- Quarterly Report (10-Q)
May 05 2011 - 2:51PM
Edgar (US Regulatory)
Use these links to rapidly review the document
TABLE OF CONTENTS
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
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ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2011
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file numbers:
Reddy Ice Holdings, Inc. 001-32596
Reddy Ice Corporation 333-168190
REDDY ICE HOLDINGS, INC.
REDDY ICE CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE
NEVADA
(State or other jurisdiction of
incorporation or organization)
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56-2381368
75-2244985
(I.R.S. Employer
Identification No.)
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8750 N. CENTRAL EXPRESSWAY, SUITE 1800
DALLAS, TEXAS 75231
(Address of principal executive offices)
(214) 526-6740
(Registrant's telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding
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.
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Reddy Ice Holdings, Inc.
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Yes
ý
No
o
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Reddy Ice Corporation
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Yes
ý
No
o
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Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). *The Registrants are not subject to the requirements of Rule 405 of Regulation S-T at this time.
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Reddy Ice Holdings, Inc.
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Yes
o
No
o
*
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Reddy Ice Corporation
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Yes
o
No
o
*
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Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions
of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Reddy
Ice Holdings, Inc.
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
ý
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Reddy
Ice Corporation
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
ý
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Reddy Ice Holdings, Inc.
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Yes
o
No
ý
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Reddy Ice Corporation
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Yes
o
No
ý
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The
number of shares of registrant's common stock outstanding as of May 3, 2011 was:
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Reddy Ice Holdings, Inc.
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23,311,456 shares of common stock
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Reddy Ice Corporation
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100 shares of common stock
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REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
REDDY ICE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2011
TABLE OF CONTENTS
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Page
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PART I—FINANCIAL INFORMATION
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Item 1.
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Reddy Ice Holdings, Inc. Condensed Consolidated Financial Statements
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2
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Reddy Ice Holdings, Inc. Condensed Consolidated Balance Sheets as of March 31, 2011 and
December 31, 2010 (unaudited)
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2
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Reddy Ice Holdings, Inc. Condensed Consolidated Statements of Operations for the three months ended
March 31, 2011 and 2010 (unaudited)
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3
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Reddy Ice Holdings, Inc. Condensed Consolidated Statement of Stockholders' Deficit for the three months
ended March 31, 2011 (unaudited)
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4
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Reddy Ice Holdings, Inc. Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2011 and 2010 (unaudited)
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5
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Reddy Ice Corporation Condensed Balance Sheets as of March 31, 2011 and December 31, 2010
(unaudited)
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6
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Reddy Ice Corporation Condensed Statements of Operations for the three months ended March 31, 2011 and
2010 (unaudited)
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7
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Reddy Ice Corporation Condensed Statement of Stockholder's Deficit for the three months ended March 31,
2011 (unaudited)
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8
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Reddy Ice Corporation Condensed Statements of Cash Flows for the three months ended March 31, 2011 and 2010
(unaudited)
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9
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Notes to condensed consolidated and Reddy Ice Corporation condensed financial statements for the three months
ended March 31, 2011 and 2010 (unaudited)
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10
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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29
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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45
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Item 4.
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Controls and Procedures
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45
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PART II—OTHER INFORMATION
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Item 1.
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Legal Proceedings
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47
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Item 1A.
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Risk Factors
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49
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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49
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Item 3.
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Defaults Upon Senior Securities
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49
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Item 4.
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(Removed and Reserved)
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49
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Item 5.
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Other Information
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49
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Item 6.
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Exhibits
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49
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SIGNATURES
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50
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INDEX TO EXHIBITS
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51
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1
Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31, 2011
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December 31, 2010
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(in thousands, except
share data)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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11,221
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$
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42,173
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Accounts receivable, net
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22,367
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21,432
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Inventories, parts and supplies
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13,662
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12,549
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Prepaid expenses and other current assets
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3,707
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3,849
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Assets held for sale
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1,052
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1,056
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Deferred tax assets
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716
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716
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Total current assets
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52,725
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81,775
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RESTRICTED CASH
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10,191
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10,110
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PROPERTY AND EQUIPMENT, net
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203,067
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204,898
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GOODWILL
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85,380
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83,368
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OTHER INTANGIBLES, net
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75,031
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72,204
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INVESTMENTS
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6,993
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6,318
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OTHER ASSETS, net
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11,653
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12,252
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TOTAL
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$
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445,040
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$
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470,925
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES:
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Current portion of long-term obligations
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$
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1
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$
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1
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Revolving credit facility
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12,000
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—
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Accounts payable
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14,831
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15,290
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Accrued expenses
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22,216
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24,177
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Total current liabilities
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49,048
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39,468
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LONG-TERM OBLIGATIONS
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450,718
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450,690
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DEFERRED TAXES AND OTHER LIABILITIES, net
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13,593
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10,560
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COMMITMENTS AND CONTINGENCIES (Note 11)
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—
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—
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STOCKHOLDERS' DEFICIT:
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Preferred stock: 25,000,000 share authorized; no shares issued or outstanding
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—
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—
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Common stock, $0.01 par value; 75,000,000 shares authorized; 23,311,456 and 22,962,000 shares issued and outstanding at March 31, 2011 and
December 31, 2010, respectively
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233
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230
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Additional paid-in capital
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225,780
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225,208
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Accumulated deficit
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(294,332
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)
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(255,231
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)
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Total stockholders' deficit
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(68,319
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)
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(29,793
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)
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TOTAL
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$
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445,040
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$
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470,925
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See
notes to condensed consolidated financial statements.
2
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
March 31,
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2011
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2010
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(in thousands, except per
share amounts)
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Revenues
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$
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40,752
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$
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35,894
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Cost of sales (excluding depreciation)
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37,225
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34,908
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Depreciation expense related to cost of sales
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7,708
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5,314
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Gross loss
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(4,181
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)
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(4,328
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)
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Operating expenses
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12,799
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13,119
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Depreciation and amortization expense
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2,530
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1,876
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(Gain) loss on dispositions of assets
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(54
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)
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227
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Acquisition expenses
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603
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2
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Impairment of long-lived assets
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231
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—
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Cost related to antitrust investigations and related litigation (Note 11)
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1,421
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913
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Loss from operations
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(21,711
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)
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(20,465
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)
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Interest expense
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(14,349
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)
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(7,259
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)
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Interest income
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4
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4
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Debt refinance costs
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—
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(6,108
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)
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Loss before income taxes
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(36,056
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)
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(33,828
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)
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Income tax (expense) benefit
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(3,045
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)
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11,231
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Net loss
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$
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(39,101
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)
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$
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(22,597
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)
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Basic and diluted net loss per share:
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Net loss
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$
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(1.72
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)
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$
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(1.01
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)
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Weighted average common shares outstanding
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22,689
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22,406
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See
notes to condensed consolidated financial statements.
3
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(Unaudited)
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Common Stock
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Number
of
Shares
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Par
Value
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Additional
Paid-In
Capital
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Accumulated
Deficit
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Total
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(in thousands)
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Balance at January 1, 2011
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22,962
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$
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230
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$
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225,208
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$
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(255,231
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)
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$
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(29,793
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)
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Compensation expense related to stock-based awards
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—
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—
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559
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—
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559
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Issuance of restricted stock
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344
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3
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(3
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)
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—
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—
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Forfeiture of restricted stock
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(1
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)
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—
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—
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—
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—
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Common stock issued upon exercise of stock options
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6
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—
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16
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—
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16
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Comprehensive loss:
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Net loss
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—
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—
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—
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(39,101
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)
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(39,101
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)
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Total comprehensive loss
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(39,101
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)
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|
|
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|
|
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|
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Balance at March 31, 2011
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23,311
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$
|
233
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|
$
|
225,780
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$
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(294,332
|
)
|
$
|
(68,319
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)
|
|
|
|
|
|
|
|
|
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See
notes to condensed consolidated financial statements.
4
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended
March 31,
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2011
|
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2010
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(in thousands)
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CASH FLOWS FROM OPERATING ACTIVITIES:
|
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|
|
|
|
|
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Net loss
|
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$
|
(39,101
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)
|
$
|
(22,597
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)
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|
Adjustments to reconcile net loss to net cash used in operating activities (excluding working capital from acquisitions):
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|
|
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|
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|
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Depreciation and amortization expense
|
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|
10,238
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|
|
7,190
|
|
|
|
|
Amortization of debt issue costs and accretion of tender premium
|
|
|
755
|
|
|
425
|
|
|
|
|
Debt refinance costs
|
|
|
—
|
|
|
6,108
|
|
|
|
|
Deferred tax expense (benefit)
|
|
|
3,021
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|
|
(11,231
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)
|
|
|
|
(Gain) loss on dispositions of assets
|
|
|
(54
|
)
|
|
227
|
|
|
|
|
Increase in fair value of diesel hedge
|
|
|
(16
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)
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|
—
|
|
|
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Impairment of long-lived assets
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|
231
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|
|
—
|
|
|
|
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Stock-based compensation expense
|
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|
631
|
|
|
327
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|
|
|
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Change in working capital:
|
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|
|
|
|
|
|
|
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|
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Accounts receivable
|
|
|
(936
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)
|
|
9,167
|
|
|
|
|
|
Inventory, parts and supplies
|
|
|
(1,031
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)
|
|
(1,347
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)
|
|
|
|
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Prepaid expenses and other current assets
|
|
|
10
|
|
|
(224
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)
|
|
|
|
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Accounts payable, accrued expenses and other
|
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(3,811
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)
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|
(264
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)
|
|
|
|
|
|
|
|
|
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Net cash used in operating activities
|
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|
(30,063
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)
|
|
(12,219
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)
|
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|
|
|
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|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Property and equipment additions
|
|
|
(3,821
|
)
|
|
(10,020
|
)
|
|
|
Proceeds from dispositions of property and equipment
|
|
|
75
|
|
|
261
|
|
|
|
Reimbursement of the cost of equipment placed under operating leases
|
|
|
—
|
|
|
2,000
|
|
|
|
Cost of acquisitions, net of cash acquired
|
|
|
(8,395
|
)
|
|
(763
|
)
|
|
|
Other intangible assets additions
|
|
|
(8
|
)
|
|
—
|
|
|
|
Increase in restricted cash
|
|
|
(81
|
)
|
|
(12,292
|
)
|
|
|
Purchase of investments
|
|
|
(675
|
)
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(12,905
|
)
|
|
(21,314
|
)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of employee stock options
|
|
|
16
|
|
|
17
|
|
|
|
Borrowings under the credit facility
|
|
|
14,200
|
|
|
—
|
|
|
|
Repayments under the credit facility
|
|
|
(2,200
|
)
|
|
—
|
|
|
|
Issuance of debt
|
|
|
—
|
|
|
300,000
|
|
|
|
Debt issuance costs
|
|
|
—
|
|
|
(16,745
|
)
|
|
|
Repayment of long-term obligations
|
|
|
—
|
|
|
(240,001
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
12,016
|
|
|
43,271
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(30,952
|
)
|
|
9,738
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
42,173
|
|
|
44,649
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
11,221
|
|
$
|
54,387
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$
|
16,972
|
|
$
|
6,708
|
|
|
|
|
|
|
|
|
|
|
Cash receipts of interest income
|
|
$
|
4
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Cash (receipts) payments for income taxes
|
|
$
|
(8
|
)
|
$
|
93
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment included in accounts payable
|
|
$
|
2,016
|
|
$
|
1,549
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
5
Table of Contents
REDDY ICE CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2011
|
|
December 31,
2010
|
|
|
|
(in thousands, except
share data)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
590
|
|
$
|
30,153
|
|
|
|
Accounts receivable, net
|
|
|
22,367
|
|
|
21,432
|
|
|
|
Accounts receivable from Parent
|
|
|
18
|
|
|
19
|
|
|
|
Inventories, parts and supplies
|
|
|
13,662
|
|
|
12,549
|
|
|
|
Prepaid expenses and other current assets
|
|
|
3,707
|
|
|
3,849
|
|
|
|
Assets held for sale
|
|
|
1,052
|
|
|
1,056
|
|
|
|
Deferred tax assets
|
|
|
716
|
|
|
716
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
42,112
|
|
|
69,774
|
|
|
RESTRICTED CASH
|
|
|
10,191
|
|
|
10,110
|
|
|
PROPERTY AND EQUIPMENT, net
|
|
|
203,067
|
|
|
204,898
|
|
|
GOODWILL
|
|
|
85,380
|
|
|
83,368
|
|
|
OTHER INTANGIBLES, net
|
|
|
75,031
|
|
|
72,204
|
|
|
INVESTMENTS
|
|
|
6,993
|
|
|
6,318
|
|
|
OTHER ASSETS, net
|
|
|
11,565
|
|
|
12,149
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
434,339
|
|
$
|
458,821
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDER'S DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Current portion of long-term obligations
|
|
$
|
1
|
|
$
|
1
|
|
|
|
Revolving credit facility
|
|
|
12,000
|
|
|
—
|
|
|
|
Accounts payable
|
|
|
13,900
|
|
|
14,375
|
|
|
|
Accrued expenses
|
|
|
22,396
|
|
|
24,665
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
48,297
|
|
|
39,041
|
|
|
LONG-TERM OBLIGATIONS
|
|
|
438,982
|
|
|
438,954
|
|
|
DEFERRED TAXES AND OTHER LIABILITIES, net
|
|
|
19,587
|
|
|
32,344
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 11)
|
|
|
—
|
|
|
—
|
|
|
STOCKHOLDER'S DEFICIT:
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 1,000 shares authorized; 100 shares issued and outstanding at March 31, 2011 and December 31, 2010
|
|
|
—
|
|
|
—
|
|
|
|
Additional paid-in capital
|
|
|
306,979
|
|
|
306,420
|
|
|
|
Accumulated deficit
|
|
|
(379,506
|
)
|
|
(357,938
|
)
|
|
|
|
|
|
|
|
|
|
|
Total stockholder's deficit
|
|
|
(72,527
|
)
|
|
(51,518
|
)
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
434,339
|
|
$
|
458,821
|
|
|
|
|
|
|
|
|
See
notes to condensed financial statements.
6
Table of Contents
REDDY ICE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2011
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Revenues
|
|
$
|
40,752
|
|
$
|
35,894
|
|
|
Cost of sales (excluding depreciation)
|
|
|
37,225
|
|
|
34,908
|
|
|
Depreciation expense related to cost of sales
|
|
|
7,708
|
|
|
5,314
|
|
|
|
|
|
|
|
|
|
Gross loss
|
|
|
(4,181
|
)
|
|
(4,328
|
)
|
|
Operating expenses
|
|
|
12,799
|
|
|
13,119
|
|
|
Depreciation and amortization expense
|
|
|
2,530
|
|
|
1,876
|
|
|
(Gain) loss on dispositions of assets
|
|
|
(54
|
)
|
|
227
|
|
|
Acquisition expenses
|
|
|
603
|
|
|
2
|
|
|
Impairment of long-lived assets
|
|
|
231
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(20,290
|
)
|
|
(19,552
|
)
|
|
Interest expense
|
|
|
(14,026
|
)
|
|
(3,893
|
)
|
|
Interest income
|
|
|
4
|
|
|
3
|
|
|
Debt refinance costs
|
|
|
—
|
|
|
(6,108
|
)
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(34,312
|
)
|
|
(29,550
|
)
|
|
Income tax benefit
|
|
|
12,744
|
|
|
9,426
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(21,568
|
)
|
$
|
(20,124
|
)
|
|
|
|
|
|
|
|
See
notes to condensed financial statements.
7
Table of Contents
REDDY ICE CORPORATION
CONDENSED STATEMENT OF STOCKHOLDER'S DEFICIT
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Par Value
|
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Total
|
|
|
|
|
|
(in thousands)
|
|
|
Balance at January 1, 2011
|
|
|
—
|
|
$
|
—
|
|
$
|
306,420
|
|
$
|
(357,938
|
)
|
$
|
(51,518
|
)
|
|
Compensation expense related to stock-based awards
|
|
|
—
|
|
|
—
|
|
|
559
|
|
|
—
|
|
|
559
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,568
|
)
|
|
(21,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011
|
|
|
—
|
|
$
|
—
|
|
$
|
306,979
|
|
$
|
(379,506
|
)
|
$
|
(72,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to condensed financial statements.
8
Table of Contents
REDDY ICE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
2010
|
|
|
|
(in thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(21,568
|
)
|
$
|
(20,124
|
)
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities (excluding working capital from acquisitions):
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
10,238
|
|
|
7,190
|
|
|
|
|
Amortization of debt issue costs and accretion of tender premium
|
|
|
418
|
|
|
363
|
|
|
|
|
Debt refinance costs
|
|
|
—
|
|
|
6,108
|
|
|
|
|
Deferred tax benefit
|
|
|
(12,768
|
)
|
|
(9,426
|
)
|
|
|
|
(Gain) loss on dispositions of assets
|
|
|
(54
|
)
|
|
227
|
|
|
|
|
Increase in fair value of diesel hedge
|
|
|
(16
|
)
|
|
—
|
|
|
|
|
Impairment of assets
|
|
|
231
|
|
|
—
|
|
|
|
|
Stock-based compensation expense
|
|
|
631
|
|
|
327
|
|
|
|
|
Change in working capital:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(936
|
)
|
|
2,567
|
|
|
|
|
|
Inventory, parts and supplies
|
|
|
(1,031
|
)
|
|
(1,347
|
)
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
10
|
|
|
(183
|
)
|
|
|
|
|
Accounts payable, accrued expenses and other
|
|
|
(3,813
|
)
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(28,658
|
)
|
|
(12,292
|
)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Property and equipment additions
|
|
|
(3,821
|
)
|
|
(10,020
|
)
|
|
|
Proceeds from dispositions of property and equipment
|
|
|
75
|
|
|
261
|
|
|
|
Reimbursement of the cost of equipment placed under operating leases
|
|
|
—
|
|
|
2,000
|
|
|
|
Cost of acquisitions, net of cash acquired
|
|
|
(8,395
|
)
|
|
(763
|
)
|
|
|
Other intangible assets additions
|
|
|
(8
|
)
|
|
—
|
|
|
|
Increase in restricted cash
|
|
|
(81
|
)
|
|
(12,292
|
)
|
|
|
Purchase of investments
|
|
|
(675
|
)
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(12,905
|
)
|
|
(21,314
|
)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Dividends to Parent
|
|
|
—
|
|
|
(5,422
|
)
|
|
|
Borrowings under the credit facility
|
|
|
14,200
|
|
|
—
|
|
|
|
Repayments under the credit facility
|
|
|
(2,200
|
)
|
|
—
|
|
|
|
Issuance of debt
|
|
|
—
|
|
|
300,000
|
|
|
|
Debt issuance costs
|
|
|
—
|
|
|
(16,745
|
)
|
|
|
Repayment of long-term obligations
|
|
|
—
|
|
|
(240,001
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
12,000
|
|
|
37,832
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(29,563
|
)
|
|
4,226
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
30,153
|
|
|
40,440
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
590
|
|
$
|
44,666
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$
|
16,972
|
|
$
|
1,259
|
|
|
|
|
|
|
|
|
|
|
Cash receipts of interest income
|
|
$
|
4
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
Cash (receipts) payments for income taxes
|
|
$
|
(8
|
)
|
$
|
93
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment included in accounts payable
|
|
$
|
2,016
|
|
$
|
1,549
|
|
|
|
|
|
|
|
|
See notes to condensed financial statements.
9
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
1. General
Reddy Ice Holdings, Inc. ("Reddy Holdings"), and its wholly-owned subsidiary, Reddy Ice Corporation ("Reddy Corp"), referred to collectively as the "Company", manufacture and
distribute packaged ice products. The Company consists of a single operating segment. The common stock of Reddy Holdings is publicly traded on the New York Stock Exchange under the ticker symbol
"FRZ".
This
Quarterly Report on Form 10-Q is a combined report of the Company and Reddy Corp. The condensed consolidated financial statements of the Company and the condensed
financial statements of Reddy Corp included herein are unaudited; however, balance sheets as of December 31, 2010 have been derived from the audited financial statements for that date, but do
not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements have been prepared by the Company pursuant to the
applicable rules and regulations of the Securities and Exchange Commission ("SEC"). Under the SEC's regulations, certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. All significant intercompany balances and transactions have been
eliminated upon consolidation, and all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position, results of operations and cash flows for the
periods presented have been made and are of a normal and recurring nature. The financial statements included herein should be read in conjunction with the consolidated and Reddy Corp financial
statements and the related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. The notes to the condensed consolidated
financial statements apply to both the Company and Reddy Corp. Reddy Corp comprises all or substantially all of the Company's consolidated balances or activities unless otherwise noted. Operating
results for the three months ended March 31, 2011 are not necessarily indicative of the results to be achieved for the full year.
2. Recently Adopted Accounting Pronouncements
In December 2010, the FASB issued ASU 2010-28,
Intangibles—Goodwill and Other
. ASU 2010-28 modifies
step one of the goodwill impairment test for reporting units with zero or negative carrying amounts and offers guidance on when to perform step two of the testing. For those reporting units, an entity
is required to perform Step 2 of the goodwill impairment
test if it is more likely than not that a goodwill impairment exists based upon factors such as unanticipated competition, the loss of key personnel and adverse regulatory changes. ASU
2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The adoption of ASU 2010-28 did not have a material
effect on the Company's consolidated financial statements.
In
December 2010, the FASB issued ASU 2010-29, which updates the guidance in ASC 805,
Business Combinations
, to clarify that
pro forma disclosures should be presented as if a business combination occurred at the beginning of the prior annual period for purposes of preparing both the current reporting period and the prior
reporting period pro forma financial information. These disclosures should be accompanied by a narrative description about the nature and amount of material, nonrecurring pro forma adjustments. ASU
2010-29 is effective for business combinations consummated in periods beginning after December 15, 2010, and is required to be applied prospectively as of the
10
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
2. Recently Adopted Accounting Pronouncements (Continued)
date
of adoption. The Company has reflected the adoption of ASU 2010-29 in the disclosures accompanying the consolidated financial statements.
3. Acquisitions
During the three months ended March 31, 2011, the Company purchased eight ice companies in connection with its ongoing acquisitions program. The total purchase price was allocated
to the acquired assets and assumed liabilities based upon estimates of their respective fair values as of the closing dates using valuations and other studies. Two acquisitions were completed during
the three months ended March 31, 2010. The following table summarizes the aggregate purchase prices, estimated aggregate fair values of the assets acquired and the liabilities assumed and
direct acquisition costs expensed:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
March 31,
|
|
|
|
2011
|
|
2010
|
|
|
|
(in millions)
|
|
|
Purchase price
|
|
$
|
8.4
|
|
$
|
0.8
|
|
|
Assets acquired:
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
0.1
|
|
$
|
—
|
|
|
|
Property and equipment
|
|
|
2.0
|
|
|
0.1
|
|
|
|
Goodwill
|
|
|
2.0
|
|
|
0.1
|
|
|
|
Other intangible assets
|
|
|
4.3
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
8.4
|
|
$
|
0.8
|
|
|
Liabilities assumed
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Gain on bargain purchase
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Direct acquisition costs expensed
|
|
$
|
0.6
|
|
$
|
—
|
|
|
|
|
|
|
|
|
The
Company recognized approximately $0.5 million of revenue from the acquired businesses during the three months ended March 31, 2011. Revenue recognized from acquired
businesses during the three months ended March 31, 2010 was insignificant.
The
recorded purchase price allocation on certain of the acquisitions made in 2010 and 2011 is preliminary at March 31, 2011, pending further evaluation of market participant data
and the fair values of certain equipment acquired.
The
amount of tax deductible goodwill recognized in connection with the transactions described above is $2.0 million and $0.1 million for the three months ended
March 31, 2011 and 2010, respectively. Other intangible assets were comprised of customer lists and non-compete agreements, which are being amortized over useful lives of 2 to
30 years, with a weighted average useful life of 19.8 years. The acquisitions were funded out of the Company's operating cash flows, proceeds from debt offerings and borrowings under the
New Credit Facility.
11
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
3. Acquisitions (Continued)
The
following unaudited pro forma information presents the Reddy Holdings' consolidated results of operations for the three months ended March 31, 2011 and March 31, 2010
as if the 2011 and 2010 acquisitions had all occurred on January 1, 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2011
|
|
2010
|
|
|
|
(in thousands, except per
share amounts)
|
|
|
Pro forma revenues
|
|
$
|
41,174
|
|
$
|
38,585
|
|
|
Pro forma net loss
|
|
$
|
(39,238
|
)
|
$
|
(22,945
|
)
|
|
Pro forma basic and diluted net loss per share
|
|
$
|
(1.73
|
)
|
$
|
(1.02
|
)
|
The
following unaudited pro forma information presents Reddy Corp's results of operations for the three months ended March 31, 2011 and March 31, 2010 as if the 2011 and
2010 acquisitions had all occurred on January 1, 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2011
|
|
2010
|
|
|
|
(in thousands, except per
share amounts)
|
|
|
Pro forma revenues
|
|
$
|
41,174
|
|
$
|
38,585
|
|
|
Pro forma net loss
|
|
$
|
(21,705
|
)
|
$
|
(20,472
|
)
|
4. Inventories, Parts and Supplies
Inventories consist of raw materials, finished goods and parts and supplies. Raw materials represent ice packaging material. Finished goods consist of packaged ice. Parts and supplies
consist of spare parts for production equipment and ice merchandisers and miscellaneous supplies. Inventories are valued at the lower of cost or market and include overhead allocations. Cost is
determined using the first-in, first-out method.
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2011
|
|
December 31,
2010
|
|
|
|
(in thousands)
|
|
|
Raw materials
|
|
$
|
6,245
|
|
$
|
6,133
|
|
|
Finished goods
|
|
|
3,372
|
|
|
2,505
|
|
|
Parts and supplies
|
|
|
4,045
|
|
|
3,911
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,662
|
|
$
|
12,549
|
|
|
|
|
|
|
|
|
12
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
5. Accrued Expenses
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2011
|
|
December 31,
2010
|
|
|
|
(in thousands)
|
|
|
Accrued interest
|
|
$
|
9,965
|
|
$
|
13,336
|
|
|
Accrued compensation and employee benefits, including payroll taxes and workers compensation insurance
|
|
|
4,832
|
|
|
4,484
|
|
|
Accrued utilities
|
|
|
992
|
|
|
1,343
|
|
|
Accrued property, sales and other taxes
|
|
|
2,219
|
|
|
1,555
|
|
|
Other accrued insurance
|
|
|
2,050
|
|
|
2,169
|
|
|
Other
|
|
|
2,158
|
|
|
1,290
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,216
|
|
$
|
24,177
|
|
|
|
|
|
|
|
|
Included
in "accrued interest" above are $0.5 million and $0.2 million related to Reddy Holdings as of March 31, 2011 and December 31, 2010, respectively.
6. Revolving Credit Facility and Long-Term Obligations
At March 31, 2011 and December 31, 2010, long-term obligations of the Company consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2011
|
|
December 31,
2010
|
|
|
|
(in thousands)
|
|
|
11.25% Senior Secured Notes
|
|
$
|
300,000
|
|
$
|
300,000
|
|
|
13.25% Senior Secured Notes
|
|
|
139,407
|
|
|
139,407
|
|
|
Less: Unamortized early tender premium on 13.25% Senior Secured Notes
|
|
|
(524
|
)
|
|
(553
|
)
|
|
10
1
/
2
% Senior Discount Notes
|
|
|
11,736
|
|
|
11,736
|
|
|
Other Notes Payable
|
|
|
100
|
|
|
101
|
|
|
|
|
|
|
|
|
|
Total long-term obligations
|
|
|
450,719
|
|
|
450,691
|
|
|
Less: Current maturities
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations, net
|
|
$
|
450,718
|
|
$
|
450,690
|
|
|
|
|
|
|
|
|
13
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
6. Revolving Credit Facility and Long-Term Obligations (Continued)
At
March 31, 2011 and December 31, 2010, long-term obligations of Reddy Corp consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2011
|
|
December 31,
2010
|
|
|
|
(in thousands)
|
|
|
11.25% Senior Secured Notes
|
|
|
300,000
|
|
|
300,000
|
|
|
13.25% Senior Secured Notes
|
|
|
139,407
|
|
|
139,407
|
|
|
Less: Unamortized early tender premium on 13.25% Senior Secured Notes
|
|
|
(524
|
)
|
|
(553
|
)
|
|
Other Notes Payable
|
|
|
100
|
|
|
101
|
|
|
|
|
|
|
|
|
|
Total long-term obligations
|
|
|
438,983
|
|
|
438,955
|
|
|
Less: Current maturities
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations, net
|
|
$
|
438,982
|
|
$
|
438,954
|
|
|
|
|
|
|
|
|
11.25% Senior Secured Notes.
On March 15, 2010, Reddy Corp issued $300.0 million in aggregate principal amount of
11.25% Senior Secured
Notes due 2015 (the "First Lien Notes") in a private placement offering. The First Lien Notes were subsequently registered with the SEC effective August 2, 2010. Cash interest accrues on the
First Lien Notes at a rate of 11.25% per annum and is payable semi-annually in arrears on March 15 and September 15. The First Lien Notes mature on March 15, 2015. The
proceeds of the offering were used to repay certain of Reddy Corp's preexisting debt (see "Old Senior Credit Facilities" below), pay fees and expenses related to the transactions and provide the
Company with cash for future use.
The
First Lien Notes are senior secured obligations of Reddy Corp and are:
-
•
-
guaranteed by Reddy Holdings;
-
•
-
secured on a first-priority basis by liens on substantially all of the assets of Reddy Corp and Reddy Holdings;
-
•
-
senior in right of payment to all of Reddy Corp's and Reddy Holdings' future subordinated indebtedness;
and
-
•
-
effectively senior to all of Reddy Corp's and Reddy Holdings' existing and future unsecured senior indebtedness.
The
First Lien Notes include customary covenants that restrict, among other things, Reddy Corp's and its future subsidiaries' ability to incur additional debt or issue certain preferred
stock, pay dividends or redeem, repurchase or retire its capital stock or subordinated indebtedness, make certain investments, create liens, enter into arrangements that restrict dividends from its
subsidiaries, merge or sell all or substantially all of its assets or enter into various transactions with affiliates. From and after March 15, 2013, Reddy Corp may redeem any or all of the
First Lien Notes by paying a redemption premium, which is initially 5.625% of the principal amount of the First Lien Notes and declines to 0% for the period commencing on March 15, 2014 and
thereafter. Prior to March 15, 2013, Reddy Corp
14
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
6. Revolving Credit Facility and Long-Term Obligations (Continued)
may
redeem any or all of the First Lien Notes by paying a "make-whole" redemption premium. If Reddy Corp experiences a change of control, Reddy Corp will be required to make an offer to
repurchase the First Lien Notes at a price equal to 101% of their accreted value, plus accrued and unpaid interest, if any, to the date of purchase. Reddy Corp may also be required to make an offer to
purchase the First Lien Notes with proceeds of asset sales that are not reinvested in the Company's business or used to repay other indebtedness.
The
indenture governing the First Lien Notes restricts the amount of dividends, distributions and other restricted payments Reddy Corp may make. Under the indenture, Reddy Corp is
restricted from paying dividends to Reddy Holdings unless, at the time of such payment:
-
•
-
no default or event of default has occurred and is continuing or would occur as a consequence thereof;
-
•
-
the first lien leverage ratio set forth in the indenture governing the First Lien Notes is less than or equal to 3.5 to
1.0; and
-
•
-
there is sufficient capacity under the buildup amount under the indenture governing the First Lien Notes.
The
first lien leverage ratio under the indenture governing the First Lien Notes means the ratio of first lien indebtedness (as defined in the indenture) to EBITDA (as defined in the
indenture) for the most recent four fiscal quarters. Reddy Corp is generally required to calculate its first lien leverage ratio on a pro forma basis to give effect to the incurrence and repayment of
indebtedness as well as acquisitions and dispositions. As of March 31, 2011, the first lien leverage ratio was 5.2 to 1.0.
The
buildup amount equals 50% of the consolidated net income of Reddy Corp accrued during the period (treated as one accounting period) from April 1, 2010 to the end of the most
recent fiscal quarter for which internal financial statements are available (or, if such consolidated net income is a deficit, minus 100% of such deficit), plus, the net cash proceeds to Reddy Corp of
the issuance of capital stock, subject to certain exceptions, and any cash capital contribution received by Reddy Corp from its stockholder, in each case after April 1, 2010, plus the amount by
which Reddy Corp indebtedness is reduced on its balance sheet as a result of the conversion or exchange of such indebtedness for capital stock, plus the net reduction in certain restricted investments
made by Reddy Corp, less the amount of certain restricted payments made from time to time, including, among other things, the payment of cash dividends. Reddy Corp is not currently permitted to pay
dividends under this provision.
In
addition, regardless of the leverage ratio or whether Reddy Corp could make any restricted payments under the buildup amount provision referred to above, Reddy Corp is permitted to
make certain restricted payments including (1) dividend payments at any time in an aggregate amount of up to $25.0 million if no default has occurred and is continuing under the
indenture, (2) the payment of interest when due on the remaining 10
1
/
2
% Senior Discount Notes and the repayment, redemption or retirement of the remaining 10
1
/
2
%
Senior Discount Notes from the proceeds of certain indebtedness of Reddy Corp incurred after the date of issuance of the First Lien Notes, (3) the payment of dividends to Reddy Holdings in an
amount per year not to exceed $1.0 million to pay franchise taxes and
15
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
6. Revolving Credit Facility and Long-Term Obligations (Continued)
overhead
expenses of Reddy Holdings and (4) the payment of dividends to Reddy Holdings in an amount per year not to exceed 6.0% of the aggregate net cash proceeds received by Reddy Corp from
all public equity offerings after the date of issuance of the First Lien Notes subject to specified conditions. However, the amount of dividend payments permitted under this 6.0% provision will
correspondingly reduce the amount otherwise available under the buildup amount for restricted payments, including dividends.
13.25% Senior Secured Notes.
On March 15, 2010, Reddy Corp issued $137.6 million in aggregate principal amount of
13.25% Senior Secured
Notes due 2015 (the "Second Lien Notes") in the initial settlement of a private placement exchange offer for the outstanding Discount Notes (the "Exchange Offer"). The Second Lien Notes were
subsequently registered with the SEC effective August 2, 2010. On March 24, 2010, Reddy Corp issued an additional $1.8 million in aggregate principal amount of Second Lien Notes
in the final settlement of the Exchange Offer. Reddy Corp received no cash proceeds from the issuance of the Second Lien Notes. Cash interest accrues on the Second Lien Notes at a rate of 13.25% per
annum and is payable semi-annually in arrears on May 1 and November 1, with the first payment occurring on November 1, 2010. The Second Lien Notes mature on
November 1, 2015. In connection with the Exchange Offer, the Company issued $0.6 million of Second Lien Notes to certain bondholders as an early tender premium (see
"10
1
/
2
% Senior Discount Notes" below for further information). These additional Second Lien Notes were not reflected in the Company's condensed consolidated balance sheet upon issuance,
but will be recognized as additional debt through interest expense over the term of the Second Lien Notes.
The
Second Lien Notes are senior secured obligations of Reddy Corp and are:
-
•
-
guaranteed by Reddy Holdings;
-
•
-
secured on a second-priority basis by liens on substantially all of the assets of Reddy Corp and Reddy Holdings;
-
•
-
senior in right of payment to all of Reddy Corp's and Reddy Holdings' future subordinated indebtedness;
and
-
•
-
effectively senior to all of Reddy Corp's and Reddy Holdings' existing and future unsecured senior indebtedness.
The
Second Lien Notes include customary covenants that restrict, among other things, Reddy Corp's and its future subsidiaries' ability to incur additional debt or issue certain preferred
stock, pay dividends or redeem, repurchase or retire its capital stock or subordinated indebtedness, make certain investments, create liens, enter into arrangements that restrict dividends from its
subsidiaries, merge or sell all or substantially all of its assets or enter into various transactions with affiliates. From and after March 1, 2013, Reddy Corp may redeem any or all of the
Second Lien Notes by paying a redemption premium, which is initially 6.625% of the principal amount of the Second Lien Notes and declines to 0% for the period commencing on March 1, 2014 and
thereafter. Prior to March 1, 2013, Reddy Corp may redeem any or all of the Second Lien Notes by paying a "make-whole" redemption premium. If Reddy Corp experiences a change of
control, Reddy Corp will be required to make an offer to repurchase the Second Lien Notes at a price equal to 101% of their accreted value, plus accrued and
16
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
6. Revolving Credit Facility and Long-Term Obligations (Continued)
unpaid
interest, if any, to the date of purchase. Reddy Corp may also be required to make an offer to purchase the Second Lien Notes with proceeds of asset sales that are not reinvested in the
Company's business or used to repay other indebtedness.
The
indenture governing the Second Lien Notes restricts the amount of dividends, distributions and other restricted payments Reddy Corp may make. Under the indenture, Reddy Corp is
restricted from paying dividends to Reddy Holdings unless, at the time of such payment:
-
•
-
no default or event of default has occurred and is continuing or would occur as a consequence thereof;
-
•
-
the secured leverage ratio set forth in the indenture governing the Second Lien Notes is less than or equal to 6.0 to 1.0;
and
-
•
-
there is sufficient capacity under the buildup amount under the indenture governing the Second Lien Notes.
The
secured leverage ratio under the indenture governing the Second Lien Notes means the ratio of secured indebtedness (as defined in the indenture) to EBITDA (as defined in the
indenture) for the most recent four fiscal quarters. Reddy Corp is generally required to calculate its secured leverage ratio on a pro forma basis to give effect to the incurrence and repayment of
indebtedness as well as acquisitions and dispositions. As of March 31, 2011, the second lien leverage ratio was 7.5 to 1.0.
The
buildup amount equals 50% of the consolidated net income of Reddy Corp accrued during the period (treated as one accounting period) from April 1, 2010 to the end of the most
recent fiscal quarter for which internal financial statements are available (or, if such consolidated net income is a deficit, minus 100% of such deficit), plus, the net cash proceeds to Reddy Corp of
the issuance of capital stock, subject to certain exceptions, and any cash capital contribution received by Reddy Corp from its stockholder, in each case after April 1, 2010, plus the amount by
which Reddy Corp indebtedness is reduced on its balance sheet as a result of the conversion or exchange of such indebtedness for capital stock, plus the net reduction in certain restricted investments
made by Reddy Corp, less the amount of certain restricted payments made from time to time, including, among other things, the payment of cash dividends. Reddy Corp is not currently permitted to pay
dividends under this provision.
In
addition, regardless of the leverage ratio or whether Reddy Corp could make any restricted payments under the buildup amount provision referred to above, Reddy Corp is permitted to
make certain restricted payments including (1) dividend payments at any time in an aggregate amount of up to $25.0 million if no default has occurred and is continuing under the
indenture, (2) the payment of interest when due on the remaining 10
1
/
2
% Discount Notes and the repayment, redemption or retirement of remaining 10
1
/
2
% Discount
Notes from the proceeds of certain indebtedness of Reddy Corp incurred after the date of issuance of the Second Lien Notes, (3) the payment of dividends to Reddy Holdings in an amount per year
not to exceed $1.0 million to pay franchise taxes and overhead expenses of Reddy Holdings and (4) the payment of dividends to Reddy Holdings in an amount per year not to exceed 6.0% of
the aggregate net cash proceeds received by Reddy Corp from all public equity offerings after the date of issuance of the Second Lien Notes subject to specified conditions.
17
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
6. Revolving Credit Facility and Long-Term Obligations (Continued)
However,
the amount of dividend payments permitted under this 6.0% provision will correspondingly reduce the amount otherwise available under the buildup amount for restricted payments, including
dividends.
10
1
/
2
% Senior Discount Notes.
On October 27, 2004, Reddy Holdings issued $151 million in
aggregate principal amount at
maturity of 10
1
/
2
% Senior Discount Notes due 2012 (the "Discount Notes") in a private placement offering. The Discount Notes were subsequently registered with the SEC, effective
August 26, 2005. Each Discount Note had an initial accreted value of $663.33 per $1,000 principal amount at maturity. The accreted value of each Discount Note increased from the date of
issuance until November 1, 2008 at a rate of 10
1
/
2
% per annum such that the accreted value equaled the stated principal amount on November 1, 2008. Thereafter, cash
interest began accruing November 1, 2008 and is payable semi-annually in arrears on May 1 and November 1 at a rate of 10
1
/
2
% per annum. During the years
ended December 31, 2010 and 2009, Reddy Corp paid cash dividends to Reddy Holdings in the amount of $6.7 million and $15.8 million, respectively, to fund the
semi-annual interest payments on the Discount Notes. No dividends were paid in the three months ended March 31, 2011.
On
February 22, 2010, Reddy Corp launched the Exchange Offer, offering $1,000 in aggregate principal amount of Second Lien Notes for each $1,000 of Discount Notes exchanged. In
addition, for Discount Notes exchanged on or prior to March 5, 2010, Reddy Corp offered an early tender premium of $5 in aggregate principal amount of Second Lien Notes for each $1,000 of
Discount Notes exchanged. In conjunction with the Exchange Offer, Reddy Corp solicited consents to eliminate substantially all of the restrictive covenants from the indenture governing the Discount
Notes. At the expiration of the Exchange Offer on March 19, 2010, approximately 92.2% of the aggregate principal amount of the Discount Notes had been tendered into the Exchange Offer.
Following the final settlement of the Exchange Offer, $11.7 million in aggregate principal amount of the Discount Notes remain outstanding.
The
Discount Notes are unsecured obligations of Reddy Holdings and are:
-
•
-
not guaranteed by Reddy Corp;
-
•
-
senior in right of payment to all of Reddy Holdings' future subordinated indebtedness;
-
•
-
equal in right of payment with any of Reddy Holdings' existing and future unsecured senior indebtedness;
-
•
-
effectively subordinated to Reddy Holdings' existing and future secured debt, including the debt under the First Lien
Notes, the Second Lien Notes and the credit facility, which are guaranteed on a secured basis by Reddy Holdings; and
-
•
-
structurally subordinated to all obligations and preferred equity of Reddy Corp.
As
of November 1, 2010, Reddy Holdings may redeem any or all of the Discount Notes without paying any redemption premium.
18
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
6. Revolving Credit Facility and Long-Term Obligations (Continued)
Senior Credit Facilities.
On March 15, 2010, Reddy Corp entered into a revolving credit facility with a syndicate of banks,
financial
institutions and other entities as lenders, including JPMorgan Chase Bank, N.A., as Administrative Agent (the "March 2010 Credit Facility"). The March 2010 Credit Facility provided for a
$35 million revolving credit facility. Under the March 2010 Credit Facility, Reddy Corp had the right to request the aggregate commitments to be increased to $50 million provided certain
conditions were met. On August 4, 2010, the aggregate commitments under the March 2010 Credit Facility were increased to $50 million.
The
March 2010 Credit Facility was an obligation of Reddy Corp and was guaranteed by Reddy Holdings. The March 2010 Credit Facility was scheduled to mature on January 31, 2014.
Principal
balances outstanding under the March 2010 Credit Facility bore interest per annum, at Reddy Corp's option, at the sum of the base rate or LIBOR plus the applicable margin. The
applicable margin for base rate loans was initially 3.75% and for LIBOR loans was initially 4.75%, with such applicable margins subject to reduction based upon the Company's net leverage ratio (as
defined in the March 2010 Credit Facility). The Company also paid (i) a quarterly fee on the average availability under the revolving credit facility at an annual rate of 0.875%, with such
availability fee subject to reduction based upon the Company's net leverage ratio, (ii) a $50,000 annual loan servicing fee, and (iii) an annual commitment fee of $0.2 million to
one of the lenders.
On
October 22, 2010, Reddy Corp and the lenders party thereto amended and restated the March 2010 Credit Facility (the "New Credit Facility"). The New Credit Facility provides for
a $50 million revolving credit facility. Macquarie Bank Limited ("Macquarie"), a lender under the March 2010 Credit Facility, is currently the sole lender under the New Credit Facility. On
December 10, 2010, Macquarie became the successor administrative agent under the New Credit Facility.
The
New Credit Facility provides that outstanding loans will bear interest at rates based on LIBOR plus an applicable margin of 7.0% per annum or, at the option of Reddy Corp, the Base
Rate, plus an applicable margin of 6.0% per annum, the relevant margin being the applicable margin. Swing line loans will bear interest at the Base Rate plus the applicable margin. LIBOR and Base
Rates are subject to floors of 1.5% and 2.5%, respectively. Interest on LIBOR loans is payable upon maturity of the LIBOR loan or on the last day of the quarter if the term of the LIBOR loan exceeds
90 days. Reddy Corporation will pay an anniversary fee on each anniversary of the effectiveness of the New Credit Facility equal to 1.0% of the commitments under the New Credit Facility on the
first anniversary and increasing on each subsequent anniversary by 0.5%, as well as a $50,000 quarterly loan servicing fee. Additionally, for each full calendar year beginning with 2011, if the
average balance outstanding under the New Credit Facility is less than $12.5 million for the calendar year, the Borrower shall pay to the Lenders an amount equal to (x) the difference
between the average balance outstanding and $12.5 million multiplied by (y) the average interest rate for LIBOR Loans during that calendar year (determined based on average one month
LIBOR rates as of the end of each quarter during such calendar year). The New Credit Facility will mature on October 22, 2014. At March 31, 2011, the Company had $12.0 million
outstanding and $38.0 million of availability under the New Credit Facility.
19
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
6. Revolving Credit Facility and Long-Term Obligations (Continued)
The obligations under the New Credit Facility are fully and unconditionally guaranteed by Reddy Holdings and will also be guaranteed by any future domestic subsidiaries of Reddy Corp,
subject to certain exceptions.
The
New Credit Facility does not require any scheduled principal payments prior to its stated maturity date. Subject to certain conditions, mandatory repayments of the New Credit
Facility (and mandatory commitment reductions of the New Credit Facility) are required to be made with portions of the proceeds from (1) asset sales, (2) the issuance of debt securities
and (3) insurance and condemnation awards, subject to various exceptions. In the event of a change in control, as defined in the New Credit Facility, an event of default will occur under the
New Credit Facility.
The
New Credit Facility also contains affirmative and negative covenants applicable to Reddy Corp and its future subsidiaries, subject to materiality and other qualifications, baskets
and exceptions. The affirmative and negative covenants are substantially consistent with those contained in the March 2010 Credit Facility. The negative covenants, among other things, restrict the
ability of Reddy Corp to:
-
•
-
incur additional indebtedness or issue certain preferred shares;
-
•
-
create liens;
-
•
-
make investments;
-
•
-
pay dividends or make other restricted payments;
-
•
-
consolidate or merge or acquire or dispose of assets;
-
•
-
enter into transactions with affiliates;
-
•
-
permit consensual encumbrances or restrictions on Reddy Corp's restricted subsidiaries' ability to pay dividends or make
certain other payments to Reddy Corp; and
-
•
-
prepay certain indebtedness, including the First Lien Notes and the Second Lien Notes.
Under
the restricted payments covenant in the New Credit Facility, Reddy Corp is generally prohibited from paying dividends and otherwise transferring assets to Reddy Holdings. Reddy
Corp. is permitted to pay certain limited dividends to Reddy Holdings, the proceeds of which must be used for specific purposes, such as to maintain Reddy Holdings' corporate existence, repurchase the
Discount Notes and pay interest on the Discount Notes. Reddy Corp may also distribute certain investments to Reddy Holdings.
In
addition, Reddy Corp may also pay dividends to Reddy Holdings for specified purposes, including the payment of cash interest on the Discount Notes. The New Credit Facility (and the
March 2010 Credit Facility, while it was in effect) precludes Reddy Corp from declaring any dividends if an event of default under the credit facility has occurred and is continuing. In particular, it
will be an event of default under the New Credit Facility if Reddy Corp's leverage ratio (defined as the ratio of the outstanding balance of the New Credit Facility on the last day of each quarter to
EBITDA (as defined in the New Credit Facility) over the preceding four quarters) exceeds 2.50:1.00 as of the end of any quarter. The New Credit Facility requires the maintenance of a minimum liquidity
amount of $5 million at all times. Liquidity for purposes of this covenant is defined as the sum of available borrowing capacity under the New Credit Facility and unrestricted cash held by
Reddy Corp. The New
20
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
6. Revolving Credit Facility and Long-Term Obligations (Continued)
Credit
Facility is collateralized by substantially all of the Company's assets. Reddy Holdings guarantees the New Credit Facility and such guarantee is collateralized by a pledge of substantially all
of the assets of Reddy Holdings. At March 31, 2011, Reddy Corp was in compliance with the ratio requirements included in the New Credit Facility.
Obligations
under the New Credit Facility may be declared immediately due and payable upon the occurrence of certain events of default as defined in the credit agreement, including
failure to pay any principal when due and payable, failure to pay interest within five (5) days after due, failure to comply with any covenant, representation or condition of any loan document,
any change of control,
cross-defaults, and certain other events as set forth in the credit agreement, with grace periods in some cases.
An
acceleration of the indebtedness under the New Credit Facility would be an event of default under the First Lien Notes and Second Lien Notes if the outstanding balance of the New
Credit Facility at the time of acceleration is over $10 million.
Old Senior Credit Facilities.
On August 12, 2005, the Company amended and restated its credit facilities with a syndicate
of banks, financial
institutions and other entities as lenders, including Credit Suisse, Cayman Islands Branch, as Administrative Agent, Wachovia Bank, N.A., JP Morgan Chase, N.A., CIBC World Markets Corp., Bear
Stearns Corporate Lending Inc. and Lehman Commercial Paper, Inc. (the "Old Credit Facilities"). The Old Credit Facilities provided for a $60 million revolving credit facility (the
"Old Revolving Credit Facility") and a $240 million term loan (the "Old Term Loan"). The Old Credit Facilities were obligations of Reddy Corp and were guaranteed by Reddy Holdings. The Old
Revolving Credit Facility and Old Term Loan were scheduled to mature on August 12, 2010 and August 12, 2012, respectively. On March 15, 2010, the Old Credit Facilities were
terminated and all amounts owed thereunder were repaid from the proceeds of the sale of the First Lien Notes.
Principal
balances outstanding under the Old Credit Facility bore interest per annum, at the Company's option, at the sum of the base rate plus 0.75% or LIBOR plus 1.75%. The base rate
was defined as the greater of the prime rate (as announced from time to time by the Administrative Agent) or the federal funds rate plus 0.5%. Interest on base rate loans was payable on the last day
of each quarter. Interest on LIBOR loans was payable upon maturity of the LIBOR loan or on the last day of the quarter if the term of the LIBOR loan exceeded 90 days. Reddy Corp also paid a
quarterly fee on the average availability under the revolving credit facility at an annual rate of 0.5%.
The
Old Revolving Credit Facility and Old Term Loan did not require any scheduled principal payments prior to their stated maturity dates. The Old Credit Facilities contained financial
covenants, which include the maintenance of certain financial ratios, as defined in the Credit Facilities, and were collateralized by substantially all of the Company's assets.
Debt Refinance Costs.
During the three months ended March 31, 2010, the Company recorded expense of $6.1 million for
costs incurred in
connection with refinancing activities related to its debt. Approximately $5.8 million of the 2010 expense related to the exchange of the Discount Notes for the Second Lien Notes. The exchange
was accounted for as a modification of debt.
Letters of Credit.
The New Credit Facility does not provide for the issuance of standby letters of credit. In March 2010, Reddy
Corp entered into a
separate letter of credit facility with JPMorgan
21
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
6. Revolving Credit Facility and Long-Term Obligations (Continued)
Chase
Bank, N.A. and Wells Fargo Bank, National Association (the "LC Facility"). Letters of credit issued under the LC Facility are cash collateralized at 102% of the amount of the letter of credit
and are used primarily to secure certain insurance and operating lease obligations. The cash collateral provided under the LC Facility is maintained in a restricted account at JP Morgan Chase Bank,
N.A. and is reported as "Restricted Cash" in the consolidated balance sheets.
Fair Value of Debt Instruments.
At March 31, 2011 and December 31, 2010, the fair value of the Company's long-term
debt,
was $446.6 million and $437.0 million, respectively, while the book value was $450.7 million and $450.7 million, respectively. The fair value of the Company's debt is
primarily based on quoted market prices for the debt.
7. Financial Derivative Instruments
Diesel Hedging Agreement.
On March 25, 2011, the Company entered into a hedge to fix the price per gallon of a portion of
the Company's diesel
fuel requirements (the "Diesel Hedge"). The Diesel Hedge begins April 1, 2011 and expires on December 28, 2011. The notional amount of gallons hedged changes on a monthly basis to match
anticipated utilization and totals 1.2 million gallons. The Company will pay a weighted average fixed price of $3.17 per gallon (wholesale basis) and receive an amount equal to a wholesale
index rate. Net payable or receivable amounts are settled monthly. The Company uses the
Diesel Hedge to minimize the risk of rising fuel prices. The hedge is not for trading purposes and is accounted for as an economic hedge and was not designated as a hedging instrument.
The
Company considered its own credit risk in the valuation of the diesel hedge. Changes in the fair value of the hedge are recorded in "Cost of sales (excluding depreciation)" in the
consolidated statements of operations and in the operating activities section of cash flows. Payments made or received under the hedge will be included in the caption "Cost of Sales (excluding
depreciation)" on the consolidated statements of operations and in the operating activities section of cash flows.
The
following tables present the impact of derivative instruments and their location within the condensed consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as Hedging Instruments under ASC 718
|
|
|
Amount of Gain Recognized
in Condensed
Consolidated Statements of
Operations
|
|
|
|
|
Three months ended
March 31,
|
|
|
|
|
Location of Gain (Loss)
Recognized in
Condensed Consolidated
Statements of Operations
|
|
|
2011
|
|
2010
|
|
|
(in thousands)
|
|
|
|
Diesel hedge:
|
|
|
|
|
|
|
|
|
|
Non-cash change in fair value
|
|
$
|
(16
|
)
|
$
|
—
|
|
|
|
Cash settlements
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized gain
|
|
$
|
(16
|
)
|
$
|
—
|
|
Cost of sales (excluding depreciation)
|
|
|
|
|
|
|
|
|
22
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
7. Financial Derivative Instruments (Continued)
Collateral Requirements and Counterparty Risk.
The Diesel Hedge required the Company to provide cash collateral in the amount of
$0.3 million,
which remained outstanding as of March 31, 2011.
There
were no derivative instruments outstanding during the three months ended March 31, 2010.
8. Stock-based Compensation
On August 8, 2005, the Board of Directors and stockholders of Reddy Holdings approved the Reddy Ice Holdings, Inc. Long-Term Incentive and Share Award Plan (the
"Plan"). On April 29, 2010 the stockholders of Reddy Holdings approved an amendment to the Plan, which increased the number of shares of common stock available to be issued to employees,
directors and certain third parties in connection with various incentive awards, including stock options, restricted shares and restricted share units to 4,750,000 shares.
The
Plan provides for awards of restricted shares subject to restrictions on transferability and other restrictions, if any, imposed by the Compensation Committee. Such restrictions
lapse under circumstances as determined by the Compensation Committee, including based upon a specified period of continued employment or upon the achievement of established performance criteria.
Restricted shares have all of the rights of a stockholder, including the right to vote restricted shares and to receive dividends. Unvested restricted shares are generally forfeited upon termination
of employment during the applicable restriction period as provided for in the related grant documents. During the three month period ended March 31, 2011, the Company granted 343,750 restricted
shares to employees with a weighted average grant date fair value of $2.75. One-third of the restricted shares vest, contingent on the employee's continuous service to the Company, on each
of the following dates: January 1, 2012, January 1, 2013, and January 1, 2014. The fair value of each restricted share is equal the closing price of the Company's common stock on
the grant date. The aggregate grant date fair value is recognized as compensation expense using the straight-line method over the vesting period, adjusted for estimated forfeitures.
The
Plan provides for option grants with terms, including exercise price and the time and method of exercise, set by the Compensation Committee. However, the exercise price of options is
not permitted to be less than the fair market value of the shares at the time of grant and the term is not permitted to be longer than ten years from the date of grant of the options. Stock options
for 573,300 shares of common stock were granted during the three month period ended March 31, 2011. The options have seven-year terms and one-third of the options vest,
contingent on the
employee's continuous service to the Company, on each of the following dates: January 1, 2012, January 1, 2013, and January 1, 2014. The options granted during the three month
period ended March 31, 2011 had weighted average exercise prices of $2.75 per share.
The
fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized using a straight-line
method over the shorter of the vesting period or required service period adjusted for estimated forfeitures. The following table sets forth the information about the weighted average grant date fair
value of options
23
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
8. Stock-based Compensation (Continued)
granted
during the three months ended March 31, 2011 and the weighted average assumptions used for such grants.
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2011
|
|
|
Weighted average grant date fair value
|
|
$
|
1.81
|
|
|
Weighted average assumptions used:
|
|
|
|
|
|
|
Expected volatility
|
|
|
110.3
|
%
|
|
|
Expected lives
|
|
|
3 years
|
|
|
|
Risk-free interest rates
|
|
|
1.21
|
%
|
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
Expected
volatility is based on an analysis of historical volatility of the Company's common stock. Expected lives of options are determined based on projections of option exercise
patterns. Risk-free interest rates are determined using the implied yield currently available for zero coupon U.S. treasury issues with a remaining term equal to the expected life of the
options. The expected dividend yield is based on the September 15, 2008 announcement that the Company's quarterly cash dividends had been suspended indefinitely and the Company does not
currently anticipate paying dividends in the future.
Total
compensation expense associated with the Plan was $0.6 million and $0.3 million during the three months ended March 31, 2011 and 2010, respectively. Such
compensation expense was recorded in "Operating expenses" in the consolidated statements of operations. Compensation expense for the three months ended March 31, 2011 includes a
$0.1 million accrual for Board of Directors stock awards earned during the period and expected to be granted in May of 2011. As of March 31, 2011, 756,384 shares were available for grant
under the Plan.
9. Net Loss Per Share
The computation of net loss per share is based on net loss divided by the weighted average number of shares outstanding. Restricted shares include rights to receive dividends that are
not subject to the risk of forfeiture even if the underlying restricted shares on which the dividends were paid do not vest. Since restricted shares do not include an obligation to share in losses,
they are excluded from the basic net loss per share calculation. Accordingly, 620,183 and 350,678 restricted shares were excluded from the computation of basic net loss per share for the three months
ended March 31, 2011 and 2010, respectively.
For
the purpose of computing diluted earnings per share, options to purchase 0.6 million and 1.4 million shares of common stock were not included in the computation of
diluted earnings per share
24
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
9. Net Loss Per Share (Continued)
for
the three months ended March 31, 2011 and 2010, respectively, because their effect was anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
2010
|
|
|
|
(in thousands, except per share amounts)
|
|
|
Net loss for basic and diluted computation
|
|
$
|
(39,101
|
)
|
$
|
(22,597
|
)
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
22,689
|
|
|
22,406
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1.72
|
)
|
$
|
(1.01
|
)
|
|
|
|
|
|
|
|
10. Income Taxes
The Company's effective tax rate of (8.4%) for the three months ended March 31, 2011 differs from the Federal statutory income tax rate of 35% due to state income and margin
taxes, the effect of permanent differences and a change in the Company's valuation allowance recorded against certain federal and state deferred tax assets. In the three months ended March 31,
2011, the Company recorded an additional valuation allowance totaling $16.2 million relating to federal and state deferred assets. The total valuation allowance of $20.1 million is
comprised of a $0.3 million of allowance against certain state NOL carryforwards and a $19.3 million allowance against the remaining deferred assets. The valuation allowance is necessary
to reduce the recorded deferred tax assets to the amount management believes the Company is more-likely-than-not to realize.
Reddy
Corp's effective tax rate of 36.8% calculated on a stand-alone basis, differs from the Federal statutory tax rate of 35% due to state income and margin taxes and the effect of
permanent differences.
The
amount of gross unrecognized tax benefits related to uncertain tax positions was $1.3 million at March 31, 2011 and December 31, 2010, which included accrued
interest and penalties of $0.3 million as of March 31, 2011 and December 31, 2010. The total amount of interest and penalties, net of federal benefit, recognized in the statement
of operations for the three months ended March 31, 2011 and 2010 was immaterial.
As
a result of net operating loss carryforwards, the Company's tax years from 1998 through 2010 remain open and subject to examination by the Internal Revenue Service and/or certain
state taxing authorities.
11. Commitments and Contingencies
The following is a discussion of the Company's significant legal matters. The Company is involved in various claims, suits, investigations, and legal proceedings. The Company accrues a
liability when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. At March 31, 2011 and December 31,
2010, no accruals had been made in connection with the matters discussed below.
25
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
11. Commitments and Contingencies (Continued)
Antitrust Matters
In March 2008, the Company and certain of its employees, including members of its management, received subpoenas issued by a federal
grand jury sitting in the Eastern District of Michigan seeking documents and information in connection with an investigation by the Antitrust Division of the United States Department of Justice
("DOJ") into possible antitrust violations in the packaged ice industry. In addition, on March 5, 2008, federal officials executed a search warrant at the Company's corporate office in Dallas,
Texas. Current and former employees were also subpoenaed to testify and testified before a federal grand jury in the Eastern District of Michigan and before a federal grand jury in the Southern
District of Ohio. On October 29, 2010, the Company was informed that the Antitrust Division of the DOJ would take no action against the Company or any of its employees in connection with its
investigation of the packaged ice industry. In January 2011, counsel for the Company confirmed that the Antitrust Division of the DOJ has formally closed its investigation of the packaged ice
industry.
On
March 25, 2008, the Company was served by the Office of the Attorney General of the State of Florida with an antitrust civil investigative demand (the "Florida CID") requesting
the production of documents and information relating to an investigation of agreements in restraint of trade and/or price fixing with respect to the market for packaged ice. On June 11, 2008,
the Company received a civil investigative demand from the Office of the Attorney General of the State of Arizona (the "Arizona CID"). All of the documents and information requested by the Arizona CID
were included in the Florida CID and the Arizona CID states that it will be satisfied by the production of information which had been and would be provided to Florida in response to the Florida CID.
On or about June 16, 2009, the Company was served by the State of Michigan, Department of the Attorney General, with a civil investigative demand requesting information and documents relating
to sales of ice to units of government in Michigan, sales of ice in Michigan for which we the Company made or received payment, and contracts and agreements with Michigan entities (the "Michigan
CID"). The Company has been advised that the Florida CID, the Arizona CID and the Michigan CID are related to a multi-state antitrust investigation of the packaged ice industry and that the Attorneys
General of 19 states and the District of Columbia are participating in the multi-state investigation. The states' investigation is related to the investigation of the packaged ice industry by the
Antitrust Division of the DOJ. The Company is cooperating with the investigation and has complied with all requests for documents and information regarding these matters. The Company may in the future
receive additional civil investigative demands or similar information requests from states participating in the multi-state investigation or conducting their own investigations.
At
this time, the Company is unable to predict the outcome of that investigation, the possible loss or possible range of loss, if any, associated with the resolution of that
investigation or any potential effect the investigation may have on the Company, its employees or operations.
In
2008 a number of lawsuits, including putative class action lawsuits, were filed against the Company, Reddy Ice Corporation, Home City Ice Company, Arctic Glacier Income Fund, Arctic
Glacier, Inc. and Arctic Glacier International, Inc., in various federal courts in multiple jurisdictions alleging violations of federal and state antitrust laws and related claims and
seeking damages and injunctive relief. Pursuant to an Order from the Judicial Panel on Multidistrict Litigation, the civil actions pending in federal courts have been transferred and consolidated for
pretrial proceedings in the United States District Court for the Eastern District of Michigan. Home City entered into a settlement
26
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
11. Commitments and Contingencies (Continued)
agreement
with the direct purchaser plaintiffs that was approved by the Court on February 22, 2011. In March 2011, Arctic Glacier announced that it has entered into a proposed settlement
agreement with the direct purchaser plaintiffs. Discovery is ongoing regarding the claims asserted on behalf of direct purchasers. On March 11, 2011, the Court entered an Order granting in part
and denying in part motions to dismiss the indirect purchaser claims. On April 26, 2011, the indirect purchaser plaintiffs filed an amended complaint asserting violations of the antitrust laws
of various states and related claims.
On
March 1, 2010, a putative class action Statement of Claim was filed against the Company in the Ontario Superior Court of Justice in Canada ("Ontario Action"), alleging
violations of Part VI of the Competition Act and seeking general damages, punitive and exemplary damages, pre-judgment and post-judgment interest, and costs. Proceedings
relating to Plaintiffs' Motion for Certification of a Class are ongoing in that matter.
On
March 8, 2010, a putative class action Statement of Claim was filed against the Company in the Court of Queen's Bench of Alberta ("Alberta Action"), Judicial District of
Calgary, in Canada, alleging violations of Part VI of the Competition Act and seeking general damages, special and pecuniary damages, punitive and exemplary damages, interest and costs. On
March 4, 2011, the Company was served with an Amended Statement of Claim in that matter, which asserts similar claims.
An
agreement has been reached to resolve the class actions filed in Canada by direct purchasers of packaged ice in Canada against Reddy Ice and Arctic Glacier Inc. alleging
anti-competitive behavior in the United States and Canada. The agreement provides that Arctic Glacier will pay CDN $2,000,000, all claims asserted against Reddy Ice and Arctic Glacier in both
Ontario and Alberta will be dismissed, and Reddy Ice and Arctic Glacier will be granted full and final releases with regard to those claims. Reddy Ice is not making any payment in connection with this
settlement. The agreement is subject to the execution of final settlement documents and court approval.
On
March 4, 2011, a putative class action lawsuit was filed against the Company and other defendants in state court in Kansas. That lawsuit alleges violation of the Kansas
Restraint of Trade Act, violation of the Kansas Consumer Protection Statute, and Unjust Enrichment, and seeks treble overcharge damages, full consideration damages, compensatory damages, penalties,
costs, and attorney fees. That lawsuit was removed to federal court and, on April 26, 2011, an order was entered transferring and
consolidating it with other pending cases for pre-trial proceedings in the United States District Court for the Eastern District of Michigan.
On
April 28, 2011, two putative class actions were filed against the Company and other defendants in federal courts in Tennessee and Arkansas alleging violations of federal and
state antitrust statutes and seeking injunctive relief, damages, disgorgement, costs, and attorney fees. The Company has not been served with these lawsuits. The Company anticipates that these
lawsuits will be transferred and consolidated with other pending cases for pre-trial proceedings in the United States District Court for the Eastern District of Michigan.
One
direct action lawsuit was filed against us in the United States District Court for the Eastern District of Michigan asserting claims based on alleged violations of federal and state
antitrust laws, RICO and tortious interference and seeking damages, civil penalties and injunctive relief. The defendants filed motions to dismiss that case. On May 29, 2009, the Court
dismissed all claims against
27
Table of Contents
REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
11. Commitments and Contingencies (Continued)
us
in that lawsuit. On June 29, 2009, the plaintiff filed a motion for reconsideration, and on July 17, 2009 the Court reversed, in part, its May 29, 2009 order, reinstating only
the RICO claim against us. The dismissal of the remaining claims was not affected. On August 10, 2009, the Company filed an answer to the reinstated claim. Discovery is ongoing in that matter.
The
Company intends to vigorously defend the pending lawsuits. At this time, the Company is unable to predict the outcome of these lawsuits, the possible loss or possible range of loss,
if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.
Stockholder Litigation
Beginning on August 8, 2008, purported class action complaints were filed in the United States District Court for the Eastern
District of Michigan asserting claims under the federal securities laws against the Company and certain of its current or former senior officers. On July 17, 2009, the Court consolidated the
actions and appointed a lead plaintiff and interim lead plaintiff's counsel. The lead plaintiff filed a consolidated amended complaint on November 2, 2009. That complaint purports to assert
claims on behalf of an alleged class of purchasers of the Company's common stock and alleges that the defendants misrepresented and failed to disclose the existence of, and the Company's alleged
participation in, an alleged antitrust conspiracy in the packaged ice industry. The Company and the other defendants have filed an answer in that case.
Two
stockholder derivative actions have been filed on the Company's behalf in state district court in Dallas County, Texas, naming as defendants, among others, certain current and former
officers and members of the Company's Board of Directors. Those cases have been consolidated in the 68th Judicial District Court of Dallas County, Texas. On March 17, 2011, a Second
Amended Consolidated Shareholder Derivative Petition was filed in that matter. That Second Amended Petition asserts claims for breach of fiduciary duty, unjust enrichment, abuse of control, and gross
mismanagement and seeks damages, equitable relief, attorney fees, expenses and costs. The consolidated case is currently set for trial on August 2, 2011.
The
Company intends to vigorously defend the pending lawsuits. At this time, the Company is unable to predict the outcome of these lawsuits, the possible loss or possible range of loss,
if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.
We are also involved in various other claims, lawsuits and proceedings arising in the ordinary course of business, including
intellectual property matters. There are uncertainties inherent in the ultimate outcome of such matters and it is difficult to determine the ultimate costs that we may incur. We believe the resolution
of such other ordinary course uncertainties and the incurrence of such costs will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
28
Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
condensed consolidated financial statements and the related notes and other information included elsewhere in this Form 10-Q and our Annual Report on Form 10-K
for the year ended December 31, 2010, previously filed with the Securities and Exchange Commission ("SEC"). Except as otherwise noted, there are no material differences between the consolidated
balances presented herein and the balances of Reddy Ice Corporation.
Reddy
Ice Holdings, Inc. ("Reddy Holdings"), and its wholly-owned subsidiary, Reddy Ice Corporation ("Reddy Corp."), manufacture and distribute packaged ice products. We are the
largest manufacturer of packaged ice products in the United States and serve a variety of customers in 34 states and the District of Columbia under the Reddy Ice® brand name.
Uncertainty of Forward Looking Statements and Information
Other than statements of historical facts, statements made in this Form 10-Q, statements made by us in periodic
press releases, oral statements made by our management to analysts and stockholders and statements made in the course of presentations about our company constitute "forward- looking statements"
intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. We believe the expectations reflected in such forward-looking statements are
accurate. However, we cannot assure you that such expectations will occur. These forward- looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from future results expressed or implied by the forward- looking statements. Factors you should consider that could cause these
differences are:
-
•
-
general economic trends and seasonality;
-
•
-
weather conditions;
-
•
-
the ability of our subsidiary to make distributions to us in amounts sufficient to service our debt and pay our taxes;
-
•
-
our substantial leverage and ability to service our debt;
-
•
-
the restrictive covenants and financial covenants under our indebtedness;
-
•
-
the availability of capital sources;
-
•
-
fluctuations in our operating costs, including the prices of electricity, fuel, polyethylene and other required expenses;
-
•
-
competitive practices in the industry in which we compete;
-
•
-
changes in labor conditions;
-
•
-
our capital expenditure requirements;
-
•
-
the risks associated with acquisitions and the failure to integrate acquired businesses;
-
•
-
technological changes and innovations;
-
•
-
the costs and effects of legal and administrative proceedings, settlements, investigations and claims;
-
•
-
legislative or regulatory requirements; and
29
Table of Contents
-
•
-
all the other factors described herein under Item 1A of Part II and in Item 1A of Part I of
our Annual Report on Form 10-K.
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.
General
Overview.
We are the largest manufacturer and distributor of packaged ice in the United States and currently serve a variety of
customers in 34
states and the District of Columbia. Our business consists of:
-
•
-
the traditional manufacture and delivery of ice from a central point of production to the point of sale; and
-
•
-
the installation and operation of The Ice Factory®, our proprietary in-store bagging ("ISB")
equipment located in high volume locations that produces, packages and stores ice through an automated, self-contained system.
Seasonality.
The packaged ice business is highly seasonal, characterized by peak demand during the warmer months of May through
September, with an
extended peak selling season in the southern United States. Approximately 71%, 69% and 69% of our annual revenues occurred during the second and third calendar quarters in each of 2010, 2009 and 2008.
As a result of seasonal revenue declines
and a less than proportional decline in expenses during the first and fourth quarters, we typically experience lower margins resulting in losses during these periods.
Revenues.
Our revenues primarily represent sales of packaged ice and packaged ice bags for use in our ISB equipment. There is no
right of return with
respect to these products. A portion of our revenues also represents fees earned under management agreements for ISB systems located outside our primary territories that are recognized as earned under
contract terms.
Cost of Sales (Excluding Depreciation).
Our cost of sales (excluding depreciation) consists of costs related to the manufacturing
and distribution of
our products, including, in particular:
-
•
-
manufacturing and distribution labor costs;
-
•
-
raw materials (primarily polyethylene-based plastic bags);
-
•
-
product delivery expenses, including fuel and vehicle rental expense related to products delivered by our own distribution
network, as well as fees paid to distributors who deliver ice to our customers on our behalf;
-
•
-
utility expenses (primarily electricity used in connection with the manufacturing, storage and distribution processes);
and
-
•
-
ISB system costs associated with customer service representatives and machine technicians (ISB systems generally do not
increase our plant occupancy, delivery or utility costs).
Depreciation Expense Related to Cost of Sales and Depreciation and Amortization.
Depreciation and amortization are divided into
two line items:
depreciation expense related to cost of sales and depreciation and amortization expense. Depreciation expense related to cost of sales consists of depreciation expense for our production and
distribution equipment. Depreciation and amortization
30
Table of Contents
expense
consists of depreciation and amortization expense for our selling, general and administrative functions.
Operating Expenses.
Our operating expenses are costs associated with selling, general and administrative functions. These costs
include executive
officers' compensation, office and administrative salaries, insurance, legal and other professional services and costs associated with leasing office space. Labor costs, including associated payroll
taxes and benefit costs, but excluding non-cash stock-based compensation expense, included in operating expenses represented approximately 17% and 20% of revenues in the three months ended
March 31, 2011 and 2010, respectively.
Cost of antitrust investigations and related litigation.
Costs related to the current antitrust investigations and related
litigation, net of
insurance recoveries, are composed primarily of legal fees, document collection costs and the fees of other experts and consultants. These costs have been recognized and paid by Reddy Holdings.
Facilities.
At March 31, 2011, we owned or operated 58 ice manufacturing facilities, 72 distribution centers and
approximately 3,500 Ice
Factories. As of the same date, we had an aggregate daily ice manufacturing capacity of approximately 18,000 tons.
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Change from Last
Year
|
|
|
|
2011
|
|
2010
|
|
Dollars
|
|
%
|
|
|
|
(in thousands)
|
|
|
Revenues
|
|
$
|
40,752
|
|
$
|
35,894
|
|
$
|
4,858
|
|
|
13.5
|
|
|
Cost of sales (excluding depreciation)
|
|
|
37,225
|
|
|
34,908
|
|
|
2,317
|
|
|
6.6
|
|
|
Depreciation expense related to cost of sales
|
|
|
7,708
|
|
|
5,314
|
|
|
2,394
|
|
|
45.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loss
|
|
|
(4,181
|
)
|
|
(4,328
|
)
|
|
147
|
|
|
(3.4
|
)
|
|
Operating expenses
|
|
|
12,799
|
|
|
13,119
|
|
|
(320
|
)
|
|
(2.4
|
)
|
|
Depreciation and amortization expense
|
|
|
2,530
|
|
|
1,876
|
|
|
654
|
|
|
34.9
|
|
|
(Gain) loss on dispositions of assets
|
|
|
(54
|
)
|
|
227
|
|
|
(281
|
)
|
|
(123.8
|
)
|
|
Acquisition expenses
|
|
|
603
|
|
|
2
|
|
|
601
|
|
|
30,050.0
|
|
|
Impairment of assets
|
|
|
231
|
|
|
—
|
|
|
231
|
|
|
—
|
|
|
Cost related to antitrust investigations and related litigation
|
|
|
1,421
|
|
|
913
|
|
|
508
|
|
|
55.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(21,711
|
)
|
|
(20,465
|
)
|
|
(1,246
|
)
|
|
6.1
|
|
|
Interest expense, net
|
|
|
(14,345
|
)
|
|
(7,255
|
)
|
|
(7,090
|
)
|
|
97.7
|
|
|
Debt refinance costs
|
|
|
—
|
|
|
(6,108
|
)
|
|
6,108
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(36,056
|
)
|
|
(33,828
|
)
|
|
(2,228
|
)
|
|
6.6
|
|
|
Income tax (expense) benefit
|
|
|
(3,045
|
)
|
|
11,231
|
|
|
(14,276
|
)
|
|
(127.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(39,101
|
)
|
$
|
(22,597
|
)
|
$
|
(16,504
|
)
|
|
73.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
Revenues increased $4.9 million from the three months ended March 31, 2010 to the three months ended
March 31, 2011.
This increase is primarily due to a percentage increase in packaged ice volume sales in the low double digits related to improved weather patterns in most of our markets, stabilized economic
conditions, and the addition of new customers through both acquisitions and organic growth, partially offset by the effects of lost customers as a result of increased competitive activity.
Cost of sales (excluding depreciation):
Cost of sales (excluding depreciation) increased $2.3 million from the three months
ended
March 31, 2010 to the three months ended March 31, 2011. This increase
31
Table of Contents
in
cost of sales is primarily due to increased volume sales, although cost of sales did not increase proportionally with revenues due to cost savings and efficiencies related to our operational
initiatives.
Significant
expenses included in cost of sales include the following:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenues
|
|
|
|
2011
|
|
2010
|
|
|
Labor costs, including associated payroll taxes and benefit costs (including health insurance)
|
|
|
34
|
%
|
|
40
|
%
|
|
Plastic bags
|
|
|
6
|
%
|
|
6
|
%
|
|
Operating leases (including vehicles, plant equipment and ISB equipment)
|
|
|
11
|
%
|
|
10
|
%
|
|
Fuel
|
|
|
6
|
%
|
|
5
|
%
|
|
Independent third party distribution services
|
|
|
6
|
%
|
|
6
|
%
|
|
Maintenance
|
|
|
7
|
%
|
|
7
|
%
|
|
Vehicle maintenance and insurance claims
|
|
|
3
|
%
|
|
3
|
%
|
|
Electricity
|
|
|
6
|
%
|
|
7
|
%
|
Depreciation expense related to cost of sales:
Depreciation expense related to cost of sales increased $2.4 million as a
result of a change in
accounting estimate to eliminate salvage value on certain equipment and new production and distribution equipment placed in service in 2010 and the first three months of 2011, partially offset by
dispositions and assets becoming fully depreciated.
Operating expenses:
Operating expenses decreased $0.3 million from the three months ended March 31, 2010 to the three
months ended
March 31, 2011. This decrease is primarily due to a $0.4 million decrease in labor and benefits costs, and $0.1 million of customer relations costs, partially offset by a
$0.3 million increase in non-cash stock-based compensation costs.
Depreciation and amortization expense:
Depreciation and amortization expense increased $0.7 million as a result of new
equipment placed in
service and the recognition of certain intangible assets in connection with acquisitions in 2010 and the first three months of 2011, partially offset by dispositions and assets becoming fully
depreciated.
(Gain) loss on dispositions of assets:
A $0.1 million gain on disposition of assets was recognized in the three months
ended March 31,
2011 due to the disposition of certain excess assets. A $0.2 million loss on disposition of assets was recognized in the three months ended March 31, 2010. As a result of an increased
focus on operational efficiency, we are continuing to evaluate our operating facilities and expect to dispose of certain real estate in the future. Based on current real estate market conditions,
additional impairments or losses on dispositions may occur in future periods.
Acquisition expenses:
We incurred $0.6 million of expense during the three months ended March 31, 2011 in connection
with our ongoing
acquisition program.
Impairment of assets:
Impairment charges of $0.2 million were recognized in the three months ended
March 31, 2011 as a result of impairing certain real estate assets during the period. No impairment charges were recognized during the three month period ended March 31, 2010.
Costs related to antitrust investigations and related litigation:
During the three months ended March 31, 2011 and 2010, we
incurred
$1.4 million and $0.9 million, respectively, of legal fees and other expenses associated with the antitrust investigation conducted by the Antitrust Division of the United States
Department of Justice and the related litigation. We became aware of and began incurring expenses related to the investigation in March of 2008.
32
Table of Contents
Interest expense, net:
Net interest expense increased $7.1 million from the three months ended March 31, 2010 to the
three months ended
March 31, 2011. This change is related to increased interest costs associated with our new 11.25% Senior Secured Notes and 13.25% Senior Secured Notes, as well as additional interest associated
with borrowings under our revolving credit facility. The amount of net interest expense recognized by Reddy Holdings was $0.3 million and $3.4 million during the three months ended
March 31, 2011 and 2010, respectively. Beginning in the second quarter of 2011, the interest expense related to the Company's notes will be comparable to the same periods of 2010 as the notes
will have been outstanding for one year.
Debt refinance costs:
Costs of $6.1 million were incurred in the three months ended March 31, 2010 in connection with
refinancing
activities related to our debt. No such costs were incurred during the three months ended March 31, 2011.
Income tax expense:
The effective tax rate decreased from 33.2% during the three months ended March 31, 2010 to (8.4%)
during the three months
ended March 31, 2011 primarily as a result of the effects of a valuation allowance recorded against certain federal and state deferred tax assets.
Liquidity and Capital Resources
We intend to fund our ongoing capital and working capital requirements as well as debt service, including our internal growth and
acquisitions, through a combination of cash flows from operations, and borrowings under our existing credit facilities, operating leases and other potential financing arrangements.
We
generate cash from the sale of packaged ice through traditional delivery methods, by which we manufacture, package and store ice at a central facility and transport it to our
customers' retail locations when needed, and through Ice Factories, which manufacture, package and store ice in our customers' retail locations. Our primary uses of cash are (a) cost of sales,
(b) operating expenses, (c) debt service, (d) capital expenditures related to replacing and modernizing the capital equipment in our traditional ice plants and acquiring and
installing additional Ice Factories, (e) acquisitions, and (f) investments. We have been and may continue to be required to use substantial amounts of cash to pay expenses relating to
the investigations by various state agencies and related civil litigation. See Item 3. Legal Proceedings. Historically, we have financed our capital and working capital requirements, including
our acquisitions, through a combination of cash flows from operations, borrowings under our revolving credit facilities and operating leases.
During
the three months ended March 31, 2011, capital expenditures totaled $3.8 million. As we consolidate acquisitions into the existing Company infrastructure, we have
identified non-core and excess assets which can be disposed of, such as real estate and machinery and equipment. From time to time, we also dispose of other assets which are no longer
useful in our operations. As a result of dispositions of these non-core and excess assets, we realized proceeds of approximately $0.1 million during the three months ended
March 31, 2011.
During
the three months ended March 31, 2011, we completed the acquisition of eight ice companies for a total cash purchase price of approximately $8.4 million. We will
continue to evaluate acquisition opportunities as they become available. In conjunction with these evaluations, we will consider our liquidity, availability under our credit facility, mandatory
principal repayments under our debt agreements and availability of other capital resources.
Cash Flows for the Three Months Ended March 31, 2011 and 2010
Net cash used in operating activities was $30.1 million for the three months ended March 31, 2011 versus net cash used in
operating activities of $12.2 million for the three months ended March 31, 2010.
33
Table of Contents
The
increase in cash used in operating activities of $17.8 million was a result of a $13.1 million decrease in cash provided by working capital primarily due to an increase in accounts
receivable associated with increased sales and collection of an insurance receivable in the first quarter of 2010, as well as a $4.7 million increase in net loss, adjusted for
non-cash and non-operating items.
Net
cash used in investing activities was $12.9 million and $21.3 million for the three months ended March 31, 2011 and 2010, respectively. The decrease in cash used
in investing activities is primarily due to a $12.2 million increase in the restricted cash balance that was used to collateralize our outstanding standby letters of credit subsequent to the
termination of our old credit facilities in the first quarter of 2010, a $6.0 million decrease in net property and equipment additions and a $2.0 million decrease in cash receipts from
the reimbursement of the cost of equipment placed under operating leases offset by the effects of acquisitions of $7.6 million.
Net
cash provided by financing activities was $12.0 million and $43.3 million for the three months ended March 31, 2011 and 2010, respectively. The decrease of
$31.3 million relates to the refinancing of substantially all of our debt in the first three months of 2010, which resulted in the net issuance of $60.0 million of additional debt, as
well as approximately $16.7 million of costs incurred for fees and expenses associated with the refinancing transactions. The decrease was partially offset by net draws of $12.0 million
under our revolving credit facility in the three months ended March 31, 2011.
Long-term Debt and Other Obligations
Overview.
At March 31, 2011, we had $462.7 million of total debt outstanding as follows:
-
•
-
$300.0 million of Reddy Corp's 11.25% senior secured notes due 2015;
-
•
-
$138.9 million of Reddy Corp's 13.25% senior secured notes due 2015 (net of unamortized early tender premium of
$0.6 million);
-
•
-
$11.7 million of Reddy Holdings' 10
1
/
2
% senior discount notes due November 1, 2012;
-
•
-
$12.0 million under Reddy Corp's revolving credit facility; and
-
•
-
$0.1 million in other notes payable.
11.25% Senior Secured Notes.
On March 15, 2010, Reddy Corp issued $300.0 million in aggregate principal amount of
11.25% Senior Secured
Notes due 2015 (the "First Lien Notes") in a private placement offering. The First Lien Notes were subsequently registered within the SEC effective August 2, 2010. Cash interest accrues on the
First Lien Notes at a rate of 11.25% per annum and is payable semi-annually in arrears on March 15 and September 15. The First Lien Notes mature on March 15, 2015. The
proceeds of the offering were used to repay certain of Reddy Corp's preexisting debt (see "Old Senior Credit Facilities" below), pay fees and expenses related to the transactions and provide the
Company with cash for future use.
The
First Lien Notes are senior secured obligations of Reddy Corp and are:
-
•
-
guaranteed by Reddy Holdings;
-
•
-
secured on a first-priority basis by liens on substantially all of the assets of Reddy Corp and Reddy Holdings;
-
•
-
senior in right of payment to all of Reddy Corp's and Reddy Holdings' future subordinated indebtedness;
and
-
•
-
effectively senior to all of Reddy Corp's and Reddy Holdings' existing and future unsecured senior indebtedness.
34
Table of Contents
The First Lien Notes include customary covenants that restrict, among other things, Reddy Corp's and its future subsidiaries' ability to incur additional debt or
issue certain preferred stock, pay dividends or redeem, repurchase or retire its capital stock or subordinated indebtedness, make certain investments, create liens, enter into arrangements that
restrict dividends from its subsidiaries, merge or sell all or substantially all of its assets or enter into various transactions with affiliates. From and after March 15, 2013, Reddy Corp may
redeem any or all of the First Lien Notes by paying a redemption premium, which is initially 5.625% of the principal amount of the First Lien Notes and declines to 0% for the period commencing on
March 15, 2014 and thereafter. Prior to March 15, 2013, Reddy Corp may redeem any or all of the First Lien Notes by paying a "make-whole" redemption premium. If Reddy Corp
experiences a change of control, Reddy Corp will be required to make an offer to repurchase the First Lien Notes at a price equal to 101% of their accreted value, plus accrued and unpaid interest, if
any, to the date of purchase. Reddy Corp may also be required to make an offer to purchase the First Lien Notes with proceeds of asset sales that are not reinvested in the Company's business or used
to repay other indebtedness.
The
indenture governing the First Lien Notes restricts the amount of dividends, distributions and other restricted payments Reddy Corp may make. Under the indenture, Reddy Corp is
restricted from paying dividends to Reddy Holdings unless, at the time of such payment:
-
•
-
no default or event of default has occurred and is continuing or would occur as a consequence thereof;
-
•
-
the first lien leverage ratio set forth in the indenture governing the First Lien Notes is less than or equal to 3.5 to
1.0; and
-
•
-
there is sufficient capacity under the buildup amount under the indenture governing the First Lien Notes.
The
first lien leverage ratio under the indenture governing the First Lien Notes means the ratio of first lien indebtedness (as defined in the indenture) to EBITDA (as defined in the
indenture) for the most recent four fiscal quarters. Reddy Corp is generally required to calculate its first lien leverage ratio on a pro forma basis to give effect to the incurrence and repayment of
indebtedness as well as acquisitions and dispositions. As of March 31, 2011, the first lien leverage ratio was 5.2 to 1.0.
The
buildup amount equals 50% of the consolidated net income of Reddy Corp accrued during the period (treated as one accounting period) from April 1, 2010 to the end of the most
recent fiscal quarter for which internal financial statements are available (or, if such consolidated net income is a deficit, minus 100% of such deficit), plus, the net cash proceeds to Reddy Corp of
the issuance of capital stock, subject to certain exceptions, and any cash capital contribution received by Reddy Corp from its stockholder, in each case after April 1, 2010, plus the amount by
which Reddy Corp indebtedness is reduced on its balance sheet as a result of the conversion or exchange of such indebtedness for capital stock, plus the net reduction in certain restricted investments
made by Reddy Corp, less the amount of certain restricted payments made from time to time, including, among other things, the payment of cash dividends. Reddy Corp is not currently permitted to pay
dividends under this provision.
In
addition, regardless of the leverage ratio or whether Reddy Corp could make any restricted payments under the buildup amount provision referred to above, Reddy Corp is permitted to
make certain restricted payments including (1) dividend payments at any time in an aggregate amount of up to $25.0 million if no default has occurred and is continuing under the
indenture, (2) the payment of interest when due on the remaining 10
1
/
2
% Senior Discount Notes and the repayment, redemption or retirement of remaining 10
1
/
2
%
Senior Discount Notes from the proceeds of certain indebtedness of Reddy Corp incurred after the date of issuance of the First Lien Notes, (3) the payment of dividends to Reddy Holdings in an
amount per year not to exceed $1.0 million to pay franchise taxes and
35
Table of Contents
overhead
expenses of Reddy Holdings and (4) the payment of dividends to Reddy Holdings in an amount per year not to exceed 6.0% of the aggregate net cash proceeds received by Reddy Corp from
all public equity offerings after the date of issuance of the First Lien Notes subject to specified conditions. However, the amount of dividend payments permitted under this 6.0% provision will
correspondingly reduce the amount otherwise available under the buildup amount for restricted payments, including dividends.
13.25% Senior Secured Notes.
On March 15, 2010, Reddy Corp issued $137.6 million in aggregate principal amount of
13.25% Senior Secured
Notes due 2015 (the "Second Lien Notes") in the initial settlement of a private placement exchange offer for the outstanding Discount Notes (the "Exchange Offer"). The Second Lien Notes were
subsequently registered within the SEC effective August 2, 2010. On March 24, 2010, Reddy Corp issued an additional $1.8 million in aggregate principal amount of Second Lien Notes
in the final settlement of the Exchange Offer. Reddy Corp received no cash proceeds from the issuance of the Second Lien Notes. Cash interest accrues on the Second Lien Notes at a rate of 13.25% per
annum and is payable semi-annually in arrears on May 1 and November 1, with the first payment occurring on November 1, 2010. The Second Lien Notes mature on
November 1, 2015. In connection with the Exchange Offer, the Company issued $0.6 million of Second Lien Notes to certain bondholders as an early tender premium (see
"10
1
/
2
% Senior Discount Notes" below for further information). These additional Second Lien Notes were not reflected in the Company's condensed consolidated balance sheet upon issuance,
but will be recognized as additional debt through interest expense over the term of the Second Lien Notes.
The
Second Lien Notes are senior secured obligations of Reddy Corp and are:
-
•
-
guaranteed by Reddy Holdings;
-
•
-
secured on a second-priority basis by liens on substantially all of the assets of Reddy Corp and Reddy Holdings;
-
•
-
senior in right of payment to all of Reddy Corp's and Reddy Holdings' future subordinated indebtedness; and
-
•
-
effectively senior to all of Reddy Corp's and Reddy Holdings' existing and future unsecured senior indebtedness.
The
Second Lien Notes include customary covenants that restrict, among other things, Reddy Corp's and its future subsidiaries' ability to incur additional debt or issue certain preferred
stock, pay dividends or redeem, repurchase or retire its capital stock or subordinated indebtedness, make certain investments, create liens, enter into arrangements that restrict dividends from its
subsidiaries, merge or sell all or substantially all of its assets or enter into various transactions with affiliates. From and after March 1, 2013, Reddy Corp may redeem any or all of the
Second Lien Notes by paying a redemption premium, which is initially 6.625% of the principal amount of the Second Lien Notes and declines to 0% for the period commencing on March 1, 2014 and
thereafter. Prior to March 1, 2013, Reddy Corp may redeem any or all of the Second Lien Notes by paying a "make-whole" redemption premium. If Reddy Corp experiences a change of
control, Reddy Corp will be required to make an offer to repurchase the Second Lien Notes at a price equal to 101% of their accreted value, plus accrued and unpaid interest, if any, to the date of
purchase. Reddy Corp may also be required to make an offer to purchase the Second Lien Notes with proceeds of asset sales that are not reinvested in the Company's business or used to repay other
indebtedness.
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The
indenture governing the Second Lien Notes restricts the amount of dividends, distributions and other restricted payments Reddy Corp may make. Under the indenture, Reddy Corp is
restricted from paying dividends to Reddy Holdings unless, at the time of such payment:
-
•
-
no default or event of default has occurred and is continuing or would occur as a consequence thereof;
-
•
-
the secured leverage ratio set forth in the indenture governing the Second Lien Notes is less than or equal to 6.0 to 1.0;
and
-
•
-
there is sufficient capacity under the buildup amount under the indenture governing the Second Lien Notes.
The
secured leverage ratio under the indenture governing the Second Lien Notes means the ratio of secured indebtedness (as defined in the indenture) to EBITDA (as defined in the
indenture) for the most recent four fiscal quarters. Reddy Corp is generally required to calculate its secured leverage ratio
on a pro forma basis to give effect to the incurrence and repayment of indebtedness as well as acquisitions and dispositions. As of March 31, 2011, the second lien leverage ratio was 7.5 to
1.0.
The
buildup amount equals 50% of the consolidated net income of Reddy Corp accrued during the period (treated as one accounting period) from April 1, 2010 to the end of the most
recent fiscal quarter for which internal financial statements are available (or, if such consolidated net income is a deficit, minus 100% of such deficit), plus, the net cash proceeds to Reddy Corp of
the issuance of capital stock, subject to certain exceptions, and any cash capital contribution received by Reddy Corp from its stockholder, in each case after April 1, 2010, plus the amount by
which Reddy Corp indebtedness is reduced on its balance sheet as a result of the conversion or exchange of such indebtedness for capital stock, plus the net reduction in certain restricted investments
made by Reddy Corp, less the amount of certain restricted payments made from time to time, including, among other things, the payment of cash dividends. Reddy Corp is not currently permitted to pay
dividends under this provision.
In
addition, regardless of the leverage ratio or whether Reddy Corp could make any restricted payments under the buildup amount provision referred to above, Reddy Corp is permitted to
make certain restricted payments including (1) dividend payments at any time in an aggregate amount of up to $25.0 million if no default has occurred and is continuing under the
indenture, (2) the payment of interest when due on the remaining Discount Notes and the repayment, redemption or retirement of remaining Discount Notes from the proceeds of certain indebtedness
of Reddy Corp incurred after the date of issuance of the Second Lien Notes, (3) the payment of dividends to Reddy Holdings in an amount per year not to exceed $1.0 million to pay
franchise taxes and overhead expenses of Reddy Holdings and (4) the payment of dividends to Reddy Holdings in an amount per year not to exceed 6.0% of the aggregate net cash proceeds received
by Reddy Corp from all public equity offerings after the date of issuance of the Second Lien Notes subject to specified conditions. However, the amount of dividend payments permitted under this 6.0%
provision will correspondingly reduce the amount otherwise available under the buildup amount for restricted payments, including dividends.
10
1
/
2
% Senior Discount Notes.
On October 27, 2004, Reddy Holdings issued $151 million in
aggregate principal amount at
maturity of 10
1
/
2
% Senior Discount Notes due 2012 (the "Discount Notes") in a private placement offering. The Discount Notes were subsequently registered with the SEC, effective
August 26, 2005. Each Discount Note had an initial accreted value of $663.33 per $1,000 principal amount at maturity. The accreted value of each Discount Note increased from the date of
issuance until November 1, 2008 at a rate of 10
1
/
2
% per annum such that the accreted value equaled the stated principal amount on November 1, 2008. Thereafter, cash
interest began accruing November 1, 2008 and is payable semi-annually in arrears on May 1 and November 1 at a rate of 10
1
/
2
% per annum. During the years
ended December 31, 2010 and 2009, Reddy Corp paid cash
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dividends
to Reddy Holdings in the amount of $6.7 million and $15.8 million, respectively, to fund the semi-annual interest payments on the Discount Notes. No dividends were
paid in the three months ended March 31, 2011.
On
February 22, 2010, Reddy Corp launched the Exchange Offer, offering $1,000 in aggregate principal amount of Second Lien Notes for each $1,000 of Discount Notes exchanged. In
addition, for Discount Notes exchanged on or prior to March 5, 2010, Reddy Corp offered an early tender premium of $5 in aggregate principal amount of Second Lien Notes for each $1,000 of
Discount Notes exchanged. In conjunction with the Exchange Offer, Reddy Corp solicited consents to eliminate substantially all of the restrictive covenants from the indenture governing the Discount
Notes. At the expiration of the Exchange Offer on March 19, 2010, approximately 92.2% of the aggregate principal amount of the Discount Notes had been tendered into the Exchange Offer.
Following the final settlement of the Exchange Offer, $11.7 million in aggregate principal amount of the Discount Notes remain outstanding.
The
Discount Notes are unsecured obligations of Reddy Holdings and are:
-
•
-
not guaranteed by Reddy Corp;
-
•
-
senior in right of payment to all of Reddy Holdings' future subordinated indebtedness;
-
•
-
equal in right of payment with any of Reddy Holdings' existing and future unsecured senior indebtedness;
-
•
-
effectively subordinated to Reddy Holdings' existing and future secured debt, including the debt under the First Lien
Notes, the Second Lien Notes and the credit facility, which are guaranteed on a secured basis by Reddy Holdings; and
-
•
-
structurally subordinated to all obligations and preferred equity of Reddy Corp.
As
of November 1, 2010, Reddy Holdings may redeem any or all of the Discount Notes without paying any redemption premium.
Senior Credit Facilities.
On March 15, 2010, Reddy Corp entered into a revolving credit facility with a syndicate of banks,
financial
institutions and other entities as lenders, including JPMorgan Chase Bank, N.A., as Administrative Agent (the "March 2010 Credit Facility"). The March 2010 Credit Facility provided for a
$35 million revolving credit facility. Under the March 2010 Credit Facility, Reddy Corp had the right to request the aggregate commitments to be increased to $50 million provided certain
conditions were met. On August 4, 2010, the aggregate commitments under the March 2010 Credit Facility were increased to $50 million.
The
March 2010 Credit Facility was an obligation of Reddy Corp and was guaranteed by Reddy Holdings. The March 2010 Credit Facility was scheduled to mature on January 31, 2014.
Principal
balances outstanding under the March 2010 Credit Facility bore interest per annum, at Reddy Corp's option, at the sum of the base rate or LIBOR plus the applicable margin. The
applicable margin for base rate loans was initially 3.75% and for LIBOR loans was initially 4.75%, with such applicable margins subject to reduction based upon the Company's net leverage ratio (as
defined in the March 2010 Credit Facility). The Company also paid (i) a quarterly fee on the average availability under the revolving credit facility at an annual rate of 0.875%, with such
availability fee subject to reduction based upon the Company's net leverage ratio, (ii) a $50,000 annual loan servicing fee, and (iii) an annual commitment fee of $0.2 million to
one of the lenders.
On
October 22, 2010, Reddy Corp and the lenders party thereto amended and restated the March 2010 Credit Facility (the "New Credit Facility"). The New Credit Facility provides for
a $50 million revolving credit facility. Macquarie Bank Limited ("Macquarie"), a lender under the March 2010 Credit
38
Table of Contents
Facility,
is currently the sole lender under the New Credit Facility. On December 10, 2010, Macquarie became the successor administrative agent under the New Credit Facility.
The
New Credit Facility provides that outstanding loans will bear interest at rates based on LIBOR plus an applicable margin of 7.0% per annum or, at the option of Reddy Corp, the Base
Rate, plus an applicable margin of 6.0% per annum, the relevant margin being the applicable margin. Swing line loans will bear interest at the Base Rate plus the applicable margin. LIBOR and Base
Rates are subject to floors of 1.5% and 2.5%, respectively. Interest on LIBOR loans is payable upon maturity of the LIBOR loan or on the last day of the quarter if the term of the LIBOR loan exceeds
90 days. Reddy Corporation will pay an anniversary fee on each anniversary of the effectiveness of the New Credit Facility equal to 1.0% of the commitments under the New Credit Facility on the
first anniversary and increasing on each subsequent anniversary by 0.5%, as well as a $50,000 quarterly loan servicing fee. Additionally, for each full calendar year beginning with 2011, if the
average balance outstanding under the New Credit Facility is less than $12.5 million for the calendar year, the Borrower shall pay to the
Lenders an amount equal to (x) the difference between the average balance outstanding and $12.5 million multiplied by (y) the average interest rate for LIBOR Loans during that
calendar year (determined based on average one month LIBOR rates as of the end of each quarter during such calendar year). The New Credit Facility will mature on October 22, 2014. At
March 31, 2011, the Company had $12.0 million outstanding and $38.0 million of availability under the New Credit Facility.
The
obligations under the New Credit Facility are fully and unconditionally guaranteed by Reddy Holdings and will also be guaranteed by any future domestic subsidiaries of Reddy Corp,
subject to certain exceptions.
The
New Credit Facility does not require any scheduled principal payments prior to its stated maturity date. Subject to certain conditions, mandatory repayments of the New Credit
Facility (and mandatory commitment reductions of the New Credit Facility) are required to be made with portions of the proceeds from (1) asset sales, (2) the issuance of debt securities
and (3) insurance and condemnation awards, subject to various exceptions. In the event of a change in control, as defined in the New Credit Facility, an event of default will occur under the
New Credit Facility.
The
New Credit Facility also contains affirmative and negative covenants applicable to Reddy Corp and its future subsidiaries, subject to materiality and other qualifications, baskets
and exceptions. The affirmative and negative covenants are substantially consistent with those contained in the March 2010 Credit Facility. The negative covenants, among other things, restrict the
ability of Reddy Corp to:
-
•
-
incur additional indebtedness or issue certain preferred shares;
-
•
-
create liens;
-
•
-
make investments;
-
•
-
pay dividends or make other restricted payments;
-
•
-
consolidate or merge or acquire or dispose of assets;
-
•
-
enter into transactions with affiliates;
-
•
-
permit consensual encumbrances or restrictions on Reddy Corp's restricted subsidiaries' ability to pay dividends or make
certain other payments to Reddy Corp; and
-
•
-
prepay certain indebtedness, including the First Lien Notes and the Second Lien Notes.
Under
the restricted payments covenant in the New Credit Facility, Reddy Corp is generally prohibited from paying dividends and otherwise transferring assets to Reddy Holdings. Reddy
Corp is permitted to pay certain limited dividends to Reddy Holdings, the proceeds of which must be used for specific purposes, such as to maintain Reddy Holdings' corporate existence, repurchase the
Discount
39
Table of Contents
Notes
and pay interest on the Discount Notes. Reddy Corp may also distribute certain investments to Reddy Holdings.
In
addition, Reddy Corp may also pay dividends to Reddy Holdings for specified purposes, including the payment of cash interest on the Discount Notes. The New Credit Facility (and the
March 2010 Credit Facility, while it was in effect) precludes Reddy Corp from declaring any dividends if an event of default under the credit facility has occurred and is continuing. In particular, it
will be an event of default under the New Credit Facility if Reddy Corp's leverage ratio (defined as the ratio of the outstanding balance of the New Credit Facility on the last day of each quarter to
EBITDA (as defined in the New Credit Facility) over the preceding four quarters) exceeds 2.50:1.00 as of the end of any quarter. The New Credit Facility requires the maintenance of a minimum liquidity
amount of $5 million at all times. Liquidity for purposes of this covenant is defined as the sum of available borrowing capacity under the New Credit Facility and unrestricted cash held by
Reddy Corp. The New Credit Facility is collateralized by substantially all of the Company's assets. Reddy Holdings guarantees the New Credit Facility and such guarantee is collateralized by a pledge
of substantially all of the assets of Reddy Holdings. At March 31, 2011, Reddy Corp was in compliance with the ratio requirements included in New Credit Facility.
Obligations
under the New Credit Facility may be declared immediately due and payable upon the occurrence of certain events of default as defined in the credit agreement, including
failure to pay any principal when due and payable, failure to pay interest within five (5) days after due, failure to comply with any covenant, representation or condition of any loan document,
any change of control, cross-defaults, and certain other events as set forth in the credit agreement, with grace periods in some cases.
An
acceleration of the indebtedness under the New Credit Facility would be an event of default under the First Lien Notes and Second Lien Notes if the outstanding balance of the New
Credit Facility at the time of acceleration is over $10 million.
At
March 31, 2011, Reddy Holdings had $11 million of cash on hand that was not subject to restrictions under our New Credit Facility.
EBITDA
as defined in our New Credit Facility is hereafter referred to as "Adjusted EBITDA".
The
following table presents Adjusted EBITDA for the twelve month period ended March 31, 2011 on a pro forma basis after giving effect to the adjustments related to the
acquisition or disposal of businesses which are permitted under the description of the definition of Leverage Ratio as set forth in the New Credit Facility. Adjusted EBITDA is different from EBITDA
that is derived solely from GAAP components. Adjusted EBITDA should not be construed as an alternative to net income (loss), cash flows from operations or net cash from operating or investing
activities as defined by GAAP, and it is not necessarily indicative of cash available to fund our cash needs as determined in accordance with GAAP. In addition, not all companies use identical
calculations, and this presentation may not be comparable to similarly titled measures of other companies. A reconciliation of net income to EBITDA and Adjusted EBITDA follows the table.
The
following table sets forth pro forma Adjusted EBITDA as calculated under our New Credit Facility and the financial covenants contained in the New Credit Facility:
|
|
|
|
|
|
Twelve Months
Ended March 31,
2011
|
|
|
(unaudited,
in thousands)
|
|
Pro forma adjusted EBITDA
|
|
$60,088
|
|
Leverage ratio
|
|
0.2 : 1.0
|
|
Minimum liquidity
|
|
$38,299
|
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