and the maximum number of full shares
subject to such option will be purchased for such Participant at the applicable
option price with the accumulated payroll deductions, cash dividends (credited
pursuant to Section 9 hereof) and lump-sum payment amount in such Participant's
account. During a Participant's lifetime, his or her option to purchase shares
hereunder is exercisable only by such Participant.
b. Any cash balance remaining in a Participant's account after the
termination of an Offering Period will be carried forward to the Participant's
account for the purchase of Common Stock during the next Offering Period if the
Participant has elected to continue to participate in the Plan. Otherwise the
Participant will receive a cash payment equal to the balance of his or her
account as soon as administratively
<PAGE>
feasible.
c. The shares of Common Stock purchased upon exercise of an option
hereunder shall be credited to the Participant's account under the Plan and
shall be deemed to be transferred to the Participant on the Exercise Date and,
except as otherwise provided herein, the Participant shall have all rights of a
stockholder with respect to such shares.
7. DELIVERY OF COMMON STOCK. As promptly as practicable after receipt by
the Committee of a written request for withdrawal of Common Stock from any
Participant, the Company shall arrange the delivery to such Participant of a
stock certificate representing the shares of Common Stock which the Participant
requests to withdraw. Withdrawals may be made no more frequently than once each
Plan Year unless approved by the Committee in its sole discretion. Shares of
Common Stock received upon stock dividends or stock splits shall be treated as
having been purchased on the Exercise Date of the shares to which they relate.
8. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
a. A Participant may withdraw all, but not less than all, the payroll
deductions, cash dividends and lump-sum payment amount credited to such
Participant's account (that have not been used to purchase shares of Common
Stock) under the Plan at any time by giving written notice to the Company
received prior to the Exercise Date. All such amounts credited to such
Participant's account will be paid to such Participant promptly after receipt of
such Participant's notice of withdrawal and such Participant's option for the
Offering Period in which the withdrawal occurs will be automatically terminated.
No further payroll deductions for the purchase of shares of Common Stock will be
made for such Participant during such Offering Period, any additional cash
dividends during the Offering Period will be distributed to the Participant, and
no further lump-sum payments for such Offering Period will be accepted. If a
Participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the Participant
delivers to the Company a new Authorization Form.
b. A Participant's withdrawal from an Offering Period will not have any
effect upon such Participant's eligibility to participate in a succeeding
Offering Period or in any similar plan, which may hereafter be adopted by the
Company.
c. Upon termination of a Participant's status as an Employee during the
Offering Period for any reason, including voluntary or involuntary termination,
retirement or death, the payroll deductions, cash dividends and any lump-sum
payment credited to such Participant's account that have not been used to
purchase shares of Common Stock will be returned (and any future cash dividends
will be distributed) to such Participant or, in the case of such Participant's
death, to the person or persons entitled thereto under Section 12 hereof, and
such Participant's option will be automatically terminated. A Participant's
status as an Employee shall not be considered terminated in the case of a leave
of absence agreed to in writing by the Company (including, but not limited to,
military and sick leave), provided that such leave is for a period of not more
than ninety (90) days or reemployment upon expiration of such leave is
guaranteed by contract or statute.
9. DIVIDENDS.
a. Cash dividends paid on Common Stock held in a Participant's account
shall be credited to such Participant's account and used in addition to payroll
deductions and lump-sum payments to purchase shares of Common Stock on the
Exercise Date. Dividends paid in Common Stock or stock splits of the Common
Stock shall be credited to the accounts of Participants. Dividends paid in
property other than cash or Common Stock shall be distributed to Participants as
soon as practicable.
b. No interest shall accrue on or be payable with respect to the payroll
deductions or credited cash dividends of a Participant in the Plan.
<PAGE>
10. STOCK.
a. The maximum number of shares of Common Stock, which shall be reserved
for sale under the Plan, shall be 250,000, subject to adjustment upon the
occurrence of an event as provided in Section 15 hereof. If the total number of
shares which would otherwise be subject to options granted pursuant to Section
4.a. hereof on an Offering Date exceeds the number of shares then available
under the Plan (after deduction of all shares for which options have been
exercised or are then outstanding), the Committee shall make a pro rata
allocation of the shares remaining available for option grant in as uniform a
manner as shall be practicable and as it shall determine to be equitable. In
such event, the Committee shall give written notice to each Participant of such
reduction of the number of option shares affected thereby and shall similarly
reduce the rate of payroll deductions, if necessary. The source of shares may be
treasury, open market purchase, or new issue.
b. Shares of Common Stock to be delivered to a Participant under the Plan
will be registered in the name of the Participant or, at the election of the
Participant, in the name of the Participant and another person as joint tenants
with rights of survivorship.
11. ADMINISTRATION. The Plan shall be administered by the Committee, and
the Committee may select an administrator to whom its duties and
responsibilities hereunder may be delegated. The Committee shall have full power
and authority, subject to the provisions of the Plan, to promulgate such rules
and regulations as it deems necessary for the proper administration of the Plan,
to interpret the provisions and supervise the administration of the Plan, and to
take all action in connection therewith or in relation thereto as it deems
necessary or advisable. Any decision reduced to writing and signed by a majority
of the members of the Committee shall be fully effective as if it had been made
at a meeting duly held. The Company will pay all expenses incurred in the
administration of the Plan. No member of the Committee shall be personally
liable for any action, determination, or interpretation made in good faith with
respect to the Plan, and all members of the Committee shall be fully indemnified
by the Company with respect to any such action, determination or interpretation.
12. DESIGNATION OF BENEFICIARY.
a. A Participant may file, on forms supplied by and delivered to the
Company, a written designation of a beneficiary who is to receive any shares and
cash in the event of the Participant's death.
b. Such designation of beneficiary may be changed by the Participant at
any time by written notice. In the event of the death of a Participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such Participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the Participant
or, if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
13. TRANSFERABILITY. Neither amounts credited to a Participant's account
nor any rights with regard to the exercise of an option or to receive shares
under the Plan may be assigned, transferred, pledged or otherwise disposed of in
any way (other than by will, the laws of descent and distribution or as provided
in Section 12 hereof) by the Participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
Section 8 hereof.
14. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
<PAGE>
15. EFFECT OF CERTAIN CHANGES. In the event of any increase, reduction, or
change or exchange of shares of Common Stock for a different number or kind of
shares or other securities of the Company by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, stock dividend, stock
split or reverse stock split, combination or exchange of shares, repurchase of
shares, change in corporate structure, distribution of an extraordinary dividend
or otherwise, the Committee shall conclusively determine the appropriate
equitable adjustments, if any, to be made under the Plan, including without
limitation adjustments to the number of shares of Common Stock which have been
authorized for issuance under the Plan but have not yet been placed under
option, as well as the price per share of Common Stock covered by each option
under the Plan which has not yet been exercised.
16. AMENDMENT OR TERMINATION. The Board may at any time terminate or amend
the Plan. Except as provided in Section 15 hereof, no such termination can
adversely affect options previously granted and no amendment may make any change
in any option theretofore granted which adversely affects the rights of any
Participant. No amendment shall be effective unless approved by the stockholders
of the Company if stockholder approval of such amendment is required to comply
with any law, regulation or stock exchange rule.
17. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
18. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
a. This Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of Texas
applicable to contracts made and to be performed in such State.
b. The obligation of the Company to sell or deliver shares of Common Stock
with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable Federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
c. The Plan is intended to comply with Rule 16b-3 as promulgated under
Section 16 of the Exchange Act and the Committee shall interpret and administer
the provisions of the Plan in a manner consistent therewith. Any provisions
inconsistent with such Rule shall be inoperative and shall not affect the
validity of the Plan.
19. WITHHOLDING OF TAXES. If the Participant makes a disposition, within
the meaning of Section 424(c) of the Code and regulations promulgated
thereunder, of any share or shares issued to such Participant pursuant to such
Participant's exercise of an option, and such disposition occurs within the
two-year period commencing on the day after the Offering Date or within the
one-year period commencing on the day after the Exercise Date, such Participant
shall, within five (5) days of such disposition, notify the Company thereof and
thereafter immediately deliver to the Company any amount of Federal, state or
local income taxes and other amounts which the Company informs the Participant
the Company is required to withhold.
20. EFFECTIVE DATE; APPROVAL OF STOCKHOLDERS. The Plan is effective as of
January 1, 2000. The Plan shall be submitted to the stockholders of the Company
for their approval within twelve (12) months after the date the Plan is adopted.
The Plan is conditioned upon the approval of the stockholders of the Company,
and failure to receive their approval shall render the Plan and all outstanding
options issued thereunder void and of no effect.
EXHIBIT 11.1
PACKAGED ICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999(1) 1998(1) 1997(1)
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Weighted average common shares outstanding ................................... 17,565 4,886 3,600
-------- -------- --------
Net loss before extraordinary item
attributable to common shareholders ............................... $ (0.53) $ (2.35) $ (2.40)
======== ======== ========
Net loss attributable to common shareholders ........................... $ (0.53) $ (5.91) $ (2.40)
======== ======== ========
DILUTED EARNINGS PER SHARE:
Weighted average common shares outstanding ................................... 17,565 4,886 3,600
Shares issuable from assumed conversion of
common share options and warrants ...................................... 737 1,754 775
Convertible demand notes ..................................................... -- -- 6
-------- -------- --------
Weighted average common shares outstanding, as adjusted ...................... 18,302 6,640 4,381
======== ======== ========
Net loss before extraordinary item
attributable to common shareholders ............................... $ (0.51) $ (1.73) $ (1.97)
======== ======== ========
Net loss attributable to common shareholders ........................... $ (0.51) $ (4.35) $ (1.97)
======== ======== ========
EARNINGS FOR BASIC AND DILUTED COMPUTATION:
Net loss before extraordinary item and preferred dividends ................... $ (6,315) $ (5,586) $ (8,439)
Extraordinary item ........................................................... -- (17,387) --
Preferred share dividends .................................................... (3,078) (5,918) (198)
-------- -------- --------
Net loss attributable to common shareholders (basic
earnings per share computation)......................................... (9,393) (28,891) (8,637)
Interest expense on convertible demand notes ................................. -- -- 1
-------- -------- --------
Net loss attributable to common shareholders, as
adjusted (diluted earnings per share computation) ................. $ (9,393) $(28,891) $ (8,636)
======== ======== ========
</TABLE>
(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.
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Packaged Ice Leasing, Inc., Nevada
Packaged Ice Factory, Inc., Nevada
Southern Bottled Water, Inc., Nevada
Reddy Ice Corporation, Nevada
Cassco Ice & Cold Storage, Inc., Virginia
Packaged Ice IP, Inc., Nevada
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 333-76287 on Form S-4, and in Registration Statement No. 333-75557
on Form S-8, of Packaged Ice, Inc. of our report dated March 17, 2000
appearing in this Annual Report on Form 10-K of Packaged Ice, Inc. for
the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
/s/ Deloitte & Touche LLP
- --------------------------
Houston, Texas
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
COMPANY'S FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED IN THE COMPANY'S
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,619
<SECURITIES> 0
<RECEIVABLES> 19,460
<ALLOWANCES> 458
<INVENTORY> 8,079
<CURRENT-ASSETS> 35,358
<PP&E> 224,773
<DEPRECIATION> 40,462
<TOTAL-ASSETS> 462,332
<CURRENT-LIABILITIES> 40,210
<BONDS> 309,164
30,589
0
<COMMON> 196
<OTHER-SE> 82,173
<TOTAL-LIABILITY-AND-EQUITY> 462,332
<SALES> 231,723
<TOTAL-REVENUES> 231,723
<CGS> 139,386
<TOTAL-COSTS> 207,650
<OTHER-EXPENSES> (21)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,409
<INCOME-PRETAX> (6,315)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,315)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,315)
<EPS-BASIC> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
