- Quarterly Report (10-Q)

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TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

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)


DELAWARE NEVADA (State or other jurisdiction of incorporation or organization)		56-2381368 75-2244985 (I.R.S. Employer Identification No.)

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.


Reddy Ice Holdings, Inc.		Yes ý No o
Reddy Ice Corporation		Yes ý No o

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.


Reddy Ice Holdings, Inc.		Yes ý No o
Reddy Ice Corporation		Yes ý No o

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.


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company ý

Reddy Ice Corporation


Large accelerated filer o		Accelerated filer o		Non-accelerated filer ý (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Reddy Ice Holdings, Inc.		Yes o No ý
Reddy Ice Corporation		Yes o No ý

The number of shares of registrant's common stock outstanding as of August 8, 2011 was:


Reddy Ice Holdings, Inc.		23,383,556 shares of common stock
Reddy Ice Corporation		100 shares of common stock

Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

REDDY ICE CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2011

TABLE OF CONTENTS



PART I—FINANCIAL INFORMATION
Item 1.	Reddy Ice Holdings, Inc. Condensed Consolidated and Reddy Ice Corporation Condensed Financial Statements	2
	Reddy Ice Holdings, Inc. Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010 (unaudited)	2
	Reddy Ice Holdings, Inc. Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 (unaudited)	3
	Reddy Ice Holdings, Inc. Condensed Consolidated Statement of Stockholders' Deficit for the six months ended June 30, 2011 (unaudited)	4
	Reddy Ice Holdings, Inc. Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited)	5
	Reddy Ice Corporation Condensed Balance Sheets as of June 30, 2011 and December 31, 2010 (unaudited)	6
	Reddy Ice Corporation Condensed Statements of Operations for the three and six months ended June 30, 2011 and 2010 (unaudited)	7
	Reddy Ice Corporation Condensed Statement of Stockholder's Deficit for the six months ended June 30, 2011 (unaudited)	8
	Reddy Ice Corporation Condensed Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited)	9
	Notes to condensed consolidated and Reddy Ice Corporation condensed financial statements for the three and six months ended June 30, 2011 and 2010 (unaudited)	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48
Item 4.	Controls and Procedures	48
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	(Removed and Reserved)	52
Item 5.	Other Information	52
Item 6.	Exhibits	52
SIGNATURES		53
INDEX TO EXHIBITS		54

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

			June 30, 2011			December 31, 2010

			(in thousands, except share data)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	10,455		$	42,173
	Accounts receivable, net			52,968			21,432
	Notes receivable from affiliate			1,253			—
	Inventories, parts and supplies			14,018			12,549
	Prepaid expenses and other current assets			5,291			3,849
	Assets held for sale			1,918			1,056
	Deferred tax assets			1,251			716

		Total current assets		87,154			81,775
RESTRICTED CASH				10,758			10,110
PROPERTY AND EQUIPMENT, net				197,605			204,898
GOODWILL				86,989			83,368
OTHER INTANGIBLES, net				75,303			72,204
INVESTMENTS				7,357			6,318
OTHER ASSETS, net				11,462			12,252

TOTAL			$	476,628		$	470,925

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
	Current portion of long-term obligations		$	1		$	1
	Revolving credit facility			30,100			—
	Accounts payable			22,159			15,290
	Accrued expenses			28,268			24,177

		Total current liabilities		80,528			39,468
LONG-TERM OBLIGATIONS				450,747			450,690
DEFERRED TAXES AND OTHER LIABILITIES, net				15,089			10,560
COMMITMENTS AND CONTINGENCIES (Note 11)				—			—
STOCKHOLDERS' DEFICIT:
	Preferred stock: 25,000,000 share authorized; no shares issued or outstanding			—			—
	Common stock, $0.01 par value; 75,000,000 shares authorized; 23,383,556 and 22,962,000 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			234			230
	Additional paid-in capital			226,308			225,208
	Accumulated deficit			(296,278	)		(255,231	)

		Total stockholders' deficit		(69,736	)		(29,793	)

TOTAL			$	476,628		$	470,925

See notes to condensed consolidated financial statements.

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REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,

		2011			2010			2011			2010
		(in thousands, except per share amounts)
Revenues		$	106,493		$	104,163		$	147,245		$	140,057
Cost of sales (excluding depreciation)			66,768			62,109			103,993			97,017
Depreciation expense related to cost of sales			7,480			5,647			15,188			10,961

Gross profit			32,245			36,407			28,064			32,079
Operating expenses			14,315			14,373			27,114			27,492
Depreciation and amortization expense			2,454			2,173			4,984			4,049
(Gain) loss on dispositions of assets			(114	)		1,170			(168	)		1,397
Impairment of long-lived assets			539			236			770			236
Acquisition expenses			1,844			208			2,447			210
Cost related to antitrust investigations and related litigation (Note 11)			731			1,130			2,152			2,043

Income (loss) from operations			12,476			17,117			(9,235	)		(3,348	)
Interest expense			(14,826	)		(14,320	)		(29,175	)		(21,579	)
Interest income			4			8			8			12
Debt refinance costs			—			(60	)		—			(6,168	)

Income (loss) before income taxes			(2,346	)		2,745			(38,402	)		(31,083	)
Income tax benefit (expense)			400			(613	)		(2,645	)		10,618

Net income (loss)		$	(1,946	)	$	2,132		$	(41,047	)	$	(20,465	)

Basic net income (loss) per share:
	Net income (loss)	$	(0.09	)	$	0.09		$	(1.81	)	$	(0.91	)

	Weighted average common shares outstanding		22,737			22,870			22,713			22,432

Diluted net income (loss) per share:
	Net income (loss)	$	(0.09	)	$	0.09		$	(1.81	)	$	(0.91	)

	Weighted average common shares outstanding		22,737			23,165			22,713			22,432

See notes to condensed consolidated financial statements.

Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

(Unaudited)

		Common Stock

		Number of Shares			Par Value		Additional Paid-In Capital			Accumulated Deficit			Total
							(in thousands)
Balance at January 1, 2011			22,962		$	230	$	225,208		$	(255,231	)	$	(29,793	)
Compensation expense related to stock-based awards			—			—		1,088			—			1,088
Issuance of restricted stock			344			3		(3	)		—			—
Forfeiture of restricted stock			(24	)		—		—			—			—
Issuance of vested shares to directors			96			1		(1	)		—			—
Common stock issued upon exercise of stock options			6			—		16			—			16
Comprehensive loss:
	Net loss		—			—		—			(41,047	)		(41,047	)

	Total comprehensive loss													(41,047	)

Balance at June 30, 2011			23,384		$	234	$	226,308		$	(296,278	)	$	(69,736	)

See notes to condensed consolidated financial statements.

Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

				Six Months Ended June 30,

				2011			2010
				(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss			$	(41,047	)	$	(20,465	)
	Adjustments to reconcile net loss to net cash used in operating activities (excluding working capital from acquisitions):
		Depreciation and amortization expense			20,172			15,010
		Amortization of debt issue costs and accretion of tender premium			1,522			1,212
		Debt refinance costs			—			6,168
		Deferred tax expense (benefit)			2,454			(10,618	)
		(Gain) loss on dispositions of assets			(168	)		1,397
		Decrease in fair value of diesel hedge			162			—
		Impairment of long-lived assets			770			236
		Stock-based compensation expense			1,208			1,031
		Change in working capital:
			Accounts receivable		(31,581	)		(22,110	)
			Inventory, parts and supplies		(777	)		(973	)
			Prepaid expenses and other current assets		(1,539	)		(392	)
			Accounts payable, accrued expenses and other		9,453			20,404

	Net cash used in operating activities				(39,371	)		(9,100	)

CASH FLOWS FROM INVESTING ACTIVITIES:
	Property and equipment additions				(9,154	)		(23,349	)
	Proceeds from dispositions of property and equipment				386			407
	Cost of equipment placed under operating leases				(956	)		—
	Reimbursement of the cost of equipment placed under operating leases				2,264			2,000
	Cost of acquisitions, net of cash acquired				(13,305	)		(9,160	)
	Other intangible assets additions				(11	)		—
	Increase in restricted cash				(648	)		(10,592	)
	Purchase of investments				(1,039	)		(1,400	)

	Net cash used in investing activities				(22,463	)		(42,094	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from the exercise of employee stock options				16			17
	Borrowings under the credit facility				60,725			—
	Repayments under the credit facility				(30,625	)		—
	Issuance of debt				—			300,000
	Debt issuance costs				—			(16,797	)
	Repayment of long-term obligations				—			(240,001	)

	Net cash provided by financing activities				30,116			43,219

NET DECREASE IN CASH AND CASH EQUIVALENTS					(31,718	)		(7,975	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD					42,173			44,649

CASH AND CASH EQUIVALENTS, END OF PERIOD				$	10,455		$	36,674

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash payments for interest			$	27,352		$	7,430

	Cash receipts of interest income			$	8		$	12

	Cash payments for income taxes, net			$	458		$	543

	Issuance of notes receivable—affiliate			$	(1,253	)		—

	Noncash increase in short-term financing			$	1,253			—

	Additions to property and equipment included in accounts payable			$	1,391		$	2,857

See notes to condensed consolidated financial statements.

Table of Contents

REDDY ICE CORPORATION

CONDENSED BALANCE SHEETS

(Unaudited)

			June 30, 2011			December 31, 2010

			(in thousands, except share data)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	1,023		$	30,153
	Accounts receivable, net			52,968			21,432
	Accounts receivable from Parent			306			19
	Notes receivable from affiliate			1,253			—
	Inventories, parts and supplies			14,018			12,549
	Prepaid expenses and other current assets			5,291			3,849
	Assets held for sale			1,918			1,056
	Deferred tax assets			1,251			716

		Total current assets		78,028			69,774
RESTRICTED CASH				10,758			10,110
PROPERTY AND EQUIPMENT, net				197,605			204,898
GOODWILL				86,989			83,368
OTHER INTANGIBLES, net				75,303			72,204
INVESTMENTS				7,357			6,318
OTHER ASSETS, net				11,386			12,149

TOTAL			$	467,426		$	458,821

LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
	Current portion of long-term obligations		$	1		$	1
	Revolving credit facility			30,100			—
	Accounts payable			21,984			14,375
	Accrued expenses			28,756			24,665

		Total current liabilities		80,841			39,041
LONG-TERM OBLIGATIONS				439,011			438,954
DEFERRED TAXES AND OTHER LIABILITIES, net				21,113			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 June 30, 2011 and December 31, 2010			—			—
	Additional paid-in capital			307,508			306,420
	Accumulated deficit			(381,047	)		(357,938	)

		Total stockholder's deficit		(73,539	)		(51,518	)

TOTAL			$	467,426		$	458,821

See notes to condensed financial statements.

Table of Contents

REDDY ICE CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,

	2011			2010			2011			2010
	(in thousands)
Revenues	$	106,493		$	104,163		$	147,245		$	140,057
Cost of sales (excluding depreciation)		66,768			62,109			103,993			97,017
Depreciation expense related to cost of sales		7,480			5,647			15,188			10,961

Gross profit		32,245			36,407			28,064			32,079
Operating expenses		14,315			14,373			27,114			27,492
Depreciation and amortization expense		2,454			2,173			4,984			4,049
(Gain) loss on dispositions of assets		(114	)		1,170			(168	)		1,397
Impairment of long-lived assets		539			236			770			236
Acquisition expenses		1,844			208			2,447			210

Income (loss) from operations		13,207			18,247			(7,083	)		(1,305	)
Interest expense		(14,504	)		(13,912	)		(28,530	)		(17,805	)
Interest income		4			8			8			11
Debt refinance costs		—			(60	)		—			(6,168	)

Income (loss) before income taxes		(1,293	)		4,283			(35,605	)		(25,267	)
Income tax benefit (expense)		370			(924	)		13,114			8,502

Net income (loss)	$	(923	)	$	3,359		$	(22,491	)	$	(16,765	)

See notes to condensed financial statements.

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			—		—		1,088		—			1,088
Dividend to Parent			—		—		—		(618	)		(618	)
Comprehensive loss:
	Net loss		—		—		—		(22,491	)		(22,491	)

	Total comprehensive loss											(22,491	)

Balance at June 30, 2011			—	$	—	$	307,508	$	(381,047	)	$	(73,539	)

See notes to condensed financial statements.

Table of Contents

REDDY ICE CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

				Six Months Ended June 30,

				2011			2010
				(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss			$	(22,491	)	$	(16,765	)
	Adjustments to reconcile net loss to net cash used in operating activities (excluding working capital from acquisitions):
		Depreciation and amortization expense			20,172			15,010
		Amortization of debt issue costs and accretion of tender premium			848			1,049
		Debt refinance costs			—			6,168
		Deferred tax benefit			(13,305	)		(8,502	)
		(Gain) loss on dispositions of assets			(168	)		1,397
		Decrease in fair value of diesel hedge			162			—
		Impairment of long-lived assets			770			236
		Stock-based compensation expense			1,208			1,031
		Change in working capital:
			Accounts receivable		(31,581	)		(28,710	)
			Inventory, parts and supplies		(777	)		(973	)
			Prepaid expenses and other current assets		(1,539	)		(394	)
			Accounts payable, accrued expenses and other		10,552			22,568

	Net cash used in operating activities				(36,149	)		(7,885	)

CASH FLOWS FROM INVESTING ACTIVITIES:
	Property and equipment additions				(9,154	)		(23,349	)
	Proceeds from dispositions of property and equipment				386			407
	Cost of equipment placed under operating leases				(956	)		—
	Reimbursement of the cost of equipment placed under operating leases				2,264			2,000
	Cost of acquisitions, net of cash acquired				(13,305	)		(9,160	)
	Other intangible assets additions				(11	)		—
	Increase in restricted cash				(648	)		(10,592	)
	Purchase of investments				(1,039	)		(1,400	)

	Net cash used in investing activities				(22,463	)		(42,094	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Dividends to Parent				(618	)		(6,038	)
	Borrowings under the credit facility				60,725			—
	Repayments under the credit facility				(30,625	)		—
	Issuance of debt				—			300,000
	Debt issuance costs				—			(16,797	)
	Repayment of long-term obligations				—			(240,001	)

	Net cash provided by financing activities				29,482			37,164

NET DECREASE IN CASH AND CASH EQUIVALENTS					(29,130	)		(12,815	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD					30,153			40,440

CASH AND CASH EQUIVALENTS, END OF PERIOD				$	1,023		$	27,625

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash payments for interest			$	26,734		$	1,481

	Cash receipts of interest income			$	8		$	10

	Cash payments for income taxes, net			$	458		$	543

	Issuance of notes receivable—affiliate			$	(1,253	)		—

	Noncash increase in short-term financing			$	1,253			—

	Additions to property and equipment included in accounts payable			$	1,391		$	2,857

See notes to condensed financial statements.

Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 and six months ended June 30, 2011 are not necessarily indicative of the results to be achieved for the full year.

2. Recently Adopted Accounting Pronouncements

In June of 2011, the FASB issue ASU 2011-05, Comprehensive Income . ASU 2011-05 requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. ASU 2011-05 will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-05 is not expected to have a material effect on the Company's consolidated financial statements.

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.

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REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010

2. Recently Adopted Accounting Pronouncements (Continued)

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 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 June 30, 2011, the Company purchased one ice company 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. Six acquisitions were completed during the three months ended June 30, 2010. During the six months ended June 30, 2011 and 2010, the Company completed nine and eight acquisitions, respectively. 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 June 30,					Six months ended June 30,

		2011			2010		2011			2010
		(in millions)
Purchase price		$	4.9		$	8.4	$	13.3		$	9.2
Assets acquired:
	Inventory		0.6			0.3		0.7			0.3
	Property and equipment		1.3			2.3		3.6			2.4
	Other assets		0.2			—		0.2			—
	Goodwill		2.1			1.2		3.9			1.3
	Other intangible assets		2.0			4.6		6.2			5.2

	Total assets acquired		6.2			8.4		14.6			9.2
Total liabilities assumed			(1.3	)		—		(1.3	)		—

Direct acquisition costs expensed		$	1.8		$	0.2	$	2.4		$	0.2

During the six months ended June 30, 2011, the Company recognized approximately $3.9 million of revenue from the businesses acquired in 2011.

The recorded purchase price allocation related to the acquisition completed during the three months ended June 30, 2011 is preliminary at June 30, 2011, pending further evaluation of market participant data and the fair values of certain equipment acquired. The Company recorded approximately $0.7 million of deferred tax liabilities in connection with this acquisition. In addition, as a result of the acquisition made during the three months ended June 30, 2011, the Company entered

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REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010

3. Acquisitions (Continued)

into an earn-out agreement, pursuant to which the Company is obligated to pay the former stockholder of the acquired entity up to $0.8 million in additional consideration if certain revenue targets are achieved by the purchased entity during the twelve months immediately following the acquisition. The fair value of the earn-out liability was estimated based on management's assessment of the weighted average probability that certain revenue targets will be achieved by the acquired entity. As a result, the Company recorded a $0.4 million contingent liability during the three months ended June 30, 2011.

The Company recorded $1.8 million of tax deductible goodwill recognized in connection with the acquisitions completed during the three months ended March 31, 2011. No tax deductible goodwill was recognized as a result of the acquisition completed during the three months ended June 30, 2011. 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 21.4 years. The acquisitions were funded out of the Company's operating cash flows, proceeds from debt offerings and borrowings under the revolving credit facility.

The following unaudited pro forma information presents the Reddy Holdings' consolidated results of operations for the three and six months ended June 30, 2011 and June 30, 2010 as if the 2011 and 2010 acquisitions had all occurred on January 1, 2010:

	Three Months Ended June 30,					Six Months Ended June 30,

	2011			2010		2011			2010
	(in thousands, except per share amounts)
Pro forma revenues	$	106,854		$	111,890	$	148,492		$	151,200
Pro forma net income (loss)	$	(2,112	)	$	3,615	$	(41,781	)	$	(19,761	)
Pro forma basic net income (loss) per share	$	(0.09	)	$	0.16	$	(1.84	)	$	(0.88	)
Pro forma diluted net income (loss) per share	$	(0.09	)	$	0.16	$	(1.84	)	$	(0.88	)

The following unaudited pro forma information presents Reddy Corp's results of operations for the three and six months ended June 30, 2011 and June 30, 2010 as if the 2011 and 2010 acquisitions had all occurred on January 1, 2010:

	Three Months Ended June 30,					Six Months Ended June 30,

	2011			2010		2011			2010
	(in thousands)
Pro forma revenues	$	106,854		$	111,890	$	148,492		$	151,200
Pro forma net income (loss)	$	(1,089	)	$	4,842	$	(23,225	)	$	(16,061	)

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

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REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010

4. Inventories, Parts and Supplies (Continued)

are valued at the lower of cost or market and include overhead allocations. Cost is determined using the first-in, first-out method.

		June 30, 2011		December 31, 2010

		(in thousands)
Raw materials		$	6,978	$	6,133
Finished goods			2,456		2,505
Parts and supplies			4,584		3,911

	Total	$	14,018	$	12,549

5. Accrued Expenses

		June 30, 2011		December 31, 2010

		(in thousands)
Accrued interest		$	13,632	$	13,336
Accrued compensation and employee benefits, including payroll taxes and workers compensation insurance			5,503		4,484
Accrued utilities			1,940		1,343
Accrued property, sales and other taxes			3,105		1,555
Other accrued insurance			2,317		2,169
Other			1,771		1,290

	Total	$	28,268	$	24,177

Included in "accrued interest" above are $0.2 million related to Reddy Holdings as of June 30, 2011 and December 31, 2010.

6. Revolving Credit Facility and Long-Term Obligations

At June 30, 2011 and December 31, 2010, long-term obligations of the Company consisted of the following:

		June 30, 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			(495	)		(553	)
10 ¹ / 2 % Senior Discount Notes			11,736			11,736
Other notes payable			100			101

Total long-term obligations			450,748			450,691
Less: Current maturities			1			1

	Long-term obligations, net	$	450,747		$	450,690

Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010

6. Revolving Credit Facility and Long-Term Obligations (Continued)

In addition, the Company had $30.1 million outstanding under the revolving credit facility as of June 30, 2011.

At June 30, 2011 and December 31, 2010, long-term obligations of Reddy Corp consisted of the following:

In addition, Reddy Corp had $30.1 million outstanding under the revolving credit facility as of June 30, 2011.

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 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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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:

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 June 30, 2011, the first lien leverage ratio was 5.9 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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 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 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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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.

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:

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 June 30, 2011, the second lien leverage ratio was 8.3 to 1.0.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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 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. During the six month period ended June 30, 2011 and 2010, Reddy Corp paid cash dividends to Reddy Holdings in the amount of $0.6 million and $6.0 million, respectively, to fund the semi-annual interest payments on the Discount Notes.

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.

As of November 1, 2010, Reddy Holdings may redeem any or all of the Discount Notes without paying any redemption premium.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (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 June 30, 2011, the Company had $30.1 million outstanding and $19.9 million of availability under the New Credit Facility. The weighted average interest rate on borrowings under on the New Credit Facility as of June 30, 2011 was 7.3%.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (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:

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (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 June 30, 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 and six months ended June 30, 2010, the Company recorded expense of $0.1 million and $6.2 million, respectively, for costs incurred in connection with refinancing activities related to its debt. Approximately $5.8 million of the expense incurred in the six months ended June 30, 2010 related to the exchange of the Discount Notes for the Second Lien Notes. The exchange was accounted for as a modification of debt.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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 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 June 30, 2011 and December 31, 2010, the fair value of the Company's long-term debt, was $445.7 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.

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 began 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. On May 6, 2011, the Company entered into an additional hedge to fix the price per gallon of a portion of the Company's diesel fuel requirements (the "Second Diesel Hedge"). The Second Diesel Hedge began June 1, 2011 and expires on December 31, 2012. The notional amount of gallons hedged changes on a monthly basis to match anticipated utilization and totals 1.1 million gallons. The Company will pay a weighted average fixed price of $3.04 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 hedges to minimize the risk of rising fuel prices. The hedges are not for trading purposes and are accounted for as economic hedges and were not designated as hedging instruments.

The Company carries the hedges at fair value on its balance sheet and considers its own credit risk in the valuation of the diesel hedges. 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 hedges are included in the caption "Cost of Sales (excluding depreciation)" on the consolidated statements of operations and unrealized gains and losses are presented in the operating activities section of the statements of cash flows.

The Fair Value Measurements and Disclosures Topic of the Codification establishes a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

The Diesel Hedges are a level 2 fair value measure and are valued using the income approach to calculate the present value of the future cash flows expected to be paid under the hedge. The value of the fixed leg is the present value of the known fixed payments discounted at a market interest rate. The value of the floating leg is the present value of the projected floating payments based on the forward diesel prices discounted at a market interest rate.

The following table presents the location of all liabilities associated with the Company's derivative instruments within the Condensed Consolidated Balance Sheet:

The following tables present the impact of derivative instruments and their location within the condensed consolidated financial statements:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


Level 1:		Unadjusted quoted market prices in active markets for identical assets or liabilities.
Level 2:		Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3:		Unobservable inputs for the asset or liability.



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%

	Percentage of Revenues

	2011			2010
Labor costs, including associated payroll taxes and benefit costs (including health insurance)		20	%		21	%
Plastic bags		5	%		6	%
Operating leases (including vehicles, plant equipment and ISB equipment)		5	%		4	%
Fuel		5	%		4	%
Independent third party distribution services		6	%		6	%
Maintenance		4	%		3	%
Vehicle maintenance and insurance claims		2	%		2	%
Electricity		5	%		4	%

	Percentage of Revenues

	2011			2010
Labor costs, including associated payroll taxes and benefit costs (including health insurance)		24	%		26	%
Plastic bags		6	%		6	%
Operating leases (including vehicles, plant equipment and ISB equipment)		7	%		6	%
Fuel		5	%		4	%
Independent third party distribution services		6	%		6	%
Maintenance		5	%		5	%
Vehicle maintenance and insurance claims		2	%		2	%
Electricity		5	%		5	%

		Twelve Months Ended June 30, 2011

		(unaudited, in thousands)
Pro forma adjusted EBITDA		$56,313
Leverage ratio		0.5 : 1.0
Minimum liquidity		$14,601

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		Liability Derivatives

		Six months ended June 30,
	Balance Sheet location	2011			2010
		(in thousands)
Diesel hedges	Accrued Expenses	$	(162	)	$	—

	Derivatives not designated as Hedging Instruments under ASC 718

	Amount of Loss Recognized in Condensed Consolidated Statements of Operations					Amount of Loss Recognized in Condensed Consolidated Statements of Operations
	Three months ended June 30,					Six months ended June 30,
	Three months ended June 30,					Six months ended June 30,					Location of Loss Recognized in Condensed Consolidated Statements of Operations
	2011			2010		2011			2010
	(in thousands)
Diesel hedges:
Non-cash change in fair value	$	(178	)	$	—	$	(162	)	$	—
Cash settlements		(30	)		—		(30	)		—

Total recognized loss	$	(208	)	$	—	$	(192	)	$	—	Cost of sales (excluding depreciation)

	Three Months Ended June 30,						Change from Last Year

	2011			2010			Dollars			%
	(in thousands)
Revenues	$	106,493		$	104,163		$	2,330			2.2
Cost of sales (excluding depreciation)		66,768			62,109			4,659			7.5
Depreciation expense related to cost of sales		7,480			5,647			1,833			32.5

Gross profit		32,245			36,407			(4,162	)		(11.4	)
Operating expenses		14,315			14,373			(58	)		(0.4	)
Depreciation and amortization expense		2,454			2,173			281			12.9
(Gain) loss on dispositions of assets		(114	)		1,170			(1,284	)		(109.7	)
Impairment of long-lived assets		539			236			303			128.4
Acquisition expenses		1,844			208			1,636			786.5
Cost related to antitrust investigations and related litigation		731			1,130			(399	)		(35.3	)

Income (loss) from operations		12,476			17,117			(4,641	)		(27.1	)
Interest expense, net		(14,822	)		(14,312	)		(510	)		(3.6	)
Debt refinance costs		—			(60	)		60			100.0

Income (loss) before income taxes		(2,346	)		2,745			(5,091	)		(185.5	)
Income tax benefit (expense)		400			(613	)		1,013			165.3

Net income (loss)	$	(1,946	)	$	2,132		$	(4,078	)		(191.3	)

		Twelve Months Ended June 30, 2011

		(unaudited, in thousands)
Net loss		$	(61,071	)
Depreciation expense related to cost of sales			30,315
Depreciation and amortization expense			9,737
Interest expense			57,674
Interest income			(16	)
Income tax benefit			(4,274	)

EBITDA			32,365
Other non-cash items:
	Stock-based compensation expense(a)		2,252
	Loss on dispositions of assets		1,034
	Impairment of long-lived assets		11,112
	Decrease in fair value of derivative		162
	Gain on bargain purchase		(232	)
	Acquisition expense		3,412
	Debt refinance costs		2,671
Reddy Holdings items:
	Cost related to antitrust investigations and related litigation(b)		(15	)

Adjusted EBITDA			52,761
Acquisition adjustments(c)			3,552

Pro forma adjusted EBITDA		$	56,313


	REDDY ICE HOLDINGS, INC.
Date: August 11, 2011	By:	/s/ GILBERT M. CASSAGNE Gilbert M. Cassagne Chief Executive Officer
Date: August 11, 2011	By:	/s/ STEVEN J. JANUSEK Steven J. Janusek Chief Financial and Accounting Officer

Exhibit No.			Description

	31.1†		Rules 13a-14(a) and 15d-14(a) Certification of Chief Executive Officer of Reddy Ice Holdings, Inc. and Reddy Ice Corporation, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2†		Rules 13a-14(a) and 15d-14(a) Certification of Chief Financial Officer of Reddy Ice Holdings, Inc. and Reddy Ice Corporation, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1†		Section 1350 Certification of Chief Executive Officer of Reddy Ice Holdings, Inc. and Reddy Ice Corporation, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2†		Section 1350 Certification of Chief Financial Officer of Reddy Ice Holdings, Inc. and Reddy Ice Corporation, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101†		The following financial information from the Company's Quarterly Report on Form 10-Q, for the period ended June 30, 2011, formatted in eXtensible Business Reporting Language: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Stockholder's Deficit, (iv) Condensed Consolidated Statements of Cash Flow, (v) Reddy Ice Corporation Condensed Balance Sheet, (vi) Reddy Ice Corporation Statements of Operations, (vii) Reddy Ice Corporation Statement of Stockholder's Equity, (viii) Reddy Ice Corporation Statements of Cash Flows, (ix) Notes to condensed consolidated and Reddy Ice Corporation condensed financial statements.