Use these links to rapidly review the documentTABLE OF CONTENTS

Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 oReddy 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 as this time.

Reddy Ice Holdings, Inc.

Yes o    No o*Reddy Ice Corporation

Yes o    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 ýReddy Ice Corporation

Yes o    No ý


The
number of shares of registrant's common stock outstanding as of November 2, 2010 was:

Reddy Ice Holdings, Inc.

22,944,084 shares of common stockReddy 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 SEPTEMBER 30, 2010

TABLE OF CONTENTS



PagePART IFINANCIAL INFORMATIONItem 1.

Condensed Consolidated Financial Statements


2Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009 (unaudited)


2Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009 (unaudited)


3Condensed Consolidated Statement of Stockholders' Equity (Deficit) for the nine months ended September 30, 2010 (unaudited)


4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)


5Reddy Ice Corporation Condensed Balance Sheets as of September 30, 2010 and December 31, 2009 (unaudited)


6Reddy Ice Corporation Condensed Statements of Operations for the three and nine months ended September 30, 2010 and 2009 (unaudited)


7Reddy Ice Corporation Condensed Statement of Stockholder's Equity (Deficit) for the nine months ended September 30, 2010 (unaudited)


8Reddy Ice Corporation Condensed Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)


9Notes to condensed consolidated and Reddy Ice Corporation financial statements for the three and nine months ended September 30, 2010 and
2009 (unaudited)


10Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations


32Item 3.

Quantitative and Qualitative Disclosures about Market Risk


50Item 4.

Controls and Procedures


50PART IIOTHER INFORMATIONItem 1.

Legal Proceedings


51Item 1A.

Risk Factors


54Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


55Item 3.

Defaults Upon Senior Securities


55Item 4.

(Removed and Reserved)


55Item 5.

Other Information


55Item 6.

Exhibits


55SIGNATURES


56INDEX TO EXHIBITS


57


1

---





Table of Contents

PART IFINANCIAL INFORMATION

Item 1.    Financial Statements



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY        CONDENSED CONSOLIDATED BALANCE SHEETS        (Unaudited)

September 30,
2010

December 31,
2009(in thousands, except
share data)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
52,798

$
44,649Accounts receivable, net


40,763


26,289Inventories, parts and supplies


11,937


11,057Prepaid expenses and other current assets


4,622


3,840Assets held for sale


920


Deferred tax assets


1,702


1,744Total current assets


112,742


87,579RESTRICTED CASH


10,340


PROPERTY AND EQUIPMENT, net


221,524


215,853GOODWILL


81,143


79,493OTHER INTANGIBLES, net


72,400


70,429INVESTMENTS


4,873


1,648OTHER ASSETS, net


11,790


663TOTAL

$
514,812

$
455,665LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT LIABILITIES:Current portion of long-term obligations

$
1

$
1Revolving credit facility





Accounts payable


15,396


13,536Accrued expenses


29,063


13,620Total current liabilities


44,460


27,157LONG-TERM OBLIGATIONS


450,662


390,601DEFERRED TAXES AND OTHER LIABILITIES, net


20,929


29,111COMMITMENTS AND CONTIGENCIES (Note 12)





STOCKHOLDERS' EQUITY (DEFICIT):Preferred stock: 25,000,000 share authorized; no shares issued or outstanding





Common stock, $0.01 par value; 75,000,000 shares authorized; 22,951,252 and 22,579,016 shares issued and outstanding at September 30, 2010 and
December 31, 2009, respectively


230


226Additional paid-in capital


224,748


223,312Accumulated deficit


(226,217
)

(214,742
)Total stockholders' equity (deficit)


(1,239
)

8,796TOTAL

$
514,812

$
455,665


See
notes to condensed consolidated financial statements.

2

---





Table of Contents



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,2010

2009

2010

2009(in thousands, except per share amounts)Revenues

$
120,147

$
115,446

$
260,204

$
257,591Cost of sales (excluding depreciation)


71,770


64,851


168,787


157,554Depreciation expense related to cost of sales


5,694


5,494


16,655


15,788Gross profit


42,683


45,101


74,762


84,249Operating expenses


14,358


12,690


41,850


38,090Depreciation and amortization expense


2,435


1,772


6,484


5,211Loss on dispositions of assets


1,035


145


2,432


602Impairment of assets


514





750


Acquisition expenses


414





624


(Gain) loss on diesel hedge





144





(581
)Cost (insurance recoveries) related to antitrust investigations and related litigation, net (Note 12)


(3,867
)

735


(1,824
)

4,075Income from operations


27,794


29,615


24,446


36,852Interest expense


(14,099
)

(6,231
)

(35,678
)

(20,709
)Interest income


3


18


15


124Gain on bargain purchase


264





264


Debt refinance costs


(310
)




(6,478
)

Income (loss) before income taxes


13,652


23,402


(17,431
)

16,267Income tax (expense) benefit


(4,662
)

(13,414
)

5,956


(10,008
)Net income (loss)

$
8,990

$
9,988

$
(11,475
)
$
6,259Basic net income (loss) per share:Net income (loss)

$
0.39

$
0.44

$
(0.51
)
$
0.28Weighted average common shares outstanding


22,949


22,502


22,450


22,291Diluted net income (loss) per share:Net income (loss)

$
0.39

$
0.44

$
(0.51
)
$
0.28Weighted average common shares outstanding


23,058


22,683


22,450


22,434


See
notes to condensed consolidated financial statements.

3

---





Table of Contents



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY        CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)        (Unaudited)

Common StockNumber
of
Shares

Par
Value

Additional
Paid-In
Capital

Accumulated
Deficit

Total(in thousands)Balance at January 1, 2010


22,579

$
226

$
223,312

$
(214,742
)
$
8,796Compensation expense related to stock-based awards








1,423





1,423Issuance of restricted stock


299


3


(3
)




Forfeiture of restricted stock


(18
)










Vesting of restricted stock units


15











Issuance of vested shares to directors


69


1


(1
)




Common stock issued upon exercise of stock options


7





17





17Comprehensive loss:Net loss











(11,475
)

(11,475
)Total comprehensive loss














(11,475
)Balance at September 30, 2010


22,951

$
230

$
224,748

$
(226,217
)
$
(1,239
)


See
notes to condensed consolidated financial statements.

4

---





Table of Contents



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (Unaudited)

Nine Months Ended
September 30,2010

2009(in thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income

$
(11,475
)
$
6,259Adjustments to reconcile net (loss) income to net cash provided by operating activities (excluding working capital from acquisitions):Depreciation and amortization expense


23,139


20,999Amortization of debt issue costs and accretion of tender premium


1,946


1,093Gain on bargain purchase


(264
)

Debt refinance costs


6,478


Deferred tax expense (benefit)


(6,153
)

9,835Loss on dispositions of assets


2,432


602Impairment of assets


750


Increase in fair value of diesel hedge





(290
)Stock-based compensation expense


1,423


1,662Change in working capital:Accounts receivable


(14,476
)

(6,484
)Inventory, parts and supplies


(452
)

574Prepaid expenses and other current assets


(1,358
)

(2,541
)Accounts payable, accrued expenses and other


16,515


(3,401
)Net cash provided by operating activities


18,505


28,308CASH FLOWS FROM INVESTING ACTIVITIES:Property and equipment additions


(28,190
)

(20,669
)Proceeds from dispositions of property and equipment


490


343Cost of equipment placed under operating leases


(4,002
)

(5,994
)Reimbursement of the cost of equipment placed under operating leases


6,002


5,994Cost of acquisitions, net of cash acquired


(12,637
)

Other intangible assets additions


(189
)

Restricted cash


(10,340
)

Issuance of note receivable





(450
)Collection of note receivable





483Purchase of investments


(3,225
)

(1,105
)Net cash used in investing activities


(52,091
)

(21,398
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from the exercise of employee stock options


17


Repurchase and retirement of common stock





(27
)Issuance of debt


300,000


Debt issuance costs


(18,281
)

Repayment of long-term obligations


(240,001
)

Net cash provided by (used in) financing activities


41,735


(27
)NET INCREASE IN CASH AND CASH EQUIVALENTS


8,149


6,883CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


44,649


39,684CASH AND CASH EQUIVALENTS, END OF PERIOD

$
52,798

$
46,567SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash payments for interest

$
24,327

$
18,718Cash receipts of interest income

$
15

$
107Cash payments for income taxes

$
543

$
658Borrowings under the credit facility

$


$
6,667Repayments on the credit facility

$


$
(6,667
)Increase in fair value of interest rate hedges

$


$
2,152Additions to property and equipment included in accounts payable

$
663

$
1,130


See notes to condensed consolidated financial statements.

5

---





Table of Contents



REDDY ICE CORPORATION        CONDENSED BALANCE SHEETS        (Unaudited)

September 30,
2010

December 31,
2009(in thousands, except
share data)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
39,901

$
40,440Accounts receivable, net


40,763


19,689Accounts receivable from Parent


19


20Inventories, parts and supplies


11,937


11,057Prepaid expenses and other current assets


4,622


3,839Assets held for sale


920


Deferred tax assets


1,702


1,744Total current assets


99,864


76,789RESTRICTED CASH


10,340


PROPERTY AND EQUIPMENT, net


221,524


215,854GOODWILL


81,143


79,493OTHER INTANGIBLES, net


72,283


68,377INVESTMENTS


4,873


1,648OTHER ASSETS, net


11,790


663TOTAL

$
501,817

$
442,824LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)CURRENT LIABILITIES:Current portion of long-term obligations

$
1

$
1Revolving credit facility





Accounts payable


14,307


12,691Accrued expenses


29,243


11,679Total current liabilities


43,551


24,371LONG-TERM OBLIGATIONS


438,926


240,101DEFERRED TAXES AND OTHER LIABILITIES, net


47,370


54,589COMMITMENTS AND CONTIGENCIES (Note 12)





STOCKHOLDER'S EQUITY (DEFICIT):Common stock, $0.01 par value; 1,000 shares authorized; 100 shares issued and outstanding at September 30, 2010 and December 31, 2009





Additional paid-in capital


305,960


302,782Accumulated deficit


(333,990
)

(179,019
)Total stockholder's equity (deficit)


(28,030
)

123,763TOTAL

$
501,817

$
442,824


See
notes to condensed financial statements.

6

---





Table of Contents



REDDY ICE CORPORATION        CONDENSED STATEMENTS OF OPERATIONS        (Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,2010

2009

2010

2009(in thousands)Revenues

$
120,147

$
115,446

$
260,204

$
257,591Cost of sales (excluding depreciation)


71,770


64,851


168,787


157,554Depreciation expense related to cost of sales


5,694


5,494


16,655


15,788Gross profit


42,683


45,101


74,762


84,249Operating expenses


14,358


12,690


41,850


38,090Depreciation and amortization expense


2,435


1,772


6,484


5,211Loss on dispositions of assets


1,035


145


2,432


602Impairment of assets


514





750


Acquisition expenses


414





624


(Gain) loss on diesel hedge





144





(581
)Income from operations


23,927


30,350


22,622


40,927Interest expense


(13,776
)

(2,100
)

(31,582
)

(8,314
)Interest income


3


14


14


85Gain on bargain purchase


264





264


Debt refinance costs


(310
)




(6,478
)

Income (loss) before income taxes


10,108


28,264


(15,160
)

32,698Income tax (expense) benefit


(3,511
)

(11,388
)

4,991


(13,215
)Net income (loss)

$
6,597

$
16,876

$
(10,169
)
$
19,483


See
notes to condensed financial statements.

7

---





Table of Contents



REDDY ICE CORPORATION        CONDENSED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)        (Unaudited)

Common StockNumber
of
Shares

Par
Value

Additional
Paid-In
Capital

Accumulated
Deficit

Total(in thousands)Balance at January 1, 2010




$


$
302,782

$
(179,019
)
$
123,763Compensation expense related to stock-based awards








1,423





1,423Dividend to Parent











(6,038
)

(6,038
)Contribution from Parent








1,755





1,755Assumption of Parent debt











(138,764
)

(138,764
)Comprehensive loss:Net loss











(10,169
)

(10,169
)Total comprehensive loss














(10,169
)Balance at September 30, 2010




$


$
305,960

$
(333,990
)
$
(28,030
)


See
notes to condensed financial statements.

8

---





Table of Contents



REDDY ICE CORPORATION        CONDENSED STATEMENTS OF CASH FLOWS        (Unaudited)

Nine Months Ended
September 30,2010

2009(in thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income

$
(10,169
)
$
19,483Adjustments to reconcile net (loss) income to net cash provided by operating activities (excluding working capital from acquisitions):Depreciation and amortization expense


23,139


20,999Amortization of debt issue costs and accretion of tender premium


1,768


550Gain on bargain purchase


(264
)

Debt refinance costs


6,478


Deferred tax (benefit) expense


(5,189
)

13,042Loss on dispositions of assets


2,432


602Impairment of assets


750


Increase in fair value of diesel hedge





(290
)Stock-based compensation expense


1,423


1,662Change in working capital:Accounts receivable


(21,076
)

(6,473
)Inventory, parts and supplies


(452
)

574Prepaid expenses and other current assets


(1,358
)

(2,541
)Accounts payable, accrued expenses and other


18,390


(3,879
)Net cash provided by operating activities


15,872


43,729CASH FLOWS FROM INVESTING ACTIVITIES:Property and equipment additions


(28,190
)

(20,669
)Proceeds from dispositions of property and equipment


490


343Cost of equipment placed under operating leases


(4,002
)

(5,994
)Reimbursement of the cost of equipment placed under operating leases


6,002


5,994Cost of acquisitions, net of cash acquired


(12,637
)

Other intangible assets additions


(189
)

Restricted cash


(10,340
)

Issuance of note receivable





(450
)Collection of note receivable





483Purchase of investments


(3,225
)

(1,105
)Net cash used in investing activities


(52,091
)

(21,398
)CASH FLOWS FROM FINANCING ACTIVITIES:Dividends to Parent


(6,038
)

(7,901
)Issuance of debt


300,000


Debt issuance costs


(18,281
)

Repayment of long-term obligations


(240,001
)

Net cash provided by (used in) financing activities


35,680


(7,901
)NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS


(539
)

14,430CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


40,440


27,638CASH AND CASH EQUIVALENTS, END OF PERIOD

$
39,901

$
42,068SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash payments for interest

$
18,377

$
10,808Cash receipts of interest income

$
13

$
70Cash payments for income taxes

$
543

$
658Borrowings under the credit facility

$


$
6,667Repayments on the credit facility

$


$
(6,667
)Increase in fair value of interest rate hedges

$


$
2,152Additions to property and equipment included in accounts payable

$
663

$
1,130


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 AND NINE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009

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, 2009 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 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. The financial statements included herein should be read in conjunction with the consolidated financial
statements and the related notes thereto included in the Company's Amended Registration Statement on Form S-4 (File No. 333-168190) filed on July 30, 2010.
Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results to be achieved for the full year.

2. Recently Adopted and New Accounting Pronouncements

In December 2009, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2009-17, "Consolidations (Topic 810)Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities." ASU 2009-17 changes how a reporting entity determines when an entity that is insufficiently capitalized or
is not controlled through voting (or similar rights) should be consolidated. ASU 2009-17 also requires a reporting entity to provide additional disclosures about its involvement with
variable interest entities and any significant changes in risk exposure due to that involvement. ASU 2009-17 is effective for fiscal years beginning after November 15, 2009 and for
interim periods within the first annual reporting period. The adoption of ASU 2009-17 on January 1, 2010 did not have a material effect on the Company's results of operations and
financial position.

3. Acquisitions

During the three and nine months ended September 30, 2010, the Company purchased three and eleven ice companies, respectively, in connection with its ongoing program of acquiring
ice businesses. 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.

10

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

3. Acquisitions (Continued)

The recorded
purchase price allocations are preliminary at September 30, 2010, pending further evaluation of market participant data and the fair values of certain equipment acquired. No
acquisitions were completed during the three or nine months ended September 30, 2009. 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
September 30,

Nine Months
Ended
September 30,2010

2009

2010

2009(in millions)Purchase price

$
3.5

$


$
12.6

$
Assets acquired:Inventory


0.1





0.4


Property and equipment


1.6





4.1


Goodwill


0.5





1.7


Other intangible assets


1.6





6.7


Total assets acquired


3.8





12.9


Liabilities assumed











Net assets acquired

$
3.8

$


$
12.9

$
Direct acquisition costs expensed

$
0.4





0.6


Gain on bargain purchase

$
(0.3
)
$


$
(0.3
)
$



The
Company recognized a gain on bargain purchase in one of its acquisitions in 2010, which was largely driven by depressed market conditions. The amount of tax deductible goodwill
recognized in connection with the transactions described above is $0.5 million and $1.7 million for the three and nine months ended September 30, 2010. Other intangible assets
were comprised of customer lists and non-compete agreements, which are being amortized over useful lives of two to 30 years, with a weighted average useful life of
19.2 years. The acquisitions were funded out of the Company's operating cash flows and proceeds from debt offerings.

The
following unaudited pro forma information presents the Reddy Holdings' consolidated results of operations (i) for the three and nine months ended September 30, 2010 as
if the 2010 acquisitions

11

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

3. Acquisitions (Continued)

had
all occurred on January 1, 2010 and (ii) for the three and nine months ended September 30, 2009 as if the 2010 and 2009 acquisitions had all occurred on January 1,
2009:

Three Months Ended
September 30,

Nine Months Ended
September 30,2010

2009

2010

2009(in thousands, except per share amounts)Pro forma revenues

$
120,809

$
120,672

$
264,569

$
268,002Pro forma net income (loss)

$
9,115

$
10,873

$
(10,886
)
$
7,427Pro forma basic net income (loss) per share

$
0.40

$
0.48

$
(0.48
)
$
0.33Pro forma diluted net income (loss) per share

$
0.40

$
0.48

$
(0.48
)
$
0.33


The
following unaudited pro forma information presents Reddy Corp's results of operations (i) for the three and nine months ended September 30, 2010 as if the 2010
acquisitions had all occurred on January 1, 2010 and (ii) for the three and nine months ended September 30, 2009 as if the 2010 and 2009 acquisitions had all occurred on
January 1, 2009:

Three Months Ended
September 30,

Nine Months Ended
September 30,2010

2009

2010

2009(in thousands, except per share amounts)Pro forma revenues

$
120,809

$
120,672

$
264,569

$
268,002Pro forma net income (loss)

$
6,722

$
17,761

$
(9,580
)
$
20,651


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.

September 30,
2010

December 31,
2009(in thousands)Raw materials

$
5,768

$
5,190Finished goods


2,281


2,494Parts and supplies


3,888


3,373Total

$
11,937

$
11,057


12

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

5. Accrued Expenses

September 30,
2010

December 31,
2009(in thousands)Accrued interest

$
12,180

$
2,839Accrued compensation and employee benefits, including payroll taxes and workers compensation insurance


4,701


4,171Accrued utilities


2,082


1,924Accrued property, sales and other taxes


5,373


1,488Other accrued insurance


2,067


1,704Other


2,660


1,494Total

$
29,063

$
13,620


Included
in "accrued interest" above are $0.5 million and $2.6 million related to Reddy Holdings as of September 30, 2010 and December 31, 2009, respectively.
The Reddy Corp stand alone financials include approximately $0.7 million of additional tax accruals within accrued property, sales and other taxes as of September 30, 2010.

6. Revolving Credit Facility and Long-Term Obligations

At September 30, 2010 and December 31, 2009, long-term obligations of the Company consisted of the following:

September 30,
2010

December 31,
2009(in thousands)11.25% Senior Secured Notes

$
300,000

$
13.25% Senior Secured Notes


139,407


Less: Unamortized early tender premium on 13.25% Senior Secured Notes


(581
)

Old credit facilitiesTerm Loan





240,000101/2% Senior Discount Notes


11,736


150,500Other Notes Payable


101


102Total long-term obligations


450,663


390,602Less: Current maturities


1


1Long-term obligations, net

$
450,662

$
390,601


13

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

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

At
September 30, 2010 and December 31, 2009, long-term obligations of Reddy Corp consisted of the following:

September 30,
2010

December 31,
2009(in thousands)11.25% Senior Secured Notes


300,000


13.25% Senior Secured Notes


139,407


Less: Unamortized early tender premium on 13.25% Senior Secured Notes


(581
)

Old credit facilitiesTerm Loan

$


$
240,000Other Notes Payable


101


102Total long-term obligations


438,927


240,102Less: Current maturities


1


1Long-term obligations, net

$
438,926

$
240,101


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:



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 AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

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:



The
first lien leverage ratio under the indenture governing the First Lien Notes means the ratio of EBITDA (as defined in the indenture) for the most recent four fiscal quarters to first
lien indebtedness (as defined in the indenture) as of the end of such four quarter period. 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.

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 101/2% Senior Discount Notes and the repayment, redemption or retirement of remaining 101/2%
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

15

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

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

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
"101/2% 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:



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

16

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

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

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 EBITDA (as defined in the indenture) for the most recent four fiscal quarters to
secured indebtedness (as defined in the indenture) as of the end of such four quarter period. 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.

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.

17

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

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

101/2% Senior Discount Notes.On October 27, 2004, Reddy Holdings issued $151 million in
aggregate principal amount at
maturity of 101/2% 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 101/2% 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 at a rate of 101/2% per annum. During the nine month period ended September 30, 2010,
Reddy Corp paid cash dividends to Reddy Holdings in the amount of $6.0 million to fund the semi-annual interest payments on the Discount Notes. No interest payments were made during
the three months ended September 30, 2010.

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:



From
and after November 1, 2008, Reddy Holdings may redeem any or all of the Discount Notes by paying a redemption premium, which was initially 5.25% of the principal amount at
maturity of the Discount Notes and declined annually to 0% for the period commencing on November 1, 2010 and thereafter. For the period from November 1, 2009 to October 31, 2010,
the redemption premium was 2.625%.

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,

18

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

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

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. At September 30, 2010, the Company had no amounts outstanding and $50 million of availability under the March 2010 Credit Facility.

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, a lender under the March 2010 Credit Facility, is currently the sole lender under the New Credit Facility.

The
New Credit Facility provides that outstanding loans will bear interest at rates based on LIBOR plus a margin of 7.00% per annum or, at the option of Reddy Corp, the Base Rate, plus a
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.

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.

19

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

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

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 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.

Under
the March 2010 Credit Facility, it was an event of default if Reddy Corp's leverage ratio (as defined in the March 2010 Credit Facility) exceeded the level specified in the credit
agreement, which was 7.75:1.00 for periods ending through December 31, 2010, or Reddy Corp's fixed charge coverage ratio was less than the level specified in the credit agreement, which was
1.00:1.00 for periods ending

20

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

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

through
September 30, 2011. While Reddy Corp would not have met the leverage ratio requirement of the March 2010 Credit Facility at September 30, 2010, no compliance certificate for that
period was delivered before the March 2010 Credit Facility was amended and restated through the New Credit Facility. Reddy Corp is in compliance with the covenant requirements of the New Credit
Facility. Furthermore, Reddy Corp could also only pay dividends to Reddy Holdings in an amount not greater than Reddy Corp's Cumulative Available Cash (as defined in the March 2010 Credit Facility)
for the period (taken as one accounting period) from April 1, 2010 to the end of its most recently ended fiscal quarter for which a covenant compliance certificate under the March 2010 Credit
Facility had been delivered to the lenders.

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.

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. 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 condensed consolidated balance sheets.

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, CIBC World Markets Corp., JPMorgan Chase Bank, N.A., Wachovia Bank N.A.,
Bear Stearns Corporate Lending Inc. and Lehman Commercial Paper, Inc. (the "Old Credit Facilities"). The Old Credit Facilities provided for a $60.0 million revolving credit
facility and a $240.0 million term loan. The Old Credit Facilities were obligations of Reddy Corp and were guaranteed by Reddy Holdings. 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.

Fair Value of Debt Instruments.At September 30, 2010 and December 31, 2009, the fair value of the Company's debt, was
$441.9 million and $352.9 million, respectively, while the book value was $450.7 million and $390.6 million, respectively. The fair value of the Company's debt is primarily
based on quoted market prices for the debt.

21

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

7. Financial Derivative Instruments

There were no derivative instruments outstanding during the nine months ended September 30, 2010.

Interest Rate Hedging Agreement.Effective September 12, 2005, the Company entered into an interest rate hedging agreement
(the "2005 Hedge")
to fix the interest rate on a portion of its Term Loan. The 2005 Hedge had a term of three years and ten months and expired on July 12, 2009. The 2005 Hedge had an initial notional balance of
$220 million. The notional balance decreased by $20.0 million on October 12 of each of the next three years, beginning on October 12, 2006. The Company paid a fixed rate of
4.431% on the notional balance outstanding and received an amount equal to 1 or 3 month LIBOR. Any net payable or receivable amount was settled quarterly. The 2005 Hedge was accounted for as a
cash flow hedge.

Effective
February 17, 2009, the Company entered into a second interest rate hedging agreement (the "2009 Hedge") to lock the interest rate on a portion of its Term Loan. The 2009
Hedge had a term of 10 months and expired on December 17, 2009. The 2009 Hedge had a notional balance of $50.0 million from the inception date to July 17, 2009, at which
time the notional balance increased to $210 million for the remaining term. The Company paid a fixed rate of 1.165% on the notional balance outstanding and received an amount equal to
1-month LIBOR. Any net payable or receivable amount was settled monthly. The Company used the interest rate hedges to minimize the risk of increases in floating interest rates. The
interest rate hedges were not for trading purposes and were accounted for as cash flow hedges.

The
Company considered its own credit risk in the valuation of the interest rate hedges. Payments made or received under the interest rate hedges were included in the caption "Interest
Expense" in the consolidated statements of operations and in the operating activities section of the statements of cash flows.

Diesel Hedging Agreement.On February 2, 2009, 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 February 2, 2009 and expired on December 28, 2009. The notional amount of gallons hedged changed on a monthly basis
to match the Company's anticipated utilization. The Company paid a fixed rate of $1.55 per gallon (wholesale basis) and received an amount equal to a wholesale index rate. Any net payable or
receivable amount was settled monthly. The Company used the Diesel Hedge to minimize the risk of rising fuel prices. The hedge was not for trading purposes and was accounted for as an economic hedge
and was not designated as a hedging instrument.

22

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

7. Financial Derivative Instruments (Continued)

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

Derivatives designated as Cash Flow Hedges under ASC 718Amount of Loss Recognized
in Accumulated Other
Comprehensive Loss(a)

Amount of Loss Reclassified
from Accumulated Other
Comprehensive Loss into
Interest Expense(a)

Amount of Loss Recognized
in Interest Expense
(Ineffective Portion)(a)Three
Months
Ended
September 30,

Nine
Months
Ended
September 30,

Three
Months
Ended
September 30,

Nine
Months
Ended
September 30,

Three
Months
Ended
September 30,

Nine
Months
Ended
September 30,2010

2009

2010

2009

2010

2009

2010

2009

2010

2009

2010

2009(in thousands)Interest rate hedges

$


$
(142
)
$


$
(951
)
$


$
(590
)
$


$
(3,103
)
$


$
(35
)
$


$
(628
)


(a)Amounts
are pre-tax. Accumulated Other Comprehensive Loss in the condensed consolidated Statement of stockholders' equity (deficit) is presented
net of tax.


Derivatives not designated as Hedging Instruments under ASC 718Amount of
Loss
Recognized in
Condensed
Consolidated
Statements of
Operations

Amount of
Gain
Recognized in
Condensed
Consolidated
Statements of
OperationsThree months
ended
September 30,

Nine months
ended
September 30,Location of Gain (Loss)
Recognized in
Condensed Consolidated
Statements of Operations2010

2009

2010

2009(in thousands)Diesel hedge:Non-cash change in fair value

$


$
(480
)
$


$
290Cash settlements





336





291Total recognized (loss) gain

$


$
(144
)
$


$
581

Gain (loss) on diesel hedge


Collateral Requirements and Counterparty Risk.The Diesel Hedge and the 2009 Interest Rate Hedge required the Company to provide
collateral in a
minimum amount of $0.8 million to $1.2 million at various times during 2009. As of December 31, 2009 all hedges had expired and all collateral held by the counterparty had been
returned to the Company.

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

23

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

8. Stock-based Compensation (Continued)

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 and nine month periods ended September 30, 2010, the Company granted
21,300 and 299,150 restricted shares to employees with a weighted average grant date fair value of $3.10 and $4.17, respectively. 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, 2011, January 1, 2012, and January 1, 2013. 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 48,000 shares and 615,220 shares of common stock were granted during the three and nine month periods ended September 30, 2010. 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, 2011, January 1, 2012, and
January 1, 2013. The options granted during the three and nine month periods ended September 30, 2010 had weighted exercise prices of $3.10 per share and $4.17 per share, respectively.
In April 2010, 68,568 vested shares were granted to non-employee members of the Board of Directors.

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

24

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

8. Stock-based Compensation (Continued)

granted
during the nine months ended September 30, 2010 and the weighted average assumptions used for such grants.

Nine Months Ended
September 30, 2010Weighted average grant date fair value

$
2.19Weighted average assumptions used:Expected volatility


123.5
%Expected lives


3 yearsRisk-free interest rates


1.13
%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 $0.4 million and $0.7 million during the three months ended September 30, 2010 and 2009, respectively, and
$1.4 million and $1.7 million during the nine months ended September 30, 2010 and 2009, respectively. Such compensation expense was recorded in "Operating expenses" in the
consolidated statements of operations. As of September 30, 2010, 1,698,387 shares were available for grant under the Plan.

9. Net Income (Loss) Per Share

The computation of net income (loss) per share is based on net income (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, 407,613 restricted shares were excluded from the computation of basic net loss per share for the nine
months ended September 30, 2010. However, these restricted shares were included in the computation of basic net income per share for the three months ended September 30, 2010.

For
the purpose of computing diluted earnings per share, options to purchase 1.0 million shares of common stock were not included in the computation of diluted earnings per share
for the three months ended September 30, 2010, because their effect was anti-dilutive. Options to purchase 0.1 million shares

25

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

9. Net Income (Loss) Per Share (Continued)

of
common stock were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2009, because their effect was anti-dilutive.

Three Months Ended
September 30,

Nine Months Ended
September 30,2010

2009

2010

2009(in thousands, except per share amounts)Net income (loss) for basic and diluted computation

$
8,990

$
9,988

$
(11,475
)
$
6,259Basic net income (loss) per share:Weighted average common shares outstanding


22,949


22,502


22,450


22,291Net income (loss)

$
0.39

$
0.44

$
(0.51
)
$
0.28Diluted earnings per share:Weighted average common shares outstanding


22,949


22,502


22,450


22,291Shares issuable from assumed conversion of restricted stock units and options


109


181





143Weighted average common shares outstanding, as adjusted


23,058


22,683


22,450


22,434Net income (loss)

$
0.39

$
0.44

$
(0.51
)
$
0.28


10. Income Taxes

The Company's effective tax rate differs from the Federal statutory income tax rate of 35% due to state income and margin taxes, the effect of permanent differences and a
$0.3 million valuation allowance recorded against certain state net operating loss carryforwards.

The
amount of gross unrecognized tax benefits related to uncertain tax positions was $3.1 million at September 30, 2010 and $3.1 million at December 31, 2009,
which included accrued interest and penalties of $1.3 million as of September 30, 2010 and $1.2 million as of December 31, 2009. The total amount of interest and penalties,
net of federal benefit, recognized in the statement of operations for the nine months ended September 30, 2010 and 2009 was immaterial.

In
October 2010, the Company reached a voluntary settlement for $0.1 million with a U.S. state taxing authority in respect of one of its uncertain tax positions. As a result of
the settlement, the Company will reduce its $3.1 million total unrecognized tax benefit by $1.8 million during the fourth quarter of 2010.

As
a result of net operating loss carryforwards, the Company's tax years from 1997 through 2009 remain open and subject to examination by the Internal Revenue Service and/or certain
state taxing authorities. The Company is undergoing routine tax audits in certain U.S. state jurisdictions covering multiple years. The Company is not aware of any material proposed income tax
adjustments and expects the completion of the audits in the near term.

26

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

11. Other Charges

During the three and nine months periods ended September 30, 2010, the Company recorded charges of $1.0 million and $2.4 million within "Loss on disposition of
assets" in connection with the disposal of excess facilities and other fixed assets.

During
the three month period ended September 30, 2010, the Company recorded an out of period charge of $0.7 million as a "Loss on disposition of assets" in connection with
assets disposed of during the remodel of a production facility. This charge is offset by a related tax benefit of $0.3 million. The disposal should have been recognized during the three months
ended March 31, 2010. As the amounts involved were not material to the Company's consolidated financial statements for the three months ended March 31, 2010, the Company recorded the
cumulative effect of these items during the three and nine month periods ended September 30, 2010.

During
the three and nine months ended September 30, 2010, the Company also recorded impairment charges of $0.5 million and $0.8 million. The charges recorded for
the three month period represent the impairment of certain fixed assets. During the six months ended June 30, 2010, the Company had recorded an impairment charge of $0.2 million for
certain assets held for sale. The Company may be required to recognize additional charges in future periods if triggering events are identified indicating that the carrying value of its assets are not
recoverable.

In
addition, the Company recorded $0.2 million and $0.4 million of severance expense in "Operating expenses" for the three and nine months periods ended
September 30, 2010, respectively.

12. 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 September 30, 2010 and December 31,
2009, no accruals had been made in connection with the matters discussed below.

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 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. On
August 28, 2008, the Company received a second subpoena for documents from the federal grand jury sitting in the Eastern District of Michigan. Current and former employees were also subpoenaed
to testify and testified before a federal grand jury in the Eastern District of Michigan and, more recently, before a federal grand jury in the Southern District of Ohio. The search warrant and
subpoenas that the Company and our employees received were connected with a broader industry inquiry by the Antitrust Division of the DOJ. The Home City Ice Company, Arctic Glacier
International, Inc., and three former employees of Arctic Glacier entered guilty pleas regarding a conspiracy to allocate customers and territories in southeastern Michigan and the Detroit,
Michigan,

27

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

12. Commitments and Contingencies (Continued)

metropolitan
area. Sentencing of the three former Arctic Glacier employees took place on February 2, 3 and 4, 2010, sentencing of Arctic Glacier occurred on February 11, 2010, and Home
City was sentenced on March 2, 2010. On October 29, 2010, the Company was informed that the Antitrust Division of the DOJ will take no action against the Company or any of its employees
in connection with 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 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 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 other states participating in the multi-state investigation or conducting their own investigations.

On
November 19, 2008, the Company was notified by the Civil Fraud Division of the DOJ (the "Civil Fraud Division") that the Civil Fraud Division had opened an investigation with
respect to the Company. The Civil Fraud Division's investigation is expected to examine whether the Company may have violated the federal False Claims Act by submitting, or causing to be submitted,
false claims to the federal government as a result of entering into allegedly anticompetitive agreements which may have affected the sale of packaged ice to the government. On or about
January 6, 2009, the Company received a request for documents in connection with that investigation. The Company has substantially completed providing information and documents requested by the
Civil Fraud Division. The Civil Fraud Division's investigation is related to the investigation by the Antitrust Division of the DOJ.

The
Company is cooperating with the authorities in the multi-state attorney general investigation and the Civil Fraud Division investigation. The Company expects to continue to make
available documents and other information in response to any subpoenas, requests or civil investigative demands received from the investigating agencies. At this time, the Company is unable to predict
the outcome of those investigations, the possible loss or possible range of loss, if any, associated with the resolution of those investigations or any potential effect they may have on the Company,
its employees or operations.

On
March 6, 2008, the Company's Board of Directors formed a special committee of independent directors to conduct an internal investigation of these matters. The special committee
retained counsel

28

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

12. Commitments and Contingencies (Continued)

to
assist in its investigation. In order to maintain the independence of the special committee's investigation, officers and employees who were employed by the Company at the time the investigation
commenced have not had access to information obtained in the special committee's investigation or the results of the investigation to date. The investigation by the special committee and its counsel
is substantially complete. The special committee has not reached a determination that any violations of the antitrust laws have occurred.

Effective
September 13, 2008, Ben D. Key, the Company's Executive Vice PresidentSales & Marketing, was placed on a paid leave of absence and relieved of his
duties at the direction of the special committee. The special committee found that Mr. Key violated the Company's policies and was associated with matters that were under investigation.

Following
the announcement that the Antitrust Division of the DOJ had instituted an investigation of the packaged ice industry, 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. On June 1, 2009,
the Court appointed interim lead and liaison counsel for the putative direct and indirect purchaser classes. On September 15, 2009, the lead plaintiffs for each of the putative direct and
indirect purchaser classes filed consolidated amended complaints. The Company and Arctic Glacier filed motions to dismiss both of these complaints. Home City filed a motion to dismiss the indirect
purchaser complaint and entered into a proposed settlement agreement with the direct purchaser plaintiffs. The motions by the Company and Arctic Glacier to dismiss the direct purchaser claims were
denied by the Court on July 1, 2010. An order granting preliminary approval of Home City's settlement with the direct purchasers and authorizing dissemination of notice was entered on
September 2, 2010. The motions to dismiss the indirect purchaser complaint are pending.

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, 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. A case conference
regarding this matter was held on June 9, 2010. In that case conference, a schedule was set for proceedings relating to Plaintiffs' Motion for Certification of a Class.

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, 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. This Statement of Claim has
not yet been served on the Company.

29

---





Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

12. Commitments and Contingencies (Continued)

One direct action lawsuit has been 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 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.

SEC Inquiry

On or about October 21, 2008, the Company received notice that the Securities and Exchange Commission had initiated an informal
inquiry into matters that were the subject of the investigation by the special committee of our Board of Directors. On October 29, 2010, the Company was informed the Securities and Exchange
Commission has closed that inquiry and no action will be taken against the Company.

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. The complaints, which are substantially similar,
allege 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
complaints purport to assert claims on behalf of various alleged classes of purchasers of the Company's common stock. 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. The Company and the other defendants filed motions to dismiss the
consolidated amended complaint. A hearing was held on those motions on October 22, 2010. The motions were taken under advisement by the Court.

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 September 27, 2010, a
Consolidated Shareholder Derivative Petition was filed. That petition asserts claims for breach of fiduciary duty, unjust enrichment, abuse of control, and gross mismanagement and seek damages,
equitable relief, attorney fees, expenses and costs. The consolidated case is currently set for trial on August 2, 2011.

The
Company and the other defendants intend 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

30

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

12. Commitments and Contingencies (Continued)

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.



The Company is 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 the Company may incur. The Company
believes the resolution of such other ordinary course uncertainties and the incurrence of such costs will not have a material adverse effect on its consolidated financial position, results of
operations or cash flows.

31

---



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 Amended Registration Statement on
Form S-4 (File No. 333-168190) filed on July 30, 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.

At
September 30, 2010, we owned or operated 58 ice manufacturing facilities, 73 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.

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:



32

---



Table of Contents



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:



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 69%, 69% and 68% of our annual revenues occurred during the second and third calendar quarters in each of 2009, 2008 and 2007.
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:



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 expense consists of depreciation and amortization expense for our selling, general and administrative functions.

33

---



Table of Contents

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 9% and 8% of revenues in the nine months ended September 30, 2010 and 2009, 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 September 30, 2010, we owned or operated 58 ice manufacturing facilities, 73 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 September 30, 2010 Compared to Three Months Ended September 30, 2009

Three Months Ended
September 30,

Change from Last
Year2010

2009

Dollars

%(in thousands)Revenues

$
120,147

$
115,446

$
4,701


4.1Cost of sales (excluding depreciation)


71,770


64,851


6,919


10.7Depreciation expense related to cost of sales


5,694


5,494


200


3.6Gross profit


42,683


45,101


(2,418
)

(5.4
)Operating expenses


14,358


12,690


1,668


13.1Depreciation and amortization expense


2,435


1,772


663


37.4Loss on dispositions of assets


1,035


145


890


613.8Impairment of assets


514





514


Acquisition expenses


414





414


Loss on diesel hedge





144


(144
)

(100.0
)Cost (insurance recoveries) related to antitrust investigations and related litigation, net


(3,867
)

735


(4,602
)

(626.1
)Income from operations


27,794


29,615


(1,821
)

(6.1
)Interest expense, net


(14,096
)

(6,213
)

7,883


126.9Gain on bargain purchase


264





264


Debt refinance costs


(310
)




(310
)

Income before income taxes


13,652


23,402


(9,750
)

(41.7
)Income tax expense


(4,662
)

(13,414
)

(8,752
)

(65.2
)Net income

$
8,990

$
9,988

$
(998
)

(10.0
)


Revenues:Revenues increased $4.7 million from the three months ended September 30, 2009 to the three months ended
September 30,
2010. This increase is primarily due to a percentage increase in packaged ice volume sales in the high mid single digits related primarily 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. Additionally, average sales prices were down slightly due to mix changes within our distribution channels and increased competitive activity.

Cost of sales (excluding depreciation):Cost of sales (excluding depreciation) increased $6.9 million from the three months
ended
September 30, 2009 to the three months ended September 30, 2010. This

34

---



Table of Contents

increase
in cost of sales is primarily due to increased volume sales. Cost of sales increased proportionally more than revenues primarily as a result of customer transition and startup activities as
well as an increase in fuel cost. These increases were partially offset by cost savings from our operational initiatives.

Labor
costs, including associated payroll taxes and benefit costs (including health insurance), accounted for approximately 21% of revenues in each of the three months ended
September 30, 2010 and 2009, respectively. Cost of plastic bags, operating leases (including vehicles, plant equipment and ISB equipment), fuel expenses, expenses for independent third party
distribution services, and electricity expense represented approximately 5%, 4%, 4%, 6%, and 6%, respectively, of revenues in the three months ended September 30, 2010, and approximately 6%,
3%, 3%, 6%, and 5%, respectively, of revenues in the three months ended September 30, 2009.

Depreciation expense related to cost of sales:Depreciation expense related to cost of sales increased $0.2 million as a
result of new
production and distribution equipment placed in service in 2009 and the first nine months of 2010, partially offset by dispositions and assets becoming fully depreciated.

Operating expenses:Operating expenses increased $1.7 million from the three months ended September 30, 2009 to the
three months ended
September 30, 2010. This increase is primarily due to a $1.3 million increase in labor and benefits due to additional headcount at the senior management level, $0.2 million of
severance costs, and health insurance costs. Non-cash stock-based compensation costs decreased by $0.3 million, while communications and repair and maintenance cost each increased by
$0.2 million.

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 2009 and the first nine months of 2010, partially offset by dispositions and assets becoming fully
depreciated.

Loss on dispositions of assets:The loss on dispositions of assets increased by $0.9 million from the three months ended
September 30,
2009 as a result of the disposition of certain excess facilities and other assets. As a result of an increased focus on operational efficiency, we are evaluating our operating facilities and expect to
dispose of additional real estate in the future. Based on current real estate market conditions, additional impairments or losses on dispositions may occur in future periods.

Impairment of assets:Impairment charges increased by $0.5 million as a result of impairing certain fixed assets during
2010. No impairment
charges were recognized during the three month period ended September 30, 2009.

Acquisition expenses:We incurred $0.4 million of expense during the three months ended September 30, 2010 in
connection with our
ongoing acquisition program. We did not complete any acquisitions during the comparable 2009 period.

Loss on diesel hedge:A loss of $0.1 million was recognized during the three months ended September 30, 2009 in
connection with a
derivative used to hedge the cost of diesel used in our delivery operations. The loss was composed of a $0.4 million non-cash change in the fair value of the derivative, partially
offset by $0.3 million of cash settlements as the floating amount received from the counterparty was greater than the fixed price we were obligated to pay.

Costs (insurance recoveries) related to antitrust investigations and related litigation, net:During the three months ended
September 30, 2010
and 2009, we incurred $1.1 million and $0.8 million, respectively, of gross 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 received a $5.0 million settlement in respect of claimed cost reimbursements from one of our insurance carriers during
the three months ended September 30, 2010. During the three months ended

35

---



Table of Contents

September 30,
2009, $0.1 million of costs paid directly by our insurance carriers were offset against gross expenses. We became aware of and began incurring expenses related to the
investigation in March of 2008.

Interest expense, net:Net interest expense increased $7.9 million from the three months ended September 30, 2009 to
the three months
ended September 30, 2010. This change is related to increased interest costs associated with our new 11.25% senior secured notes and 13.25% senior secured notes, as compared to the indebtedness
refinanced, and additional total indebtedness outstanding following the refinancing. The amount of net interest expense recognized by Reddy Holdings was $0.3 million and $4.1 million
during the three months ended September 30, 2010 and 2009, respectively.

Debt refinance costs:Costs of $0.3 million were incurred in the three months ended September 30, 2010 in connection
with refinancing
activities related to our debt.

Income tax expense:The effective tax rate decreased from 57.3% during the three months ended September 30, 2009 to 34.2%
during the three
months ended September 30, 2010 as a result of the effects of state income taxes based on margin, a valuation allowance recorded against certain state net operating loss carryforwards, and our
projected annual pre-tax results for 2010.

Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009

Nine Months Ended
September 30,

Change from Last
Year2010

2009

Dollars

%(in thousands)Revenues

$
260,204

$
257,591

$
2,613


1.0Cost of sales (excluding depreciation)


168,787


157,554


11,233


7.1Depreciation expense related to cost of sales


16,655


15,788


867


5.5Gross profit


74,762


84,249


(9,487
)

(11.3
)Operating expenses


41,850


38,090


3,760


9.9Depreciation and amortization expense


6,484


5,211


1,273


24.4Loss on dispositions of assets


2,432


602


1,830


304.0Impairment of assets


750





750


Acquisition expenses


624





624


Gain on diesel hedge





(581
)

(581
)

(100.0
)Cost (insurance recoveries) related to antitrust investigations and related litigation, net


(1,824
)

4,075


(5,899
)

(144.8
)Income from operations


24,446


36,852


(12,406
)

(33.7
)Interest expense, net


(35,663
)

(20,585
)

15,078


73.2Gain on bargain purchase


264





264


Debt refinance costs


(6,478
)




(6,478
)

Income (loss) before income taxes


(17,431
)

16,267


(33,698
)

(207.2
)Income tax benefit (expense)


5,956


(10,008
)

(15,964
)

(159.5
)Net income (loss)

$
(11,475
)
$
6,259

$
(17,734
)

(283.3
)


Revenues:Revenues increased $2.6 million from the nine months ended September 30, 2009. This increase is primarily
due to positive
increases in packaged ice volume sales related to improved weather patterns in most markets during the second and third calendar quarters of 2010, acquisitions, and new distribution, offset by lower
average sales prices primarily related to increased competitive activity and changes in mix within our distribution channels and by unfavorable weather patterns in most of our markets during the three
months ended March 31, 2010.

36

---



Table of Contents

Cost of sales (excluding depreciation):Cost of sales (excluding depreciation) increased $11.2 million to
$168.8 million for the nine
months ended September 30, 2010. This increase is partially due to higher sales volumes, although cost of sales increased proportionally more than related revenues, due to the effects of
customer transition and startup activities, our response to peak demand in certain markets where supply was temporarily outstripped during the summer and the effect of fixed costs during the three
months ended March 31, 2010 when adverse weather conditions reduced sales volumes in most of our markets.

Labor
costs, including associated payroll taxes and benefit costs (including health insurance), accounted for approximately 23% and 24% of revenues in the nine months ended
September 30, 2010 and 2009, respectively. Cost of plastic bags, operating leases (including vehicles, plant equipment and ISB equipment), fuel expenses, expenses for independent third party
distribution services, and electricity expense represented approximately 5%, 5%, 4%, 6%, and 5%, respectively, of revenues in the nine months ended September 30, 2010, and approximately 6%, 4%,
3%, 6%, and 5%, respectively, of revenues in the nine months ended September 30, 2009.

Depreciation expense related to cost of sales:Depreciation expense related to cost of sales increased $0.9 million as a
result of new
production and distribution equipment placed in service in 2009 and the first nine months of 2010, partially offset by dispositions and assets becoming fully depreciated.

Operating expenses:Operating expenses increased $3.8 million to $41.9 million for the nine months ended
September 30, 2010.
This increase is primarily due to a $3.6 million increase in labor and benefits due to additional headcount at the senior management level, $0.4 million of severance costs and health
insurance costs. The increase was partially offset by a $1.0 million decrease in professional service expense, a $0.4 million reduction in accrued incentive compensation, and a
$0.2 million decrease in non-cash stock-based compensation expense.

Depreciation and amortization expense:Depreciation and amortization expense increased $1.3 million as a result of new
equipment placed in
service and the recognition of certain intangible assets in connection
with acquisitions in 2009 and the first nine months of 2010, partially offset by dispositions and assets becoming fully depreciated.

Loss on dispositions of assets:The loss on disposition of assets increased by $1.8 million from $0.6 million for the
nine months ended
September 30, 2009 as a result of the disposition of certain excess facilities and other assets.

Impairment of assets:Impairment charges increased by $0.8 million as a result of impairing a parcel of real estate and
certain fixed assets
in 2010. No impairment charges were recognized during the nine month period ended September 30, 2009. As a result of an increased focus on operational efficiency, we are evaluating our
operating facilities and expect to dispose of additional 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 nine months ended September 30, 2010 in
connection with our
ongoing acquisition program. We did not complete any acquisitions during the comparable 2009 period.

Gain on diesel hedge:A gain of $0.6 million was recognized during the nine months ended September 30, 2009 in
connection with a
derivative used to hedge the cost of diesel used in our delivery operations. The gain was composed of a $0.3 million non-cash increase in the fair value of the derivative and
$0.3 million of cash settlements as the floating amount received from the counterparty was greater than the fixed price we were obligated to pay.

Costs (insurance recoveries) related to antitrust investigations and related litigation, net:During the nine months ended
September 30, 2010
and 2009, we incurred $3.2 million and $4.9 million,

37

---



Table of Contents

respectively,
of gross legal fees and other expenses associated with the antitrust investigation being conducted by the Antitrust Division of the United States Department of Justice and the related
litigation. During the nine months ended September 30, 2010 and 2009, we received a $5.0 million
settlement in respect of claimed cost reimbursements and $0.6 million of cost reimbursements, respectively, from our insurance carriers. One of our insurance carriers also paid
$0.2 million of costs directly to certain service providers during the nine months ended September 30, 2009. We became aware of and began incurring expenses related to the investigation
in March of 2008.

Interest expense, net:Net interest expense increased by $15.1 million from the nine months ended September 30, 2009.
This change is
related to increased interest costs associated with our new 11.25% senior secured notes and 13.25% senior secured notes, as compared to the indebtedness refinanced, and additional total indebtedness
outstanding following the refinancing. The amount of net interest expense recognized by Reddy Holdings was $4.1 million and $12.4 million during the nine months ended
September 30, 2010 and 2009, respectively.

Debt refinance costs:Costs of $6.5 million were incurred in the nine months ended September 30, 2010 in connection
with refinancing
activities related to our debt.

Income tax expense:The effective tax rate decreased from 61.5% during the nine months ended September 30, 2009 to 34.2%
during the nine
months ended September 30, 2010 as a result of the effects of state income taxes based on margin, a valuation allowance recorded against certain state net operating loss carryforwards, and the
Company's projected annual pre-tax results for fiscal year 2010.

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, the net proceeds resulting from the refinancing of substantially of all our debt in March 2010, borrowings under our credit facility
and operating leases.

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 the Antitrust Division of the United States
Department of Justice and various other government agencies and related civil litigation. See Part II, Item 1. 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 nine months ended September 30, 2010, capital expenditures totaled $28.1 million. During this period, we received $2.0 million related to reimbursement of
the cost of equipment acquired in 2009 and subsequently placed under operating leases. 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 $0.5 million during the nine months ended September 30, 2010. Our net
capital expenditures during the nine months ended September 30, 2010 were $27.7 million.

38

---



Table of Contents

During
the nine months ended September 30, 2010, we completed the acquisition of eleven ice companies for a total cash purchase price of approximately $12.6 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 Nine Months Ended September 30, 2010 and 2009

Net cash provided by operating activities was $18.5 million for the nine months ended September 30, 2010 versus net cash
provided by operating activities of $28.3 million for the nine months ended September 30, 2009. The decrease in cash provided in operating activities of $9.8 million was primarily
the result of a $21.9 million decrease in net income, adjusted for non-cash and non-operating items, partially offset by $12.1 million increase in cash provided
by working capital as accrued interest increased significantly as a result of changes in the timing of interest payments related to our new financing arrangements.

Net
cash used in investing activities was $52.1 million and $21.4 million for the nine months ended September 30, 2010 and 2009, respectively. The increase in cash
used in investing activities is primarily
due to a $12.6 million increase in the cost of acquisitions, an increase of $10.3 million in restricted cash balances that collateralize our outstanding standby letters of credit
subsequent to the termination of our old credit facilities, a $7.5 million increase in property and equipment additions and a $2.1 million increase in purchases of investments, partially
offset by $2.0 million increase in the reimbursement of the cost of equipment placed under operating leases, net of the cost of such equipment.

Net
cash provided by financing activities was $41.7 million for the nine months ended September 30, 2010 as the refinancing of substantially all of our debt resulted in the
net issuance of $60.0 million of additional debt. Approximately $18.3 million of the proceeds were used to pay fees and expenses associated with the refinancing transactions. During the
nine months ended September 30, 2009, there were no material cash flows associated with financing activities.

Long-term Debt and Other Obligations

Overview.At September 30, 2010, we had $450.6 million of total debt outstanding as follows:



There
was no balance outstanding under Reddy Corp's revolving credit facility as of September 30, 2010.

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.

39

---





Table of Contents

The First Lien Notes are senior secured obligations of Reddy Corp and are:



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:



The
first lien leverage ratio under the indenture governing the First Lien Notes means the ratio of EBITDA (as defined in the indenture) for the most recent four fiscal quarters to first
lien indebtedness (as defined in the indenture) as of the end of such four quarter period. 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.

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

40

---



Table of Contents

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 101/2% Senior Discount Notes and the repayment, redemption or retirement of remaining 101/2%
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 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
"101/2% 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:



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

41

---



Table of Contents

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 EBITDA (as defined in the indenture) for the most recent four fiscal quarters to secured
indebtedness (as defined in the indenture) as of the end of such four quarter period. 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.

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.

101/2% Senior Discount Notes.On October 27, 2004, Reddy Holdings issued $151 million in
aggregate principal amount at
maturity of 101/2% 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

42

---



Table of Contents

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 101/2% 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 at a rate of
101/2% per annum. During the nine month period ended September 30, 2010, Reddy Corp paid cash dividends to Reddy Holdings in the amount of $6.0 million to fund the
semi-annual interest payments on the Discount Notes. No interest payments were made during the three months ended September 30, 2010.

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:



From
and after November 1, 2008, Reddy Holdings may redeem any or all of the Discount Notes by paying a redemption premium, which was initially 5.25% of the principal amount at
maturity of the Discount Notes and declined annually to 0% for the period commencing on November 1, 2010 and thereafter. For the period from November 1, 2009 to October 31, 2010,
the redemption premium was 2.625%.

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. At September 30, 2010, the Company had no amounts outstanding and $50 million of availability under the March 2010 Credit Facility.

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

43

---



Table of Contents

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 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.

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, a lender under the March 2010 Credit Facility, is currently the sole lender under the New Credit Facility. The New
Credit Facility provides the Company with enhanced business flexibility, significantly less restrictive covenants and liquidity to continue to execute on the Company's strategic plan.

The
New Credit Facility provides that outstanding loans will bear interest at rates based on LIBOR plus a margin of 7.00% per annum or, at the option of Reddy Corp, the base rate, plus a
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.

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:



44

---



Table of Contents



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 to maintain Reddy Holdings' corporate existence.

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.

Under
the March 2010 Credit Facility, it was an event of default if Reddy Corp's leverage ratio (as defined in the March 2010 Credit Facility) exceeded the level specified in the
credit agreement, which was 7.75:1.00 for periods ending through December 31, 2010, or Reddy Corp's fixed charge coverage ratio was less than the level specified in the credit agreement, which
was 1.00:1.00 for periods ending through September 30, 2011. While Reddy Corp would not have met the leverage ratio requirement of the March 2010 Credit facility at September 30, 2010,
no compliance certificate for that period was delivered before the March 2010 Credit Facility was amended and restated through the New Credit Facility. Reddy Corp is in compliance with the covenant
requirements of the New Credit Facility. Furthermore, Reddy Corp could also only pay dividends to Reddy Holdings in an amount not greater than Reddy Corp's Cumulative Available Cash (as defined in the
March 2010 Credit Facility) for the period (taken as one accounting period) from April 1, 2010 to the end of its most recently ended fiscal quarter for which a covenant compliance certificate
under the March 2010 Credit Facility had been delivered to the lenders.

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
September 30, 2010, Reddy Holdings had $12.9 million of cash on hand that was not subject to restrictions under our New Credit Facility.

EBTIDA
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 September 30, 2010 on a pro forma basis after giving effect to the adjustments related to the
acquisition or disposal of

45

---



Table of Contents

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 a reconciliation of net loss to EBITDA and Adjusted EBITDA:

Twelve Months
Ended September 30,
2010(In thousands)Net loss

$
(13,500
)Depreciation expense related to cost of sales


22,273Depreciation and amortization expense


8,339Interest expense


41,771Interest income


(24
)Income tax benefit


(12,306
)EBITDA


46,553Other non-cash items:Stock-based compensation expense


1,712Loss on dispositions of assets


4,159Impairment of assets


750Increase in fair value of derivative


290Gain on bargain purchase


(846
)Acquisition expenses


624Debt refinance costs


6,478Reddy Holdings items:Cost (insurance recoveries) related to antitrust investigations and related litigation, net(a)


(6,790
)Adjusted EBITDA


52,930Acquisition adjustments(b)


1,304Pro forma adjusted EBITDA

$
54,234


(a)Represents
the elimination of the costs incurred in connection with the ongoing antitrust investigations and related litigation, net of insurance
recoveries. The costs related to the antitrust investigations and related civil litigation and related insurance recoveries are excluded from the calculation of Adjusted EBITDA as these costs have
been paid, and the related insurance recoveries have been received, by Reddy Holdings. Reddy Holdings is currently paying these costs from the excess cash remaining from the initial public offering of
its common stock in August 2005, the funds paid to Reddy Holdings by affiliates of GSO Capital Partners LP in February 2008 in connection with the termination of a merger agreement and such
insurance proceeds related to the antitrust investigations and related litigation.(b)Represents
the incremental Adjusted EBITDA of acquired businesses as if each acquisition had been consummated on the first day of the period presented. All
acquisitions included herein were consummated on or before September 30, 2010.


46

---



Table of Contents




Letters of Credit.Neither the March 2010 nor the New Credit Facility provides 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. 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 condensed consolidated balance sheets.

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, CIBC World Markets Corp., JPMorgan Chase Bank, N.A., Wachovia Bank N.A.,
Bear Stearns Corporate Lending Inc. and Lehman Commercial Paper, Inc. (the "Old Credit Facilities"). The Old Credit Facilities provided for a $60.0 million revolving credit
facility and a $240.0 million term loan. The Old Credit Facilities were obligations of Reddy Corp and were guaranteed by Reddy Holdings. 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.

Financial Derivative Instruments

Interest Rate Hedging Agreements.Effective September 12, 2005, we entered into an interest rate hedging agreement (the
"2005 Hedge") to lock
the interest rate on a portion of our Term Loan. The 2005 Hedge had a term of three years and ten months and expired on July 12, 2009. The 2005 Hedge had an initial notional balance of
$220 million. We paid a fixed rate of 4.431% on the notional balance outstanding and received an amount equal to 3-month LIBOR.

Effective
February 17, 2009, we entered into a second interest rate hedging agreement (the "2009 Hedge") to lock the interest rate on a portion of our Term Loan. The 2009 Hedge
had a term of 10 months and expired on December 17, 2009. The 2009 Hedge had a notional balance of $50 million from the inception date to July 17, 2009, at which time the
notional balance increased to $210 million for the remaining term. We paid a fixed rate of 1.165% on the notional balance outstanding and received an amount equal to 1-month LIBOR.
Any net payable or receivable amount was settled monthly. We used interest rate hedges to minimize the risk of increases in floating interest rates. The interest rate hedges were not for trading
purposes and were accounted for as cash flow hedges.

Diesel Hedging Agreement.On February 2, 2009, we entered into a hedge to fix the price per gallon of a portion of our
diesel fuel
requirements (the "Diesel Hedge"). The Diesel Hedge began February 2, 2009 and expired on December 28, 2009. The notional amount of gallons hedged changed on a monthly basis to match our
anticipated utilization. We paid a fixed rate of $1.55 per gallon (wholesale basis) and received an amount equal to a wholesale index rate. Any net payable or receivable amount was settled monthly. We
used the Diesel Hedge to minimize the risk of rising fuel prices. The hedge was not for trading purposes and was accounted for as an economic hedge and was not designated as a hedging instrument.

Liquidity Outlook.Due to the seasonal nature of our business, we record the majority of our revenues and profits during the
months of May through
September. The majority of the cash generated from those operations is received between July and November. We expect to fully utilize the excess cash to be generated from our 2010 selling season
during the winter of 2010 and spring of 2011 to fund our operations, debt service, capital expenditures and acquisitions. In March 2010, we refinanced substantially all of our outstanding debt. The
March 2010 refinancing provided us with additional cash proceeds of $43.5 million, net of transaction costs, which will allow for additional acquisitions and capital expenditures. In
August 2010, we increased the size of our revolving credit facility from $35 million to $50 million. In October 2010, we amended and restated our revolving credit facility to,

47

---



Table of Contents

among
other changes, modify financial covenants and extend the maturity date from January 31, 2014 to October 22, 2014.

Our
capital expenditures are used to maintain and expand our traditional ice and ISB operations. In the normal course of our business, we dispose of obsolete, worn-out and
unneeded assets and have historically applied those funds against capital expenditures. Our capital expenditures for the nine months ended September 30, 2010 were $28.2 million.
Additionally, we spent $12.6 million during the nine months ended September 30, 2010 to acquire other ice businesses. Due to the availability of additional liquidity resulting from the
refinancing of our debt in March 2010 and the improved terms of the revolving credit facility realized in August and October 2010, we expect to fund additional capital expenditures and acquisitions
during the remainder of 2010 and early 2011 in order to continue our strategic growth plans. However, at this time we cannot estimate the amount of these expenditures.

Based
on our expected level of operations, we believe that cash flows from operations, together with available borrowings under our revolving credit facility, will be adequate to meet
our future liquidity needs for at least the next twelve months. As of November 2, 2010, we had approximately $12.9 million of cash on hand at Reddy Holdings, approximately
$32.7 million of unrestricted cash and $10.3 million of restricted cash at Reddy Corp and $50.0 million of availability under our revolving credit facility. Depending on our level
of capital expenditures and acquisitions over the next twelve months, borrowings under our revolving credit facility may occur in the spring of 2011 as our cash flows from operations decline to their
lowest point during March and April due to reduced sales in January and February, and the timing of interest payments in March and May. We incur a substantial portion of our annual capital
expenditures prior to the summer selling season and we need to finance seasonal increases in accounts receivable and inventories as temperatures and sales volumes begin to increase in April and May.
We also continue to monitor opportunities to repay or refinance the $11.7 million of remaining discount notes which mature on November 1, 2012.

As
noted previously, we record the majority of our sales and any profits during the months of May through September and the majority of the cash generated from those operations is
received in July through November, by which time, we expect to have repaid all amounts borrowed under our revolving
credit facility in the spring, fund current capital expenditures and debt service and build up cash balances. We expect to be in compliance with our debt covenants over the next twelve months.

Expenses
in connection with the antitrust investigations and related civil litigation may require the use of cash on hand at Reddy Holdings or Reddy Corp. or borrowings under our
revolving credit facility. As of November 2, 2010, our cash on hand at Reddy Holdings, net of accrued expenses related the antitrust investigations and related civil litigation, was
approximately $11.4 million. Based on the current status of the investigation and related civil litigation and projected expenses, we believe Reddy Holdings' cash balance will be sufficient to
fund these expenses for the next twelve months; however, this expectation includes assumptions regarding matters beyond our control or knowledge. If Reddy Holdings were to require additional cash to
fund its expenses related to the antitrust investigations, Reddy Corp. has the ability under the credit facility to transfer $1 million to Reddy Holdings on an annual basis and an additional
general restricted payment basket of $5 million over the remaining life of the credit facility. Reddy Holdings has no restrictions on its ability to raise additional debt. We have received
reimbursements of $12.2 million to date from our insurance carriers as reimbursements of certain legal expenses. The settlements related to these reimbursements were final and we do not expect
to receive any further reimbursements related the antitrust investigations and related civil litigation.

Recently Adopted Accounting Pronouncements

In December 2009, the FASB issued ASU 2009-17, "Consolidations (Topic 810)Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities." ASU 2009-17 changes how

48

---



Table of Contents

a
reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. ASU 2009-17 also requires a
reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. ASU 2009-17
is effective for fiscal years beginning after November 15, 2009 and for interim periods within the first annual reporting period. The adoption of ASU 2009-17 on January 1,
2010 did not have a material effect on our results of operations and financial position.

New Accounting Pronouncements

None.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

General Economic Trends and Seasonality

Our results of operations are generally affected by the economic trends in our market area. We believe end users of our products use
packaged ice in many applications, including recreational activities, the construction industry, agriculture and special events. Weakness in the national economy combined with other factors including
inflation, interest rate fluctuations, increases in fuel and other energy costs, labor and healthcare costs and the availability of financing, may negatively impact consumer confidence and the
business prospects of our commercial customers. If consumer activities associated with the use of our products decline or the business activities of our commercial customers decrease, our revenues and
sales volumes may decline.

Our
results to date have not been significantly impacted by inflation, other than costs directly related to energy prices, such as fuel, plastic bags and electricity. If we experience
high inflation in these costs in the future, or inflationary pressures have significant effects on other cost categories, we may not be able to pass on all of these higher costs to our customers in
the short term. We do believe that we will be able to pass on higher costs to our customers over longer periods of time; however, there can be no assurance that we will be successful in such efforts.

The
ice business is highly seasonal, with the bulk of demand coming in the warmer spring and summer months. Accordingly, we experience seasonal fluctuations in our net sales and
profitability. We make a disproportionate amount of our sales in the second and third calendar quarters. We also typically earn any net income in these same periods, whereas we typically experience
net losses in the first and fourth calendar quarters. We believe that approximately two-thirds of our revenues will occur during the second and third calendar quarters when the weather
conditions are generally warmer and demand is greater, while approximately one-third of our revenues will occur during the first and fourth calendar quarters when the weather is generally
cooler. This belief is consistent with historical trends. As a result of seasonal revenue declines and the lack of proportional corresponding expense decreases, we will most likely experience lower
profit margins and losses during the first and fourth calendar quarters. In addition, because our operating results depend significantly on sales during our peak season, our quarterly results of
operations may fluctuate significantly as a result of adverse weather during this peak selling period if the weather is unusually cool or rainy on a more national or regional basis.

49

---



Table of Contents

Item 3.    Quantitative and Qualitative Disclosures About Market Risks

Market risk generally represents the risk that losses may occur in the value of financial instruments as a result of movements in
interest rates, foreign currency exchange rates and commodity prices. Our main market risk category is interest rate risk.

We
are exposed to some market risk due to the floating interest rates under our senior credit facility. Principal balances outstanding under the New Credit Facility bear interest per
annum, at our option, at the sum of the base rate or LIBOR plus the applicable margin. LIBOR and the Base Rate are subject to floors of 1.5% and 2.5%, respectively. The applicable margin for base rate
loans is 6.0% and for LIBOR loans is 7.0%. The base rate is defined as the greatest of 2.5%, the prime rate (as announced from time to time by the Administrative Agent), the federal funds rate plus
0.5% or the one-month LIBOR rate plus 1.0%.

As
of September 30, 2010, there were no balances outstanding under our credit facility.

Item 4.    Controls and Procedures

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). The Company, under the supervision and with the participation of its
management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report). Based on that evaluation, the Chief Executive Officer and the
Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2010 to ensure that information relating to us and our consolidated subsidiary
required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussions regarding
required disclosure. It should be noted; however, that the design of any system of controls is limited in its ability to detect errors, and our system of controls has been designed to provide only
reasonable assurance of achieving the desired control objectives. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control
system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company
have been detected. There has been no change in our internal control over financial reporting during the three months ended September 30, 2010 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

50

---





Table of Contents

PART IIOTHER INFORMATION

Item 1.    Legal Proceedings

Antitrust Matters

In March 2008, we and certain of our employees, including members of management, received subpoenas issued by a federal grand jury 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 our corporate office in Dallas, Texas. On
August 28, 2008, we received a second subpoena for documents from the federal grand jury sitting in the Eastern District of Michigan. Current and former employees were also subpoenaed to
testify and testified before a federal grand jury in the Eastern District of Michigan and, more recently, before a federal grand jury in the Southern District of Ohio. The search warrant and
subpoenas that we and our employees received were connected with a broader industry inquiry by the Antitrust Division of the DOJ. The Home City Ice Company, Arctic Glacier International, Inc.,
and three former employees of Arctic Glacier entered guilty pleas regarding a conspiracy to allocate customers and territories in southeastern Michigan and the Detroit, Michigan, metropolitan area.
Sentencing of the three former Arctic Glacier employees took place on February 2, 3 and 4, 2010, sentencing of Arctic Glacier occurred on February 11, 2010, and Home City was
sentenced on March 2, 2010. On October 29, 2010, we were informed that the Antitrust Division of the DOJ will take no action against us or any of our employees in connection with its
investigation of the packaged ice industry.

On
March 25, 2008, we were 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, we
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, we were 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 made or received payment, and contracts and agreements with Michigan entities (the "Michigan CID"). We have 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. We have
complied with all requests for documents and information regarding these matters. We may in the future receive additional civil investigative demands or similar information requests from other states
participating in the multi-state investigation or conducting their own investigations.

On
November 19, 2008, we were notified by the Civil Fraud Division of the DOJ (the "Civil Fraud Division") that the Civil Fraud Division had opened an investigation with respect
to the Company. The Civil Fraud Division's investigation is expected to examine whether we may have violated the federal False Claims Act by submitting, or causing to be submitted, false claims to the
federal government as a result of entering into allegedly anticompetitive agreements which may have affected the sale of packaged ice to the government. On or about January 6, 2009, we received
a request for documents in connection with that investigation. We have substantially completed providing information and

51

---



Table of Contents

documents
requested by the Civil Fraud Division. The Civil Fraud Division's investigation is related to the investigation by the Antitrust Division of the DOJ.

We
are cooperating with the authorities in the multi-state attorney general investigation and the Civil Fraud Division investigation. We expect to continue to make available documents
and other information in response to any subpoenas, requests or civil investigative demands received from the investigating agencies. At this time, we are unable to predict the outcome of those
investigations, the possible loss or possible range of loss, if any, associated with the resolution of those investigations or any potential effect they may have on us, our employees or operations.

On
March 6, 2008, our Board of Directors formed a special committee of independent directors to conduct an internal investigation of these matters. The special committee retained
counsel to assist in its investigation. In order to maintain the independence of the special committee's investigation, officers and employees who were employed by us at the time the investigation
commenced have not had access to information obtained in the special committee's investigation or the results of the investigation to date. The investigation by the special committee and its counsel
is substantially complete. The special committee has not reached a determination that any violations of the antitrust laws have occurred.

Effective
September 13, 2008, Ben D. Key, our Executive Vice PresidentSales & Marketing, was placed on a paid leave of absence and relieved of his duties at
the direction of the special committee. The special committee found that Mr. Key violated our policies and was associated with matters that were under investigation.

Following
the announcement that the Antitrust Division of the DOJ had instituted an investigation of the packaged ice industry, a number of lawsuits, including putative class action
lawsuits, were filed against us, 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. On June 1, 2009, the Court appointed interim lead and liaison counsel for the putative direct and indirect purchaser classes. On September 15, 2009, the lead plaintiffs for
each of the putative direct and indirect purchaser classes filed consolidated
amended complaints. We and Arctic Glacier filed motions to dismiss both of these complaints. Home City filed a motion to dismiss the indirect purchaser complaint and entered into a proposed settlement
agreement with the direct purchaser plaintiffs. The motions by us and Arctic Glacier to dismiss the direct purchaser claims were denied by the Court on July 1, 2010. An order granting
preliminary approval of Home City's settlement with the direct purchasers and authorizing dissemination of notice was entered on September 2, 2010. The motions to dismiss the indirect purchaser
complaint are pending.

On
March 1, 2010, a putative class action Statement of Claim was filed against us in the Ontario Superior Court of Justice in Canada, 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. A case conference regarding this matter was
held on June 9, 2010. In that case conference, a schedule was set for proceedings relating to Plaintiffs' Motion for Certification of a Class.

On
March 8, 2010, a putative class action Statement of Claim was filed against us in the Court of Queen's Bench of Alberta, 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. This Statement of Claim has not yet
been served on us.

52

---



Table of Contents

One
direct action lawsuit has been 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 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, we filed an answer to the reinstated claim.
Discovery is ongoing in that matter.

We
intend to vigorously defend the pending lawsuits. At this time, we are 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 us or our operations.

SEC Inquiry

On or about October 21, 2008, we received notice that the Securities and Exchange Commission had initiated an informal inquiry
into matters that were the subject of the investigation by the special committee of our Board of Directors. On October 29, 2010, we were informed the Securities and Exchange Commission has
closed that inquiry and no action will be taken against us.

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 us and certain of our current or former senior officers. The complaints, which are substantially similar, allege that
the defendants misrepresented and failed to disclose the existence of, and our alleged participation in, an alleged antitrust conspiracy in the packaged ice industry. The complaints purport to assert
claims on behalf of various alleged classes of purchasers of our common stock. 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. We and the other defendants filed motions to dismiss the consolidated amended
complaint. A hearing was held on those motions on October 22, 2010. The motions were taken under advisement.

Two
stockholder derivative actions have been filed on our behalf in state district court in Dallas County, Texas, naming as defendants, among others, certain current and former officers
and members of our Board of Directors. Those cases have been consolidated in the 68th Judicial District Court of Dallas County, Texas. On September 27, 2010, a Consolidated Shareholder
Derivative Petition was filed. That 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 set for trial on August 2, 2011.

We
and the other defendants intend to vigorously defend the pending lawsuits. At this time, we are 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 us or our operations.

Other Matters

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.

53

---



Table of Contents

Item 1A.    Risk Factors

As a result of the refinancing of substantially all of our indebtedness in March 2010, and amending our credit facility in October
2010, certain of the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2009 have changed as set forth below.

Despite our current indebtedness levels, we may still incur significant additional indebtedness. Incurring more indebtedness could increase the risks associated with our
substantial indebtedness.

We may be able to incur substantial additional indebtedness, including additional secured indebtedness, in the future. The terms of the
indentures governing the First Lien Notes, the Second Lien Notes, and our New Credit Facility do not limit Reddy Holdings' ability to incur additional indebtedness. The terms of the indentures
governing the First Lien Notes, the Second Lien Notes, and our New Credit Facility limit, but do not prohibit, Reddy Corp from incurring additional indebtedness. In addition, the indentures and our
New Credit Facility allow us to issue additional First Lien Notes and Second Lien Notes under certain circumstances. Such additional notes will also be guaranteed by Reddy Holdings and will share in
the collateral that secures the First Lien Notes, the Second Lien Notes and the New Credit Facility. The indentures and our New Credit Facility also allow Reddy Corp to incur certain other additional
secured debt and allow any future foreign subsidiaries to incur additional debt. In addition, the indentures and our New Credit Facility do not
prevent Reddy Corp from incurring other liabilities that do not constitute indebtedness. If we incur new debt or other liabilities, the related risks that we now face could intensify.

We may not be able to generate sufficient cash to service our indebtedness and we may be forced to take other actions to satisfy our payment obligations under our
indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our future performance, which will be
affected by financial, business and economic conditions and other factors. We will not be able to control many of these factors, such as economic conditions in the industry in which we operate and
competitive pressures. Our cash flow may not be sufficient to allow us to pay principal and interest on our debt and to meet our other obligations. If our cash flows and capital resources are
insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our
indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In addition, the terms of existing or future debt agreements,
including our New Credit Facility and the indentures relating to the First Lien Notes and the Second Lien Notes, may restrict us from pursuing any of these alternatives.

Our New Credit Facility and the indentures governing the First Lien Notes and the Second Lien Notes impose significant operating and financial restrictions on us and our
future subsidiaries, which may prevent us from capitalizing on business opportunities and taking some actions.

The agreements that govern the terms of our debt, including the indentures that govern the First Lien Notes and the Second Lien Notes
and our New Credit Facility, impose significant operating and financial restrictions on us. These restrictions limit our ability to, among other things:



54

---



Table of Contents



In
addition, under our New Credit Facility we are required to satisfy and maintain specified financial ratios and other financial condition tests. Our ability to meet those financial
ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet those ratios and tests. A breach of any of these covenants could result in a default under our
New Credit Facility. Upon the occurrence of an event of default under our New Credit Facility, our lenders could elect to declare all amounts outstanding under our New Credit Facility to be
immediately due and payable and terminate all commitments to extend further credit. If more than $10.0 million of indebtedness is outstanding under our New Credit Facility at the time of any
such acceleration, an event of default will occur under the indentures governing the First Lien Notes and the Second Lien Notes.

As
a result of these covenants and restrictions, we are limited in how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or
to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. A breach of any of these covenants could result in a
default in respect of the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be due and payable
immediately and proceed against any collateral securing that indebtedness.

This,
in turn, could cause our other debt to become due and payable as a result of cross-acceleration provisions contained in the agreements governing such other debt. In the event that
some or all of our debt is accelerated and becomes immediately due and payable, we may not have the funds to repay, or the ability to refinance, such debt.

Except
as set forth above, there have been no material changes to the factors described in our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    (Removed and Reserved)

Item 5.    Other Information

None.

Item 6.    Exhibits

See Index to Exhibits on page 57.

55

---





Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

REDDY ICE HOLDINGS, INC.Date: November 5, 2010

By:

/s/ GILBERT M. CASSAGNE Gilbert M. Cassagne Chief Executive OfficerDate: November 5, 2010

By:

/s/ STEVEN J. JANUSEK Steven J. Janusek Chief Financial and Accounting Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

REDDY ICE CORPORATIONDate: November 5, 2010

By:

/s/ GILBERT M. CASSAGNE Gilbert M. Cassagne Chief Executive OfficerDate: November 5, 2010

By:

/s/ STEVEN J. JANUSEK Steven J. Janusek Chief Financial and Accounting Officer


56

---





Table of Contents

INDEX TO EXHIBITS

Exhibit No.

Description31.1

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.


---

57

---