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

                                    FORM 10-K

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the Fiscal Year ended December 31, 2001
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the transition period _______ to _______

                        Commission file number 333-29357

                                   ----------

                               PACKAGED ICE, INC.
             (Exact name of registrant as specified in its charter)

             TEXAS                                      76-0316492
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

                          3535 TRAVIS STREET, SUITE 170
                               DALLAS, TEXAS 75204
               (Address of principal executive offices) (Zip Code)

                                 (214) 526-6740
                (Issuer's telephone number, including area code)

                                   ----------

           Securities registered pursuant to Section 12(b) of the Act:
                     Common Stock, par value $0.01 per share

           Securities registered pursuant to Section 12(g) of the Act
                         Preferred Share Purchase Rights



Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes  X  No
          ---    ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
          ---

The aggregate market value of the voting stock held by non-affiliates of the
Registrant is approximately $14.7 million as of March 15, 2002. The total number
of shares of common stock, par value $0.01 per share, outstanding as of March
15, 2002 was 20,157,304.

                       Documents Incorporated By Reference

Items 10, 11, 12 and 13 of Part III have been omitted from this report, since
Packaged Ice, Inc. will file with the Securities and Exchange Commission, not
later than 120 days after the close of its fiscal year, a definitive proxy
statement, pursuant to Regulation 14A, which involves the election of directors.
The information required by Items 10, 11, 12 and 13 of Part III of this report,
which will appear in the definitive proxy statement, is incorporated by
reference into this Annual Report.

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                       PACKAGED ICE, INC. AND SUBSIDIARIES
                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2001

                                TABLE OF CONTENTS

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<Caption>

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<S>                                                                                                    <C>
PART I

     Item 1.    Business............................................................................     2
     Item 2.    Properties..........................................................................    11
     Item 3.    Legal Proceedings...................................................................    12
     Item 4.    Submission of Matters to a Vote of Security Holders.................................    12

PART II

     Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters...............    13
     Item 6.    Selected Financial Data.............................................................    15
     Item 7.    Management's Discussion and Analysis of Financial Condition and Results of
                Operations..........................................................................    16
     Item 8.    Financial Statements and Supplementary Data.........................................    27
     Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure    27

PART III

     Item 10.   Director and Executive Officers of the Registrant...................................    27
     Item 11.   Executive Compensation..............................................................    27
     Item 12.   Security Ownership of Certain Beneficial Owners and Management......................    27
     Item 13.   Certain Relationships and Related Transactions......................................    27

PART IV

     Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................    28
</Table>



                                      -1-
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                                     PART I

ITEM 1. BUSINESS

GENERAL

         Packaged Ice, Inc. is the largest manufacturer and distributor of
packaged ice in the United States and currently serves over 73,000 customer
locations in 30 states and the District of Columbia. We have grown significantly
since our incorporation in 1990, primarily through the implementation of a
consolidation strategy within the highly fragmented packaged ice industry. Since
April 1997, we have completed 84 acquisitions of traditional ice companies,
principally in the southern half of the United States. These acquisitions have
enabled us to enter new geographic regions, increase our presence in established
markets, gain additional production capacity, realize cost savings from
economies of scale and leverage the acquired companies' relationships with
grocery and convenience store customers. Our acquisition pace significantly
slowed starting in late 1999, and has subsequently stopped with the exception of
a few small tuck-in acquisitions (see Business - Acquisitions - Tuck-ins). We
generally do not anticipate any significant acquisition activity in the near
future, but may continue to evaluate such opportunities as they become
available. We currently are focused on increasing profitability and
strengthening our balance sheet through substantial debt reduction.

         We predominantly operate in two business segments: ice products and
non-ice products and operations. Ice products accounted for approximately 91%,
92% and 91% of revenues in 2001, 2000 and 1999, respectively, and consist of the
following two activities:

         o        the manufacture and delivery of traditional ice from a central
                  point of production to the point of sale; and

         o        the installation of Ice Factories, our proprietary machines
                  that produce, package, store and merchandise ice at the point
                  of sale through an automated, self-contained system.

         Our other business segment, non-ice products and operations, consists
of refrigerated warehousing, the manufacturing and sale of bottled water and the
leasing of ice production equipment. The majority of our non-ice operations were
acquired through acquisitions completed in 1998. We sold the majority of our ice
production equipment leasing business in the second quarter of 2001.

         At December 31, 2001, we owned or operated 51 ice manufacturing plants,
47 distribution centers, seven refrigerated warehouses and one bottled water
plant. Including an installed base of 2,956 Ice Factories, we had a combined,
rated ice manufacturing capacity of approximately 14,300 tons of ice per day.

TRADITIONAL ICE MANUFACTURING

         The packaged ice industry is highly fragmented and is led by Packaged
Ice and several regional, multi-facility competitors. In addition, the industry
includes numerous local and regional companies of varying size and competitive
resources. Traditional ice manufacturers produce and package ice at centrally
located facilities and normally distribute to a limited radius of approximately
100 miles from the point of production. Due to high product transportation and
storage costs, the ice business has historically been a regional service
business. As a result of geographic constraints, success in the ice business
depends upon an efficient manufacturing and




                                      -2-
<PAGE>

distribution system with high-density customer distribution routes in a region,
high customer concentration within a market area and the ability to ensure
prompt and reliable delivery during peak seasonal months. We believe that our
consolidation of traditional ice manufacturers within a geographic region
provides efficiencies in manufacturing and distribution largely due to higher
density of customer sites and the flexibility to shift production among our
manufacturing plants within a region. These efficiencies provide us with an
advantage over our competitors.

         We believe that packaged ice products are purchased as needed by
consumers and that such purchases are relatively price insensitive due
principally to the low cost of the product and absence of substitute products.
The industry is highly seasonal, characterized by peak demand occurring during
the warmer months of May through September, with an extended selling season
occurring in the southern United States. On a year-to-year basis, demand remains
relatively stable and is generally only adversely affected by abnormally cool or
rainy weather within a region. We believe that our geographic diversification
helps mitigate the potential adverse impact of abnormal weather patterns in any
particular market. National weather patterns resulting in prolonged cold and
rainy weather would adversely impact our results of operations.

THE ICE FACTORY

         The Ice Factory is an automated system that is capable of producing and
packaging 240 bags of ice per day. Our average system produces approximately
20,000 bags per year. It is most frequently used in high volume supermarkets and
other commercial locations, such as construction staging areas and large
manufacturing plants. The placement of the Ice Factory at customer locations is
based upon a thorough review of each site, which primarily focuses on historical
ice sales at the site. Also included in the site review is an analysis of the
surrounding trade area, the level of overall retail activity, the level of
direct competition and the proximity of the site to other Ice Factories. Upon
completion of this review, a determination is made as to the viability of the
location and whether single or multiple machines are required at the time of
initial installation. We own or lease the machines from third parties and charge
our customers for empty bags purchased and delivered. We generally pay for all
installation and maintenance costs, while the retailer provides and pays for the
cost of utilities.

         In late 2001, we began entering into management agreements with certain
other traditional ice manufacturers. Under these agreements, the manufacturer
agrees to operate and maintain the Ice Factories in good working order as well
as provide certain billing and collection services to the Ice Factory customers.
Packaged Ice, Inc. retains all the ownership expenses associated with the Ice
Factories including property taxes, lease payments and depreciation. Through
March 15, 2002, we have entered into three such agreements in California, Oregon
and Washington representing approximately 800 Ice Factories (out of our total of
2,956).

         The Ice Factory, when combined with traditional delivery methods,
provides us and our strategic partners with numerous advantages over companies
with only traditional ice manufacturing and delivery. Some of these advantages
include:

         o        a flexible delivery system designed to supply high volume
                  locations and capable of cost-effectively servicing a market
                  in excess of 100 miles from traditional ice manufacturing
                  facilities;

         o        the ability to redistribute production from our traditional
                  ice facilities to new customers as well as satisfy seasonal
                  peak demand at stores with Ice Factories; and

         o        reduced production costs (the customer pays for electricity
                  and water), storage costs and distribution costs.



                                      -3-
<PAGE>

         An Ice Factory typically consists of one or more standard ice cubers,
an ice merchandiser built to our specifications and a bagging machine. A Texas
company manufactures the bagging component, the heart of the Ice Factory, under
an exclusive original equipment manufacturing agreement. To guard against
product contamination and satisfy consumer demand for high quality, sanitary
ice, the Ice Factory has been engineered to meet all National Sanitation
Foundation specifications for ice production, contains a patented automatic
sanitizing system and is Underwriters' Laboratory approved. We have obtained
patents on certain of the technologies used in the bagging device component of
the Ice Factory. We believe that our patents cover all material patentable
technology currently being used in the bagging device.

BUSINESS STRATEGY

         Our business strategy is to strengthen our position as the leading
packaged ice company in North America. We plan to increase profitability through
a combination of debt reduction, margin enhancements through cost savings,
selective new Ice Factory placements, additional Ice Factory management
agreements, internal growth and selective acquisitions. We believe that our
size, national scope, industry experience and our proprietary Ice Factory give
us significant competitive advantages in pursuing our business strategy. These
advantages have enabled us to develop an efficient regional production and
distribution network and to service national accounts through an expanded
geographic presence. As a result, we believe that we compete effectively with
smaller, local packaged ice companies.

 DISTRIBUTION

         Due to high product transportation and shipping costs, the ice business
has historically been a regional service business in which manufacturers produce
and package ice at centrally located facilities and distribute to a limited
market radius of approximately 100 miles. Due to these geographic constraints
and the limited amount of product differentiation in the packaged ice industry,
we focus on maintaining an efficient service, distribution and pricing system in
each of our markets. We deliver ice through both traditional distribution and
the on-site Ice Factory system. We believe that this unique combination of
distribution platforms enables us to redistribute ice production efficiently
from our traditional ice facilities to additional customers and to supplement
Ice Factory production during seasonal peak demand.

         Traditional Distribution. We produce and bag ice at centrally located
manufacturing facilities and subsequently store the ice or transport it directly
to retail and commercial customers. To store ice inventory, we own or rent
appropriate freezer space. During the peak summer months, we may lease
additional trucks and purchase additional ice from other producers to maintain
high service levels and customer goodwill.

         We currently serve over 70,000 customer locations, principally through
the use of our company owned ice merchandisers (small cold storage boxes) that
are installed at most customer locations. Our growth has allowed us to develop
an efficient production and distribution network by providing us with customer
density, additional production capacity and dedicated distribution centers. The
increased customer density has improved routing efficiencies and reduced our
transportation costs, which represent our largest cost component. In addition,
the acquisition of additional production capacity in selected markets has
allowed us to avoid "out of ice" situations and related lost sales during peak
periods. Further, by acquiring dedicated distribution centers and refrigerated
warehouse facilities, we have reduced our storage costs. We also sell to
wholesale distributors, who resell the ice to retail customers.



                                      -4-
<PAGE>

         Ice Factory. By producing and bagging ice at the customer's location,
the Ice Factory reduces our distribution, labor and energy costs because
retailers provide and pay for the cost of utilities. Transportation costs, which
are the most significant costs of traditional ice delivery, are also eliminated
by on-site production. As a result of these cost savings, we believe that the
Ice Factory provides us with operating efficiencies in high volume locations
compared to traditional ice delivery.

         We believe that providing frequent, regular and reliable service and
support to our customers is one of the most important elements in operating our
Ice Factory network. In 2000, we began using a national communication company as
our exclusive supplier of wireless remote monitoring services for the Ice
Factories. This supplier's proprietary system employs the Internet to
efficiently and effectively monitor refrigerator and freezer equipment. This
system eliminates the need for and cost of dedicated telephone lines. The result
is improved communication from the Ice Factories to our national and regional
service centers at a reduced cost as compared to our previous system's cost.
Additionally, we have a routine route servicing system, which utilizes trained
service representatives to perform the regularly scheduled service procedures,
and maintain toll-free telephone support for responding to customer calls
regarding repairs and maintenance.

ICE PRODUCTS

         We market our ice products to satisfy a broad range of customers,
primarily under the Reddy Ice(TM) brand name. We produce our ice in cube,
half-moon, cylindrical, crushed and block forms to satisfy customer demands. Our
primary ice product is cocktail ice packaged in seven pound bags, which we sell
principally to convenience stores and supermarkets. We also sell cocktail ice in
assorted bag sizes ranging from 16 to 50 pounds to restaurants, bars, stadiums,
vendors and caterers. In addition, we sell block ice in 10, 25 and 300 pound
sizes, primarily to commercial, agricultural and industrial customers. We
continue to search for ways to enhance our existing products and create new
ones.

DISPOSITIONS

         As of result of the acquisitions made over the last several years and
the related efforts to consolidate our operations in the most efficient manner,
we own real estate and equipment that is no longer needed. During 2001, as part
of our strategy to reduce our debt leverage and make better use of our assets,
we began a program to evaluate and dispose of these excess assets. During 2001,
we sold several excess assets, non-core assets and our traditional ice business
in California for cash proceeds of approximately $11 million. The excess and
non-core assets sold included certain pieces of real estate and equipment, two
small refrigerated warehouses and the majority of our ice production equipment
sale and leasing business.  We are continuing to market certain excess and
non-core assets and see this as an important part of our strategy to reduce our
leverage over the next several years.

ACQUISITIONS

         Beginning in 1997, we underwent a consolidation strategy within the
highly fragmented packaged ice industry. Through December 31, 2001, we completed
84 acquisitions, primarily between April 1997 and August 1999. Significant
acquisitions have included the purchase of Reddy Ice Corporation ("Reddy") from
Suiza Foods Corporation in April 1998 for approximately $180.8 million in cash,
and the purchase of Cassco Ice & Cold Storage, Inc. ("Cassco") in July 1998 for



                                      -5-
<PAGE>

approximately $59 million in cash. Reddy, prior to the acquisition, had been
active in the consolidation of the packaged ice industry, having made 28
acquisitions from January 1997 to April 1998. Cassco was a leading regional
producer and distributor of packaged ice products and was an owner/operator of
refrigerated warehouses in the Mid-Atlantic region. Due to the decline in our
common stock value after our initial public offering in January 1999 and our
substantial overall leverage, we have ceased most acquisition activity.

         Our acquisition strategy was focused on expanding our traditional ice
operations into new markets across the United States and increasing our presence
in markets we served. In substantially all acquisitions, we required the seller
or its principal shareholders to enter into a covenant not to compete with our
company. In addition, we sought to retain key management of the acquired
companies in many instances. Traditional ice companies we have acquired
generally can be classified into one of two categories as follows:

         o        Market Leaders. As part of our strategy to expand our
                  traditional ice operations into new markets and strengthen our
                  national presence, we focused our acquisition efforts on
                  companies with a leading market share position in an
                  identified market area. These acquisitions represented an
                  initial entry into a geographic area, or, alternatively, were
                  made subsequent to the placement of Ice Factories with key
                  customer accounts in a region. The acquisition of leading
                  competitors was designed to give us critical mass required to
                  provide a high level of service, additional customer
                  relationships for the potential placement of Ice Factories and
                  a platform to integrate tuck-in acquisitions, as described
                  below.

         o        Tuck-ins. Tuck-in acquisitions are smaller acquisitions
                  intended to add incremental production and/or distribution
                  capabilities in an established market. Since existing
                  operations can be leveraged, substantial cost savings can be
                  realized while generating incremental revenues and enhancing
                  our market presence and ability to service customer accounts.
                  If the tuck-in acquisition results in redundant ice
                  manufacturing capacity, the related production equipment can
                  be readily dismantled and redeployed to a region in need of
                  additional capacity, or sold.

Our acquisitions have provided:

         o        increased cash flow;

         o        a national scope to better service large customers;

         o        economies of scale and cost savings through the consolidation
                  of redundant manufacturing and distribution facilities and
                  administrative and selling functions; and

         o        improved access to key markets and new customers.

NON-ICE PRODUCTS AND OPERATIONS

         We also derive revenues from other goods and services including
refrigerated warehousing, the manufacturing and sale of bottled water, and the
sale and leasing of ice production equipment. We sold the majority of our ice
production equipment leasing business in the second quarter of 2001. Revenues
from these non-ice products and operations over the last three years have
accounted for less than 10% of our total revenues.




                                      -6-
<PAGE>




RAW MATERIALS

         We have not experienced any material supply problems in the past with
respect to our business segments. Except with respect to our water supply and
electricity in specific markets, we are not dependent upon any single supplier
for materials used in the manufacturing and packaging of our ice products.

         Electricity is a main component of our manufacturing process. Over the
last three years, we had fixed our electricity cost at 95% of our 1998 rates
through a supply and management agreement with a third party. That third party
filed for protection under Chapter 11 of the United States Bankruptcy Code on
December 2, 2001. Although that supply and management agreement has been
breached, we do not anticipate any supply problems related to our electricity
needs. We have begun to take steps to minimize our electricity costs going
forward, although we have anticipated in our operating plan additional costs
related to our electricity use in 2002 since we are now paying market rates.
Significant increases in electrical rates in areas where we manufacture product
could have a negative impact on our results of operations.

         We use large quantities of plastic bags. Bag usage for 2002 is expected
to approximate 400 million seven-pound equivalent bags. There are numerous
plastic bag manufacturers throughout the United States with the capability of
providing for our plastic bag needs. We currently purchase bags from several
companies to ensure price competition, although one company dominates the
industry. Historically, market prices for plastic bags have fluctuated in
response to a number of factors, including changes in polyethylene prices. A
significant, abrupt change in the price of plastic bags could have a material
adverse effect on our operating margins as we may not have the ability to pass
on our increased costs to our customers.

         We also use large quantities of fuel in our distribution process.
Numerous vendors throughout the United States provide the fuel for our vehicles.
We expect fuel usage in 2002 to approximate five million gallons. Market prices
for fuel have fluctuated widely in the past due primarily to differing events
throughout the world. Significant increases in fuel prices could have a material
adverse effect on our business as we may not be able to pass this expense
through to our customers.

CUSTOMERS

         We market our ice products to a broad range of customers, including
supermarket chains, convenience stores, wholesale ice and food distributors,
commercial users, resorts and restaurants, agricultural buyers, and competitive
producers and self-suppliers who experience supply shortages. The primary
purchasers of our traditional ice products and users of our Ice Factory are
retailers with no internal ice production capacity. We believe that reasonable
pricing, when combined with quality service, results in customer loyalty.

         We have a diversified customer base, with our largest customer
accounting for less than 6% of sales in 2001. In addition, we have a
geographically diversified customer base, with customer locations in 30 states,
primarily in the southern half of the United States and the District of
Columbia. Some of our larger national accounts include convenience and petroleum
store chains Circle K, 7-Eleven, ChevronTexaco, Shell and ExxonMobil and grocery
store chains Albertson's, Kroger, Safeway and Wal-Mart/Sam's Club. Major
regional customers include convenience and petroleum store chains Diamond
Shamrock, The Pantry and RaceTrac, and grocery store chains Publix, Winn-Dixie,
Food Lion and HEB. We believe the geographic breadth of our customer base helps
to protect us from the effects of adverse weather in a



                                      -7-
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particular region, such as reduced sales due to abnormally cool or rainy
conditions, although national weather patterns may have a material adverse
effect on our business.

COMPETITION

         Competition in the packaged ice industry is based primarily on price,
service and quality. To compete successfully, an ice manufacturer must be able
to increase production and distribution capacity substantially on a seasonal
basis while maintaining cost efficiency. We believe that our high quality
traditional production facilities, financial resources, high regional market
share and associated route density and proprietary Ice Factory capability
provide us with numerous competitive advantages. We also believe that our
geographic diversification and the advantages of the Ice Factory for high volume
retailers have helped us develop relationships with certain national supermarket
chains and will continue to assist us in our penetration of this market.

         The traditional packaged ice industry is highly competitive. In
addition to our direct competition, numerous convenience and grocery retailers
operate commercial ice plants for internal use or manufacture and bag ice at
their store locations. Our ice products generally do not face competition within
a particular store since only one manufacturer typically serves a retail site.
The traditional packaged ice industry in the United States is led by Packaged
Ice and several regional, multi-facility competitors and, in addition, includes
numerous local and regional companies of varying sizes and competitive
resources.

INFORMATION SYSTEMS

         Internal information systems are critical to our ability to operate
efficiently. We are able to monitor individual manufacturing plant and Ice
Factory performance on a daily basis through automated reporting systems. This
information enables us to track detailed cost and profitability information,
identify opportunities to redistribute traditional manufacturing capacity among
markets, assess the cost-effectiveness of an Ice Factory at a particular
location and analyze market sales trends. In addition, we have all of our
accounting and financial reporting functions integrated into our satellite-based
system that is installed in all reporting locations, which facilitates
centralized cash management, timely financial reporting, consistent reporting
formats and improved inventory tracking.

INTELLECTUAL PROPERTY

         We regard the Ice Factory as proprietary and rely primarily on a
combination of patents, nondisclosure and confidentiality agreements and other
copyright protection methods to secure and protect our intellectual property
rights. We hold or have exclusive rights to several patents relating to the Ice
Factory. In addition, we have developed or acquired a number of trademarks (both
registered and common law) and trade names for use in our ice business, and we
hold licenses for the use of additional trademarks from third parties. The use
of our trademarks has created goodwill and results in product differentiation.
However, we do not believe that the loss of any of our trademarks would have a
material adverse effect on our operations.

GOVERNMENT REGULATION

         The packaged ice industry is subject to various federal, state and
local laws and regulations. These require us, among other things, to obtain
licenses for our plants and machines, to pay annual license and inspection fees,
to comply with certain detailed design and quality



                                      -8-
<PAGE>

standards regarding our plants and the Ice Factories and to continuously control
the quality and quantity of our ice.

         Our packaged ice products are subject to federal and state regulation
as a food pursuant to the Federal Food, Drug and Cosmetic Act, regulations
promulgated thereunder by the Food and Drug Administration and analogous state
statutes. These statutes and regulations impose comprehensive food manufacturing
practices governing the sanitary conditions of the facilities where ice is
manufactured, the design and maintenance of the equipment used to manufacture
the ice, the quality of source water and the sanitary practices of employees
during ice production. We cannot predict the types of government regulations
that may be enacted in the future by federal, state or local governments or how
existing or future laws or regulations will be interpreted or enforced. The
enactment of more stringent laws or regulations or a stricter interpretation of
existing laws and regulations may require additional expenditures by us, some of
which could be material. Various states have imposed additional requirements
including (a) quarterly testing of the ice for the presence of microbes and
certain substances regulated under the federal Safe Drinking Water Act, (b)
specific requirements for keeping ice packaging operations separate from other
activities and (c) labeling requirements for the bags used, including the name
of the company, the manufacturing location and the net weight. Certain of our
Ice Factories and ice manufacturing facilities are subject to routine and random
safety, health and quality inspections. We believe that our facilities,
manufacturing practices and Ice Factories are in substantial compliance with all
applicable federal, state and local laws and regulations and that we will be
able to maintain such substantial compliance in the future.

         We are subject to certain health and safety regulations including
Occupational Safety and Health Act regulations. These regulations require us to
comply with certain manufacturing, health and safety standards to protect our
employees from accidents.

ENVIRONMENTAL MATTERS

         Our ice manufacturing and ice storage operations are subject to
federal, state and local environmental laws and regulations. As a result, we
have the potential to be involved from time to time in administrative or legal
proceedings relating to environmental matters. There can be no assurance that
any environmental liabilities will not be material. We cannot predict the types
of environmental laws or regulations that may be enacted in the future by
federal, state or local governments; how existing or future laws or regulations
will be interpreted or enforced; or what types of environmental conditions may
be found to exist at our facilities. The enactment of more stringent laws or
regulations or a stricter interpretation of existing laws and regulations may
require additional and unpredictable expenditures.

         To reduce our potential environmental exposure, we have enacted
corporate management and engineering control programs, including the use of an
outside professional environmental engineering and consulting firm to conduct
annual audits of all facilities, as well as to provide technical and regulatory
assistance to our operating units.

         We generate and handle certain hazardous substances in connection with
the manufacture and storage of packaged ice. The handling and disposal of these
substances and wastes is subject to federal, state and local regulations, and
site contamination originating from the release or disposal of such substances
or wastes can lead to significant liabilities. In addition, we have historically
used Freon refrigerants, some of which have been banned from production.



                                      -9-
<PAGE>

         We have enacted waste minimization management programs at all operating
units to reduce the use and storage of hazardous substances, as well as to
identify alternative non-hazardous materials to replace the regulated Freon
compounds (R-12) wherever possible. We believe that the numerous,
environmentally neutral refrigerants available and currently in development will
assure that the Freon R-12 ban will have little, if any, effect on the results
of our operations.

         Certain of our current and former facilities are located in industrial
areas and have been in operation for many years. It is possible that current or
historic activities on these properties will present environmental issues in the
future, the precise nature of which we cannot predict. We could, however, become
liable for site contamination and remediation at properties which we currently
or formerly owned. Although such liability has not had a material adverse effect
on our financial condition or operating results in the past, we do not have
knowledge of claims that could be expected to have a material adverse effect on
our financial condition or operations. There can be no assurance that we will
not incur significant costs in connection with our historical handling or
disposal of such substances and wastes.

         We have enacted programs to reduce the level of exposure from current
and past operations by the continued upgrading of training, management and
engineering controls. In addition, we have continued our program of requiring
thorough environmental due diligence reviews prior to acquisition of all new
facilities, as well as a continuing annual environmental review of our existing
operations to ensure continued environmentally sound, safe operations.

EMPLOYEES AND LABOR RELATIONS

         At December 31, 2001, we employed 1,743 employees, of which five were
represented by a union or were subject to a collective bargaining agreement.
Each year, during the second and third quarters, our labor force increases to
over 3,000 employees due to seasonal increases in ice demand. We meet the
majority of these seasonal hiring needs through the use of temporary employment
agencies. We generally have not experienced any difficulty in meeting these
seasonal employment needs. We have never experienced a work stoppage due to
labor difficulties and we believe our relationship with our employees is good.

GENERAL ECONOMIC TRENDS AND SEASONALITY

         Our results of operations are generally affected by the economic trends
in our market area, but results to date have not been significantly impacted by
inflation, except with respect to health insurance and fuel. If we experience an
extended period of high inflation, which affects multiple expense items, we
believe that we will be able to pass on these higher costs to our customers.

         The ice business is highly seasonal. We experience seasonal
fluctuations in our net sales and profitability with a disproportionate amount
of our net sales and a majority of our net income typically realized in our
second and third calendar quarters. We believe that over 60% of our revenues
will occur during the second and third calendar quarters when the weather
conditions are generally warmer and demand is greater, while less than 40% of
our revenues will occur during the first and fourth calendar quarters when the
weather is generally cooler. As a result of seasonal revenue declines and the
lack of proportional corresponding expense decreases, we will most likely
experience lower profit margins and possibly even 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



                                      -10-
<PAGE>

adverse weather during this peak selling period if the weather is unusually cool
or rainy on a more national or regional basis.

ITEM 2. PROPERTIES

         We maintain our principal executive offices in Dallas, Texas, where we
lease approximately 10,162 square feet of space. The lease in Dallas expires on
December 31, 2004. At December 31, 2001, we owned or leased 51 manufacturing
plants, 47 distribution centers, seven refrigerated warehouses and one bottled
water plant. Including an installed base of 2,956 Ice Factories, we had a
combined, rated ice manufacturing capacity of approximately 14,300 tons per day.
In addition, we have regional service centers for our Ice Factories located
throughout our market areas where our traditional ice facilities are not
present. We believe that our current physical properties, along with our planned
capital expenditures, are adequate for us to execute our current business
strategy.

         Certain manufacturing and distribution facilities may be permanently
closed in conjunction with our continuing consolidation plans, while others may
be closed on a seasonal basis depending upon production requirements. In
addition to the facilities listed below, we have 11 idle properties that are
being marketed for disposition. We have idle production equipment at certain
distribution centers and at the 11 properties that are being marketed for
disposition that is awaiting disposal or redeployment. This idle equipment has a
combined, rated ice manufacturing capacity of over 1,000 tons per day and is
excluded from the manufacturing capacity amounts in the table below.

         The following is a list of our active facilities as of March 15, 2002:

<Table>
<Caption>

                                                                                                  TRADITIONAL
                                                                                                 MANUFACTURING
                                           NO. OF         NO. OF        NO. OF       BOTTLED       CAPACITY
                                        MANUFACTURING  DISTRIBUTION  REFRIGERATED     WATER       (RATED TONS
                                         FACILITIES      CENTERS      WAREHOUSES      PLANT         PER DAY)
                                        -------------  ------------  ------------   -----------  -------------
<S>                                     <C>            <C>           <C>            <C>          <C>
Alabama ..............................             3             1            --             1           600
Arizona ..............................             3             2            --            --           984
Arkansas .............................             1             4            --            --           240
California ...........................             1            --            --            --            80
Colorado .............................             1            --             1            --           280
District of Columbia .................             1            --            --            --           140
Florida ..............................             9             5            --            --         1,797
Georgia ..............................             2             1            --            --           920
Louisiana ............................             3             6            --            --           720
Maryland .............................            --             1            --            --            --
Mississippi ..........................            --             2            --            --            --
Missouri .............................             1            --            --            --           180
Nevada ...............................             1            --             1            --           260
New Mexico ...........................             1             1            --            --           160
North Carolina .......................            --            --             1            --            --
Oklahoma .............................             3             2            --            --           502
Tennessee ............................             2            --            --            --           408
Texas ................................            14            16            --            --         2,994
Utah .................................             1            --            --            --           120
Virginia .............................             3             6             4            --           880
West Virginia ........................             1            --            --            --           120
                                         -----------   -----------   -----------   -----------   -----------
     Total ...........................            51            47             7             1        11,385
                                         ===========   ===========   ===========   ===========   ===========
</Table>





                                      -11-
<PAGE>




ITEM 3. LEGAL PROCEEDINGS

         We are involved in various claims, lawsuits and proceedings arising in
the ordinary course of business. While there are uncertainties inherent in the
ultimate outcome of such matters and it is difficult to determine the ultimate
costs that we may incur, we believe the resolution of such 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         During the quarter ended December 31, 2001, no matters were submitted
to a vote of security holders.



                                      -12-
<PAGE>





                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our common stock began trading on the Nasdaq National Market System
under the symbol "ICED" upon the pricing of our initial public offering in
January 1999. On May 5, 2000, we began trading our common stock on the American
Stock Exchange under the symbol "ICY". The following table sets forth the high
and low closing prices of our common stock, for the periods indicated:

<Table>
<Caption>

                                                                PRICE RANGE
                                                     -------------------------------
                                                          HIGH              LOW
                                                     -------------     -------------
<S>                                                  <C>               <C>
2001
         First Quarter.............................  $        2.19     $        1.37
         Second Quarter............................  $        2.19     $        1.50
         Third Quarter.............................  $        2.21     $        1.50
         Fourth Quarter............................  $        1.84     $        1.00
</Table>

<Table>
<Caption>

                                                                PRICE RANGE
                                                     -------------------------------
                                                          HIGH              LOW
                                                     -------------     -------------
<S>                                                  <C>               <C>
2000
         First Quarter.............................  $        5.06     $        3.25
         Second Quarter............................  $        4.19     $        3.25
         Third Quarter.............................  $        4.25     $        2.75
         Fourth Quarter............................  $        3.00     $        1.19
</Table>



         On March 15, 2002, the closing sales price of our common stock, as
reported by the American Stock Exchange, was $1.05 per share. As of March 15,
2002, we had approximately 144 shareholders of record. We estimate that there
were approximately 1,800 beneficial holders of our common stock as of March 15,
2002.

         We have never declared or paid any cash dividends on our common stock.
In addition, provisions of our revolving credit facility, our 10% exchangeable
preferred stock and, in some instances, our 9 3/4% senior notes prohibit us from
paying dividends. Further, we intend to retain any future earnings to reduce
debt and fund growth. Accordingly, we do not anticipate paying any cash
dividends in the foreseeable future.

         On February 3, 1999, we completed an initial public offering of our
common stock by issuing 10,750,000 shares at a price of $8.50 per share. The
gross proceeds from the public sale of $91.4 million were reduced by fees and
costs to underwriters and other professionals in the amount of $8.3 million,
resulting in net proceeds to us of $83.1 million. Simultaneously, we utilized
$43.6 million of the net proceeds to redeem our outstanding 13% exchangeable
preferred stock. The balance of the net proceeds was used to repay the
outstanding balance on our line of credit.



                                      -13-
<PAGE>




         The following information relates to the sales and other issuances of
our securities within the past three fiscal years, none of which were registered
pursuant to the Securities Act of 1933 as amended (the "Securities Act"). Unless
otherwise indicated, all of the following issuances were exempt from
registration under Section 4(2) of the Securities Act:

         On February 3, 1999, we issued 974,603 shares of common stock in a
         cashless exercise of warrants with an exercise price of $0.01 per
         share. These warrants were held by the owners of the 13% exchangeable
         preferred stock. We also issued 481,887 shares of common stock in
         payment of the redemption premium on our 13% exchangeable preferred
         stock Finally, we our Series A and Series B preferred stock with put
         redemption and common stock with put redemption were converted into
         994,831 shares of common stock.

         On March 5, 1999, we issued 130,528 shares of common stock in exchange
         for warrants to purchase common stock for $0.01 per share. On May 17,
         1999 and July 2, 1999, we issued an aggregate 25,594 shares of common
         stock in exchange for warrants to purchase common stock for $0.01 per
         share. All of these warrants were issued in 1997 in connection with a
         $75 million issuance of 12% senior notes.

         During 1999, we issued 277,736 shares of common stock valued between
         $5.05 and $6.31 per share as partial consideration for acquisitions and
         real estate purchases completed during 1999.

         During 2000 and 2001, we issued shares of common stock in connection
         with the cashless exercise of warrants with an exercise price of $0.01.
         All of these warrants were issued in 1997 in connection with a $75
         million issuance of 12% senior notes. The shares were issued as
         follows: 12,765 shares on July 19, 2000, 5,674 shares on September 26,
         2000 and 203,347 shares on July 16, 2001.

         Although not required for disclosure under this Form 10-K, the
following information relates to certain sales and other issuances of our
securities within the past three fiscal years which were registered pursuant to
the Securities Act:

         During 1999, we issued 1,046,220 shares of common stock valued between
         $4.82 and $5.18 from our "acquisition shelf" as partial consideration
         for acquisitions completed during 1999

         During 2000, we issued 66,936 shares of common stock to employees under
         our 2000 Employee Stock Purchase Plan at a price ranging between $2.34
         and $3.51 per share.

         On August 31, 2001, we issued 100,000 shares of common stock in
         connection with the exercise of employee stock options at a price of
         $1.60 per share.

         During 2001, we issued 415,906 shares of common stock to employees
         under our 2000 Employee Stock Purchase Plan at a price ranging between
         $1.17 and $1.49 per share.




                                      -14-
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

         The following table sets forth, for the periods and dates indicated,
selected consolidated data derived from our audited consolidated financial
statements. The following information should be read in conjunction with our
consolidated financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this report.

<Table>
<Caption>

                                                                                       YEAR ENDED DECEMBER 31,
                                                                  -------------------------------------------------------------
                                                                    2001         2000         1999         1998          1997
                                                                  ---------    ---------    ---------    ---------    ---------
                                                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                               <C>          <C>          <C>          <C>          <C>
Operating Data:
   Revenues ...................................................   $ 244,247    $ 244,044    $ 231,723    $ 179,861    $  29,632
   Cost of sales ..............................................     156,434      149,889      139,386      108,276       18,724
                                                                  ---------    ---------    ---------    ---------    ---------
   Gross profit ...............................................      87,813       94,155       92,337       71,585       10,908
   Operating expenses .........................................      37,372       37,139       37,738       31,741        7,636
   Depreciation and amortization expense ......................      33,816       28,631       30,526       20,729        5,130
   Other income, net ..........................................          19           17           21            4            4
   Gain on disposition of assets ..............................          49           --           --           --           --
   Interest expense, net ......................................     (36,686)     (32,470)     (30,409)     (24,705)      (6,585)
   Extraordinary loss on refinancing ..........................          --           --           --      (17,387)          --
                                                                  ---------    ---------    ---------    ---------    ---------
   Net loss ...................................................   $ (19,993)   $  (4,068)   $  (6,315)   $ (22,973)   $  (8,439)
                                                                  =========    =========    =========    =========    =========
   Net loss available to common shareholders ..................   $ (23,451)   $  (7,202)   $  (9,393)   $ (28,891)   $  (8,637)
                                                                  =========    =========    =========    =========    =========

Loss per Basic and Diluted Share of Common Stock (1):
   Net loss before extraordinary item
     available to common shareholders .........................   $   (1.19)   $   (0.37)   $   (0.53)   $   (2.35)   $   (2.40)
   Extraordinary item .........................................          --           --           --        (3.56)          --
                                                                               ---------    ---------    ---------    ---------
   Net loss available to common shareholders ..................   $   (1.19)   $   (0.37)   $   (0.53)   $   (5.91)   $   (2.40)
                                                                  =========    =========    =========    =========    =========

Weighted Average Common Shares Outstanding (1):
   Basic and diluted ..........................................      19,756       19,340       17,565        4,886        3,600

Other Financial Data:
   Cash flows - operating activities ..........................   $  19,153    $  19,102    $  14,409    $  16,320    $  (3,292)
   Cash flows - investing activities ..........................      (7,602)     (29,368)     (37,128)    (314,788)     (61,541)
   Cash flows - financing activities ..........................      (2,365)       7,674       22,911      287,070       79,488
   EBITDA (2) .................................................      50,460       57,033       54,620       39,848        3,276
   Capital expenditures (3) ...................................      16,510       23,165       30,413       22,830       10,765
   Dispositions (4) ...........................................      10,968        1,967        4,496           --          148

Balance Sheet Data:
   Total cash and cash equivalents and restricted cash (5) ....   $  16,913    $   1,027    $   3,619    $   3,427    $  14,825
   Total assets ...............................................     460,784      470,660      462,332      440,257      122,300
   Total current and non-current debt (6) .....................     332,667      332,270      322,290      338,381       67,501
   Total exchangeable preferred stock .........................      37,181       33,723       30,589       66,546       25,198
   Total preferred stock with put redemption option ...........          --           --           --        3,223        3,223
   Total common stock with put redemption option ..............          --           --           --        1,972        1,972
   Total shareholders' equity .................................      52,477       75,369       82,369        1,300       15,819
</Table>


(1)   Shares of common stock issuable under stock options and warrants have not
      been included in the computation of diluted loss per share and the
      weighted average common shares outstanding as their effect is
      antidilutive.

(2)   EBITDA represents earnings before interest, income taxes, depreciation,
      amortization, the gain or loss on disposition of assets and extraordinary
      items. Packaged Ice has included EBITDA data (which are not measures of
      financial performance under accounting principles generally accepted in
      the United States of America) because it understands such data are used by
      certain investors to determine a company's historical ability to service
      its indebtedness. EBITDA should not be considered by an investor as an
      alternative to net income, as an indicator of Packaged Ice's operating
      performance or as an alternative to cash flow as a measure of liquidity.
      EBITDA may not be comparable to similarly captioned items presented by
      other companies.

(3)   Includes all cash and non-cash amounts incurred by Packaged Ice but does
      not include expenditures used to acquire traditional ice businesses.

(4)   Includes all proceeds from dispositions of property and equipment.

(5)   Includes restricted cash of $6.7 million at December 31, 2001. Restricted
      cash is collateralizing outstanding standby letters of credit.

(6)   Includes the line of credit and the current and noncurrent portions of
      long-term obligations.



                                      -15-
<PAGE>





ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         The following discussion should be read in conjunction with the
"Selected Financial Data," and our consolidated financial statements, including
the notes thereto beginning on page F-1, and the other information appearing
elsewhere in this report.

GENERAL

         We view the manufacture and distribution of ice through traditional ice
manufacturing and the Ice Factory as our predominant business segment. Our other
business segment, non-ice products and operations, consists of refrigerated
warehousing, bottled water and sales and leasing of ice production equipment.
The majority of non-ice operations were acquired through acquisitions completed
in 1998.

UNCERTAINTY OF FORWARD LOOKING STATEMENTS AND INFORMATION

         Other than statements of historical facts, statements made in this Form
10-K, statements made by us in periodic press releases or oral statements made
by our management to analysts and shareholders within the meaning of such terms
under the Private Securities Litigation Reform Act of 1995 and statements made
in the course of presentations about our company, constitute "forward-looking
statements." We believe the expectations reflected in such forward-looking
statements are accurate. However, we cannot assure you that such expectations
will occur. These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our company's 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:

         o        general economic trends and seasonality;

         o        substantial leverage and ability to service debt;

         o        availability of credit facilities and restrictive covenants
                  under the credit facilities;

         o        risks associated with acquisitions and failure to integrate
                  acquired businesses;

         o        availability of capital sources; and

         o        competitive practices in the industry in which we compete.

         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.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

         Revenues. Revenues increased $0.2 million, from $244.0 million for the
year ended December 31, 2000 to $244.2 million for the year ended December 31,
2001. This increase in revenues consisted of a $1.0 million decrease in revenues
from ice operations and a $1.2 million increase in revenues from non-ice
operations. The decrease in ice operation revenue was primarily due to
abnormally cool and rainy weather in the first quarter of 2001 and during
September of 2001 in our Texas and Oklahoma markets as compared to the same
periods in 2000,



                                      -16-
<PAGE>

the effects of the terrorist attacks in New York City and Washington, D.C. on
September 11, 2001, offset by new customer locations and price increases. The
increase in non-ice products and operations was due to increased bottled water
unit sales, offset by a reduction in ice equipment leasing revenue related to
the sale of that business in June 2001.

         Cost of Sales. Cost of sales increased $6.5 million, from $149.9
million for the year ended December 31, 2000 to $156.4 million for the year
ended December 31, 2001. The cost of sales as a percentage of revenues increased
2.6% from 61.4% for the year ended December 31, 2000 to 64.0% for the year ended
December 31, 2001. This increase primarily resulted from (i) the fact that not
all of our costs change proportionately to changes in revenues, especially in
the first and fourth calendar quarters, when fixed costs account for a greater
proportion of our cost of sales, (ii) increases in fuel prices and employee
health benefit costs (primarily in the first quarter of 2001), (iii) the impact
of additional Ice Factory operating leases ($1.9 million higher than in 2000),
(iv) our increased presence in West Coast markets that generated sales with a
lower margin than our other markets and (v) the effect of the bankruptcy of the
third party with which we contracted for the majority of our electricity
purchases.

         Gross Profit. Gross profit decreased $6.4 million, from $94.2 million
for the year ended December 31, 2000, to $87.8 million for the year ended
December 31, 2001. As a percentage of revenues, gross profit from ice products
decreased from 38.2% to 35.7%. The decrease in gross profit percentage was due
to additional expenses relating to health insurance and fuel in the first
quarter of 2001, the increased use of operating leases associated with the Ice
Factories compared to 2000, a third party bankruptcy and higher sales in West
Coast markets. Gross profit on non-ice operations decreased from 42.3% to 38.5%,
primarily due to increased bottled water unit sales with lower margins.

         Operating Expenses. Operating expenses increased $0.2 million, from
$37.1 million for the year ended December 31, 2000, to $37.4 million for the
year ended December 31, 2001. This increase was due to the impacts of severance
expenses of $1.5 million and certain bankruptcies of $0.5 million, offset by
decreases resulting from headcount reductions during 2001. As a percentage of
revenues, operating expenses increased from 15.2% to 15.3%.

         Depreciation and Amortization. Depreciation and amortization increased
$5.2 million, from $28.6 million for the year ended December 31, 2000, to $33.8
million for the year ended December 31, 2001. Depreciation and amortization
increased $2.5 million due to full year effect of the capital expenditures and
additions to intangible assets made during 2000 and the capital expenditures
made in 2001. In addition, depreciation and amortization increased $2.7 million
related to the write-off of unamortized debt issue costs related to our former
credit facility.

         Interest Expense. Interest expense increased $4.2 million, from $32.5
million for the year ended December 31, 2000, to $36.7 million for the year
ended December 31, 2001. The increase in interest expense resulted from a $3.6
million non-cash expense related to our interest rate swap agreement and higher
levels of borrowings during the year ended December 31, 2001 as compared with
the year ended December 31, 2000, offset by lower interest rates.

         Gain on Disposition of Assets: During the year ended December 31, 2001,
we sold certain excess assets, non-core assets and our traditional ice business
in California. Dispositions of excess and non-core assets included several
pieces of real estate, the majority of our ice production equipment sales and
leasing business and two cold storage facilities. The result of these
dispositions was a net gain on disposition of assets of approximately $49,000.



                                      -17-
<PAGE>

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

         Revenues. Revenues increased $12.3 million, from $231.7 million for the
year ended December 31, 1999 to $244.0 million for the year ended December 31,
2000. This increase in revenues consisted of $7.1 million by traditional ice
manufacturing operations, $5.1 million due to the placement of additional Ice
Factories and $0.1 million due to non-ice operations. The increase in
traditional ice products was primarily due to new customer locations with
national accounts, acquisitions completed in 1999, which had a full year of
operating results in 2000 versus a partial year in 1999, and price increases,
offset by abnormally cold and rainy weather during the fourth quarter of 2000.

         Cost of Sales. Cost of sales increased $10.5 million, from $139.4
million for the year ended December 31, 1999 to $149.9 million for the year
ended December 31, 2000. This increase was primarily due to additional costs
associated with the additional sales volume. The cost of sales as a percentage
of revenues increased 1.2% from 60.2% to 61.4% due to increased expenses
relating to health insurance, fuel and the use of operating leases associated
with the Ice Factories.

         Gross Profit. Gross profit increased $1.9 million, from $92.3 million
for the year ended December 31, 1999, to $94.2 million for the year ended
December 31, 2000. This increase resulted primarily from additional revenues
from internal growth, Ice Factory installations and acquisitions completed in
1999, and additional expenses relating to those sales. As a percentage of
revenues, gross profit from ice products decreased from 39.6% to 38.2%. The
decrease in gross profit percentage was due to additional expenses relating to
health insurance, fuel and the use of operating leases associated with the Ice
Factories. Gross profit on non-ice operations increased from 40.6% to 42.3%,
principally due to the impact from the sale of certain non-ice operations in
1999, which historically contained a lower gross profit margin.

         Operating Expenses. Operating expenses decreased $0.6 million, from
$37.7 million for the year ended December 31, 1999, to $37.1 million for the
year ended December 31, 2000. This decrease was primarily due to the
consolidation of accounting and management functions. As a percentage of
revenues, operating expenses decreased from 16.3% to 15.2%, primarily due to a
decrease in overhead related expenses (infrastructure), and such expenses being
spread over greater revenues.

         Depreciation and Amortization. Depreciation and amortization decreased
$1.9 million, from $30.5 million for the year ended December 31, 1999, to $28.6
million for the year ended December 31, 2000. The decrease in depreciation and
amortization was primarily due to the change in the useful life of the Ice
Factories from seven to 12 years during 2000, offset by increased depreciation
and amortization relating to additional capital expenditures and the effect of
the 1999 acquisitions. As a percentage of revenues, depreciation and
amortization decreased from 13.2% to 11.7%.

         Interest Expense. Interest expense increased $2.1 million, from $30.4
million for the year ended December 31, 1999, to $32.5 million for the year
ended December 31, 2000. This increase was a result of greater average
borrowings outstanding during the year and a generally higher interest rate
environment.




                                      -18-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         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
acquiring and installing additional Ice Factories and replacing and modernizing
our other capital equipment and (e) acquisitions.

         We estimate our capital expenditures for 2002 will total approximately
$12.5 million, which will primarily be used to maintain and expand our
traditional ice operations. There can be no assurance that capital expenditures
will not exceed this estimate. In addition, we initiated a leasing program for
some of our Ice Factory installations in late 1999 and continued to utilize that
strategy during 2000 and early 2001. Beginning in the second quarter of 2001, we
stopped using operating leases for our Ice Factory installations. During 2001,
we began a program to redeploy certain lower margin machines to higher margin
locations and anticipate the continuation of that program in 2002. During 2001,
we placed 235 new machines, net of removals, and do not expect substantial
machine additions, net of removals, in 2002. Any capital expenditures associated
with new machines are contained within our 2002 capital expenditure plan of
$12.5 million.

         As we have consolidated acquisitions into the existing company
infrastructure, we have identified non-core and excess assets. In 2001, we
realized proceeds of approximately $11.0 million as a result of dispositions of
non-core assets, excess assets and our traditional ice business in California.
We are continuing to market certain excess and non-core assets that we have
determined to be disposable and anticipate proceeds of $3 million to $6 million
in 2002.

         During 2001, we made one acquisition for a cost of $0.5 million. We
financed this acquisition with amounts available under our bank credit facility.

         We estimate a loss in the first quarter of 2002 and negative cash flows
from operations. However, we believe that we will have adequate liquidity to
meet our debt service requirements and to satisfy working capital and general
corporate needs. At December 31, 2001, we had a working capital deficit of
approximately $4.2 million (surplus of $8.1 million exclusive of current
maturities of long-term debt) and had approximately $19.6 million available
under the revolving credit facility.

         Our business is highly seasonal. Although we have experienced a
significant increase in positive cash flow from operations attributable to
acquisitions, we have reported, and may in the future, report negative cash
flows during the first and fourth quarters when the weather is generally cooler.
We believe, however, that our overall treasury management of cash on hand and
available borrowings under our credit facility will be adequate to meet debt
service requirements, fund ongoing capital requirements, and satisfy working
capital and general corporate needs.

         At December 31, 2001, we had approximately $332.7 million of total debt
outstanding as follows:

         o        $270 million of 9 3/4% senior notes due 2005;

         o        $62.3 million outstanding under our credit facility; and

         o        $0.4 million of other debt, net of debt discount.



                                      -19-
<PAGE>

         On December 27, 2001, we refinanced our bank credit facility with a new
lender. The total commitment under the facility is $88 million (the "Credit
Facility"), consisting of a $38 million line of credit (the "Line of Credit")
and a $50 million term loan (the "Term Loan"). At December 31, 2001, we had
$19.6 million of availability under the Line of Credit, cash on hand of $10.2
million and restricted cash of $6.7 million.

         Principal balances outstanding under the Line of Credit bear interest
per annum, at the Company's option, at the London Inter-Bank Offered Rate
("LIBOR") plus 3.5% or the prime rate (as announced from time to time by
JPMorgan Chase Bank) plus 1.5%. The outstanding balance of the Line of Credit
was $12.3 million at December 31, 2001 and was classified as a current liability
because of the our intention to use the Line of Credit to fund our working
capital. No principal payments are required until the final maturity date of
October 31, 2004. Principal balances outstanding under the Term Loan bear
interest per annum, at our option, at LIBOR plus 4% or the prime rate plus 2%,
with a minimum of 9.5%. At December 31, 2001, the weighted average interest rate
of borrowings outstanding under the Credit Facility was 8.86%. Interest is
payable monthly. The Company pays a 0.5% fee monthly on the average availability
under the Credit Facility, a $20,000 per quarter loan servicing fee and a
$360,000 annual fee on the anniversary date of the Credit Facility.

         For fiscal years beginning on or after January 1, 2002, there is a
mandatory principal payment on the term loan equal to 65% of our Excess Cash
Flow (as defined in the Credit Facility). This principal payment in due within
10 days of delivery of the annual audited financial statements to the lenders,
which may occur no later than 90 days after a fiscal year end. In accordance
with the Credit Facility, the principal payment can be waived if certain
conditions are met and we pay the Amortization Waiver Fee (as defined in the
Credit Facility). Any balances outstanding under the Term Loan are due October
31, 2004.

         Covenants contained in the Credit Facility and the indenture governing
the 9 3/4% senior notes require us to meet certain financial tests, and other
restrictions limit our ability to pay dividends, borrow additional funds or to
acquire or dispose of assets. All of our assets and the capital stock of all of
our significant subsidiaries collateralize the Credit Facility. The 9 3/4%
senior notes are generally unsecured obligations, and are senior in right of
payment to all existing and future subordinated debt (as defined in the
indenture) and pari passu to all of our senior indebtedness. The 9 3/4% senior
notes are effectively subordinated to the Credit Facility.

         The borrowing base under the Line of Credit is comprised of eligible
accounts receivable and eligible equipment and in addition, from January 28 to
July 15 of each calendar year, a $10 million seasonal overadvance. We anticipate
having adequate collateral during the first and second quarters of 2002 to
maintain a minimum availability of $5 million under the Line of Credit.
During the second half of 2002, we expect to have additional availability
resulting from higher cash flows from operations and lower capital expenditures
during the second and third quarters of the year. We are evaluating several
options regarding the deployment of the excess cash flow that we expect to
accumulate during these periods. These options include the purchase of our 9
3/4% senior notes on the open market, additional capital expenditures and
acquisitions. On January 30, 2002, we repurchased and retired 9 3/4% senior
notes with a par value of $2.5 million, which resulted in a gain of $0.4
million.

         At December 31, 2001, we had $6.4 million of standby letters of credit
outstanding, primarily to secure certain insurance obligations. Due to the
timing of the refinancing of the Credit Facility, we were required to cash
collateralize the letters of credit at 105% of the face


                                      -20-
<PAGE>

amount. This collateral is reported as restricted cash in the balance sheet as
of December 31, 2001. We plan to have substantially all of the letters of credit
transferred to our new lenders by the end of the first quarter of 2002 and will
use the restricted cash that is released to pay down the Line of Credit. The
transfer of the letters of credit will only increase our availability under the
Credit Facility by $0.3 million since the new letters of credit are required to
be reserved for under the Line of Credit. We may be required to increase our
letters of credit during 2002 due to new insurance policies and electricity
supply contracts. Letters of credit in the amount of $0.4 million have final
expiration dates in 2004. The remaining letters of credit in the amount of $6
million have no final expiration dates.

         The table below summarizes the future payments due under our
significant contractual obligations as of December 31, 2001:

<Table>
<Caption>

                                                                        2003 TO     2005 TO     2007 AND
                                              TOTAL        2002          2004        2006      THEREAFTER
                                            ---------    ---------    ---------    ---------   ----------
                                                                    (IN MILLIONS)

<S>                                         <C>          <C>          <C>          <C>          <C>
Long-term debt .........................    $   320.4    $     0.2    $    50.1    $   270.0    $     0.1
Line of Credit (1) .....................         12.3           --         12.3           --           --
Operating leases .......................         48.3         11.7         19.4         10.8          6.4
                                            ---------    ---------    ---------    ---------    ---------

    Total Contractual Obligations ......    $   381.0    $    11.9    $    81.8    $   280.8    $     6.5
</Table>

         (1) Our Line of Credit obligation has been classified as working
         capital within the consolidated financial statements.

         During 1999 and continuing into 2000, the pace of our acquisition
activities slowed significantly and has subsequently ceased with the exception
of one small tuck-in acquisition completed in 2001. The decreased acquisition
activity is generally due to the decline in the price of our common stock from
the time of our initial public offering in January 1999. In 1999, in connection
with possible future acquisitions, we filed an "acquisition shelf" registration
statement to register the sale of up to five million shares of common stock of
which 3,953,780 remain unissued as of December 31, 2001. Although we do not
expect to continue to acquire traditional ice companies during 2002, we may
continue to look at acquisition opportunities as they become available in
certain circumstances.

         We may need to raise additional funds through public or private debt or
equity financing to take advantage of opportunities that may become available to
us, including acquisitions and more rapid expansion. The availability of such
capital will depend upon prevailing market conditions and other factors over
which we have no control, as well as our financial condition and results of
operations. There can be no assurance that sufficient funds will be available to
finance intended acquisitions or capital expenditures to sustain our recent rate
of growth.

NEW ACCOUNTING PRONOUNCEMENTS

         We implemented Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended,
on January 1, 2001. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities measured at fair value. The
accounting for changes in the fair value of a derivative depends on the use of
the derivative. The effective portion of the change in the fair value of
derivatives used as hedges are reported as other comprehensive income, with all
other changes reported in net income. Adoption of this accounting standard
resulted in an after-tax charge to other



                                      -21-
<PAGE>

comprehensive income of $1.7 million and had no effect on our consolidated
results of operations.

         In July 2001, SFAS No. 141, "Business Combinations" was issued by the
Financial Accounting Standards Board ("FASB"). SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Goodwill and certain intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is reason
to suspect that their values have been diminished or impaired, these assets must
be tested for impairment, and write-downs may be necessary. We were required to
implement SFAS No. 141 on July 1, 2001. The adoption of this Statement had no
effect on our consolidated financial position or results of operations.

         In July 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
issued by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, ceased upon adoption
of this statement on January 1, 2002. Adoption of this new accounting standard
resulted in an after-tax charge to net income of $73.2 million for the
cumulative effect of an accounting change.

         In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" was issued by the FASB. SFAS No. 144 addresses
financial accounting and reporting requirements for the impairment and disposal
of long-lived assets. We adopted this Statement on January 1, 2002. The adoption
of this Statement did not have a significant effect on our consolidated
financial position or results of operations.

RISK FACTORS

         OUR SUBSTANTIAL DEBT OBLIGATIONS MAY PREVENT US FROM FUNDING PLANNED
ACTIVITIES, MAY REQUIRE US TO SEEK ADDITIONAL DEBT OR EQUITY FINANCING, SELL
SELECTED ASSETS OR DIMINISH OUR ABILITY TO REACT TO CHANGES IN OUR INDUSTRY.

         We have financed many of our acquisitions through the incurrence of
debt, and consequently, we have substantial debt service requirements. At
December 31, 2001, our total indebtedness was $332.7 million. Our high level of
debt could have important consequences to us, including the following:

o     A substantial portion of our cash flow must be dedicated to paying
      interest on our debt. This reduces the level of cash flow available to
      fund working capital, capital expenditures and acquisitions.

o     The indenture that governs the 9 3/4% senior notes and the credit
      agreement for our Credit Facility require us to meet certain financial
      tests. Additionally, there are other restrictions that limit our ability
      to pay dividends, borrow additional funds or to dispose of assets. These
      covenants and restrictions may affect our flexibility in planning for and
      reacting to changes in our business.

o     Our high level of debt diminishes our ability to react to changes in
      general economic, industry and competitive conditions.




                                      -22-
<PAGE>




    If we are unable to generate enough cash flow to make debt service payments,
we may be required to:

o     seek additional debt or equity financing, or renegotiate our existing debt
      arrangements on terms which may be less favorable than our current
      arrangements;

o     sell selected assets; or

o     reduce or delay planned capital expenditures.

    There can be no assurance that we could accomplish any of these measures.

         In addition, we will be required to repay or refinance our Credit
Facility, 9 3/4% senior notes and potentially our mandatorily redeemable
preferred stock between October 31, 2004 and April 15, 2005. No assurances can
be given that we will be able to accomplish these repayments or refinancings on
acceptable terms and conditions.

         THE SEASONAL NATURE OF THE ICE BUSINESS RESULTS IN LOWER PROFITS, AND
EVEN LOSSES, IN THE FIRST AND FOURTH QUARTERS OF THE YEAR.

          We experience seasonal fluctuations in our sales and profitability
with a disproportionate amount of our sales and a majority of our net income
typically realized in the second and third calendar quarters when the weather is
generally warmer. As a result of these seasonal revenue declines and the lack of
a corresponding decrease in expenses during the first and fourth quarters, we
will likely experience lower profit margins and possibly even losses during
these periods. In addition, because our operating results depend significantly
on sales during the second and third calendar quarters, our results of
operations during these periods may fluctuate significantly if the weather is
unusually cool or rainy.

         THE RESULTS OF OUR OPERATIONS MAY BE ADVERSELY AFFECTED BY WEATHER.

           Cold or rainy weather can decrease sales, while extremely hot weather
may increase our expenses, each resulting in a negative impact on our operating
results and cash flow. Ice consumers, the ultimate users of our products, demand
ice for a variety of reasons, but many of them buy ice in connection with
outdoor-related activities, both commercial and recreational. As a result,
demand for ice increases in hotter, sunnier weather, and conversely, demand
decreases in colder, wetter weather. During extended periods of extremely cold
and rainy weather on a national basis, our revenues and resulting profits may
substantially decline. In addition, extremely hot weather does not necessarily
result in greater profits. During extended periods of extremely hot weather, our
profits and cash flow may decline because of an increase in expenses in response
to excess demand. We may have to transport ice from one plant to another, and in
some cases, purchase ice from third party sources and transport it to a specific
market to meet this excess demand.

         THE MARKET VALUE OF OUR COMMON STOCK COULD BE FURTHER ADVERSELY
AFFECTED IF WE CONTINUE TO REPORT OPERATING LOSSES.

         Since our Company was formed in 1990, we have reported substantial net
losses. This has been primarily due to the following:

o     interest expenses primarily associated with our 9 3/4% senior notes and
      debt under our Credit Facility;



                                      -23-
<PAGE>

o     substantial depreciation of property, plant and equipment

o     substantial amortization of goodwill and other intangible assets primarily
      associated with our acquisitions and market expansion;

         As of December 31, 2001, we had an accumulated deficit of $64.9 million
and total shareholders' equity of $52.5 million. On January 1, 2002, we will
record a charge of $73.2 million related to the impairment of goodwill as
required by the adoption of SFAS 142. This charge will result in negative
shareholders' equity. We cannot guarantee that we will be profitable in the
future.

         INCREASES IN THE PRICES OF ELECTRICITY, CERTAIN RAW MATERIALS AND OTHER
REQUIRED EXPENSES COULD HAVE AN ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.

         We use substantial amounts of electricity in connection with our
manufacturing process. Over the last three years, we had fixed this cost at
rates that were generally lower than market rates by entering into a supply and
management agreement with a third party. On December 2, 2001, the third party
filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code,
thereby breaching its agreement with us. Since that time, we have been paying
market rates for electricity that are higher than those under the supply
agreement. We anticipate that the annual impact of this event will approximate
$2 million in extra electricity charges. Further increases in market rates could
potentially have an adverse impact on our operations.

         Our business is sensitive to increases in the cost of fuel to operate
the refrigerated trucks we use to deliver ice and to increases in the cost of
polyethylene, which in turn increases the cost of our bags. We have already
experienced increases in fuel costs and health benefits and if the prices for
these resources and other required expenses should increase, we will experience
increased costs that we may not be able to pass along to our customers. There
can be no assurance that significant changes in the prices of plastic bags,
water, fuel, insurance or other commodities would not have a material adverse
effect on our business, results of operations and cash flow.

         OUR DEPENDENCE ON A SINGLE MANUFACTURER FOR THE PROPRIETARY BAGGING
DEVICE USED IN THE ICE FACTORY EXPOSES US TO A RISK OF NOT MEETING INSTALLATION
COMMITMENTS TO CUSTOMERS.

         A Texas company manufactures our proprietary-bagging device used in the
Ice Factory under an exclusive original equipment manufacturing agreement. This
device is highly technical in nature, and there can be no assurance that we
could quickly locate, or ever locate, alternative sources of supply for the
bagging device if this company was unable to meet our requirements. A shortage
of the bagging device could restrict our ability to grow by entering new markets
through the installation of the Ice Factory.

         WE MAY BE EXPOSED TO SIGNIFICANT ENVIRONMENTAL LIABILITIES.

         Our ice manufacturing and storage operations could create conditions
that might result in environmental accidents, and cause us to be named as
defendants in lawsuits. We currently carry liability insurance that we believe
is adequate to cover our losses in these situations. However, this insurance may
be insufficient to pay for all or a large part of these losses. If our insurance
failed to cover these losses, our profits and our cash flow would decrease.




                                      -24-
<PAGE>




         WE MAY NOT HAVE THE ABILITY TO REPURCHASE THE 9 3/4% SENIOR NOTES IN
THE EVENT OF A CHANGE OF CONTROL.

         As of March 15, 2002, the majority of our debt consisted of $267.5
million of 9 3/4% senior notes. If there is a change of control of Packaged Ice,
such as a merger or sale by us of all or substantially all of our assets, the
holders of the 9 3/4% senior notes have the right to require us to purchase the
outstanding 9 3/4% senior notes at 101% of the principal amount of the notes
plus any accrued and unpaid interest. We may not have the ability to raise the
funds necessary to finance the repurchase of the 9 3/4% senior notes if the
holders require such a repurchase. This could result in a default under other
debt agreements, including our Credit Facility.

         CHANGES IN GOVERNMENT LAWS AND REGULATIONS COULD HAVE AN ADVERSE EFFECT
ON OUR RESULTS OF OPERATIONS.

         Like any food company, we are subject to various local, state and
federal laws relating to many aspects of our business, including labeling,
sanitation, health and safety, and manufacturing processes. We cannot predict
the types of government regulations that may be enacted in the future by the
various levels of government or how existing or future laws or regulations will
be interpreted or enforced. The enactment of more stringent laws or regulations
or a stricter interpretation of existing laws and regulations may require
additional expenditures by us, some of which could be material.

         ACCIDENTS INVOLVING OUR PRODUCTS AND EQUIPMENT COULD EXPOSE US TO
CLAIMS FOR DAMAGES.

         We are subject to a risk of product liability claims and adverse
publicity if a consumer is allegedly harmed while using our products or
equipment. Any such claim may result in negative publicity, loss of revenues, or
higher costs associated with litigation against Packaged Ice or being named as a
defendant in lawsuits asserting large claims.

         We currently carry product liability insurance that we believe is
adequate to cover our losses in these situations. However, this insurance may be
insufficient to pay for all or a large part of these losses. If our insurance
does not pay for these losses, our results of operations and cash flow would
decrease.

         OUR LIMITED PATENT PROTECTION MAY NOT PREVENT COMPETITORS FROM USING
OUR PROPRIETARY BAGGING DEVICE OR DEVELOPING A SIMILAR MACHINE, WHICH COULD
REDUCE OUR COMPETITIVE ADVANTAGE.

         Other than patents that we own or licenses we have on the bagging
device in the Ice Factory, we currently do not have patents on any of our
products. We believe the patents on the bagging device are important to the Ice
Factory as a whole, but there can be no assurance that any issued patent will
provide us with a meaningful competitive advantage. It is also our practice to
protect certain of our proprietary materials and processes by relying on trade
secrets laws and non-disclosure and confidentiality agreements. There can be no
assurance that confidentiality or trade secrets will be maintained or that
others will not independently develop or obtain access to such materials or
processes.




                                      -25-
<PAGE>




         WE NOW HAVE A COMPETITOR IN THE ICE FACTORY MARKET, WHICH COULD TAKE
SOME OF OUR CUSTOMERS' BUSINESS.

         As the sole major company using an on-site ice production and delivery
system, we had a distinct competitive advantage because the Ice Factory is
preferred to traditional ice delivery by many of our high volume customers and
the Ice Factory sector of our business gives us more flexibility during peak
seasons than our competitors. In 2001, a competitor began testing a similar
machine in certain of its markets. If our competitor is successful with the
rollout of this system, it is possible that we may lose business we have gained
and business we would gain as a result of the Ice Factory, which will result in
decreased cash flows and results of operations.

         ACQUISITIONS MAY RESULT IN THE RECORDING OF GOODWILL AND OTHER
INTANGIBLES ASSETS, AND MAY HAVE A NEGATIVE IMPACT ON OUR RESULTS OF OPERATIONS.

         Although we currently have no plans to do so (see
Business-Acquisitions), if we begin acquiring other businesses again as part of
our strategy, such acquisitions could result in the recording of goodwill and
other intangibles assets. Goodwill and other intangible assets represented 50.4%
of our total assets and exceeded shareholders' equity by $179.6 million as of
December 31, 2001. Accounting principles generally accepted in the United States
of America require that acquisitions initiated after June 30, 2001 be accounted
for under the purchase method of accounting. Any resulting goodwill will remain
on the balance sheet and not be amortized. Furthermore, the amortization of
goodwill created by acquisitions prior to June 30, 2001 ceased on December 31,
2001. We will be required to test these assets on an annual basis or whenever
there is reason to suspect that their values have been diminished or impaired
and write-downs may be necessary, which would increase our losses. The adoption
of this accounting principle on January 1, 2002 resulted in an initial
impairment charge of $73.2 million.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

         On November 28, 2000, we entered into an interest rate collar agreement
(the "Collar Agreement"). The Collar Agreement has a notional amount of $50
million and a term of 4 years. If the Index Rate (30-day LIBOR, as defined in
the Collar Agreement) exceeds 7.75%, we will receive the difference between the
Index Rate and 7.75%. If the Index Rate falls below 5.75%, we will pay the
difference plus 1%. If we had been required to settle the Collar Agreement as of
December 31, 2001, we would have had to pay $3.9 million.

         We are exposed to some market risk due to the floating interest rates
under our Credit Facility. Principal balances outstanding under the Line of
Credit bear interest, at our option, at the London Inter-Bank Offered Rate
("LIBOR") plus 3.5% or the prime rate (as announced from time to time by JP
Morgan Chase Bank) plus 1.5%. The Term Loan bear interest, at our option, at
LIBOR plus 4% or the prime rate plus 2%, with a minimum of 9.5%.

         As of December 31, 2001, the Credit Facility had an outstanding
principal balance of $62.3 million at a weighted average interest rate of 8.86%
per annum. Due to our interest rate collar agreement and the fact that the Term
Loan has a minimum interest rate of 9.5%, the effect of a change in interest
rates on our interest expense depends on the level of LIBOR rates. At December
31, 2001, the 30-day LIBOR rate was 1.88%.



                                      -26-
<PAGE>

         The following table shows the approximate annual increase (decrease) in
interest expense given the current principal balances on all our debt if LIBOR
were to increase by 1% from the levels indicated below:

<Table>
<Caption>

                                                 ESTIMATED
LIBOR RATE                                     ANNUAL IMPACT
-------------------------------                -------------
                                               (in thousands)
<S>                                            <C>
Less than or equal to 4.5%                       $(368)

Greater than 4.5%, less than
    or equal to 5.5%                             $(305)

Greater than 5.5%, less than
    or equal to 5.75%                            $ 570

Greater than 5.75%, less than
    or equal to 7.75%                            $ 380

Greater than 7.75%                               $ 132
</Table>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements and supplementary data required hereunder are
included in this report as set forth in Item 14(a) hereof and are incorporated
herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         None.


                                    PART III

         The information required by Item 10, "Director and Executive Officers
of the Registrant", Item 11, "Executive Compensation", Item 12, "Security
Ownership of Certain Beneficial Owners" and Item 13, "Certain Relationships and
Related Transactions," of Part III is incorporated by reference to the
information set forth in our definitive proxy statement for the 2002 Annual
Meeting of the Shareholders, which is expected to be filed within 120 days of
our fiscal year end.




                                      -27-
<PAGE>





                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      The following documents are filed as part of this Annual Report or are
         incorporated by reference:

1.       Financial Statements

         As to financial statements and supplementary information, reference is
         made to "INDEPENDENT AUDITORS' REPORT" on Page F-1 of this Annual
         Report.

2.       Financial Statement Schedules

         None. All financial statement schedules are omitted because the
         information is not required, is not material or is otherwise included
         in the consolidated financial statements or notes thereto included
         elsewhere in this Annual Report.

3.       Exhibits

EXHIBIT NO.                              DESCRIPTION


     2.1        Stock Purchase Agreement between Packaged Ice, Inc. and Suiza
                Foods Corporation dated March 27, 1998. (Exhibit 2.1)(5)

     2.2        Stock Purchase Agreement among Packaged Ice, Inc., WLR Foods,
                Inc. and Cassco Ice & Cold Storage, Inc. dated July 31, 1998.
                (Exhibit 2.1)(7)

     3.1        Restated Articles of Incorporation of Packaged Ice filed with
                the Secretary of State of the State of Texas on February 5,
                1992. (Exhibit 3.2)(1)

     3.2        Articles of Amendment to the Restated Articles of Incorporation
                of Packaged Ice filed with the Secretary of State of the State
                of Texas on August 11, 1998. (Exhibit 3.2) (6)

     3.3        Amended and Restated Bylaws of Packaged Ice, effective as of
                January 20, 1997. (Exhibit 3.5)(1)

     4.1        Amended and Restated Certificate of Designation of 10%
                Exchangeable Preferred Stock. (Exhibit 4.12)(5)

     4.2        Indenture by and among Packaged Ice, as Issuer, the Subsidiary
                Guarantors and U.S. Trust Company of Texas, N.A. as Trustee
                dated as of January 28, 1998, Amended and Restated as of April
                30, 1998. (Exhibit 4.1)(5)

     4.3        Common Stock Purchase Warrant, dated July 17, 1997, executed by
                Packaged Ice for the benefit of SV Capital Partners LP. (Exhibit
                10.39)(2)

     4.4        Registration Rights Agreement by and between Packaged Ice and
                Silver Brands Partners, L.P. (formerly SV), dated February 3,
                1999. (Exhibit 4.7)(9)

     4.5        Warrant Agreement among Packaged Ice and U.S. Trust Company of
                Texas, N.A., a national banking association, as Warrant Agent,
                dated as of April 17, 1997. (Exhibit 10.12)(1)

     4.6        Warrant Agreement among Packaged Ice and U.S. Trust Company of
                Texas, N.A., a national banking association, as Warrant Agent,
                dated as of October 16, 1997. (Exhibit 10.7)(3)

     4.7        Common Stock Purchase Warrant Agreement issued by Packaged Ice
                and issued to Culligan Water Technologies, Inc. issuing
                1,807,692 fully paid and nonassessable shares of Packaged Ice's
                common stock at an exercise price of $13.00 per share dated
                December 2, 1997. (Exhibit 10.3)(4)



                                      -28-
<PAGE>


     4.8        Registration Rights Agreement by and among Packaged Ice,
                Culligan Water Technologies, Inc. and Erica Jesselson. (Exhibit
                10.5)(4)

     4.9        Rights Agreement dated as of October 29, 1999, between the
                Company and American Stock Transfer & Trust Company as Rights
                Agent. (Exhibit 1)(11)

     4.10       First Amendment to the Warrant Agreement, dated April 24, 2001,
                between the Company and U.S. Trust Company of Texas, N.A.
                amending the Warrant Agreement dated October 16, 1997. (Exhibit
                4.1)(15)

     10.1       Packaged Ice, Inc. 2000 Employee Stock Purchase Plan. (Exhibit
                10.2)(10)

     10.2       1994 Stock Option Plan, dated July 26, 1994. (Exhibit 10.10)(1)

     10.3       1998 Stock Option Plan, dated June 19, 1998. (Exhibit 10.34)(8)

     10.4       2001 Stock Option Plan, dated May 9, 2001. (Exhibit B)(14)

     10.5       Form of Indemnification Agreement entered into by Packaged Ice
                in favor of members of the Board of Directors. (Exhibit
                10.31)(1)

     10.6       Development and Manufacturing Agreement by and between Lancer
                Corporation and Packaged Ice, dated April 13, 1993. (Exhibit
                10.32)(1)

     10.7       The Amended and Restated Credit Agreement dated as of November
                28, 2000 among the Financial Institutions named herein as the
                Lenders, Antares Capital Corporation as a Co-Agent and Bank of
                America, N.A. as a Co-Agent and the Administrative Agent and
                Packaged Ice, Inc. as Borrower. (Exhibit 10.8)(12)

     10.8       Subsidiary Guaranty dated as of November 28, 2000. (Exhibit
                10.10)(12)

     10.9       First Amendment and Limited Waiver to Amended and Restated
                Credit Agreement dated as of November 28, 2000.
                (Exhibit 10.9)(12)

     10.10      Second Amendment to Amended and Restated Credit Agreement dated
                as of November 28, 2000. (Exhibit 10.1)(13)

     10.11      Limited Waiver and Third Amendment to Amended and Restated
                Credit Agreement dated as of November 28, 2000. (Exhibit
                10.1)(16)

     10.12      Form of Strategic Management Team Change of Control Bonus
                Agreement, dated May 9, 2001 (entered into between the Company
                and each of William P. Brick and Jimmy C. Weaver, individually).
                (Exhibit 10.1)(15)

     10.13      Form of Strategic Management Team Change of Control Bonus
                Agreement, dated May 9, 2001 (entered into between the Company
                and each of Graham D. Davis, Steven J. Janusek and Ben D. Key,
                individually). (Exhibit 10.2)(15)

     10.14      Form of Strategic Management Team Change of Control Bonus
                Agreement, dated May 9, 2001 (entered into between the Company
                and each of Thomas L. Dann, Michael P. Busch, Billy W. Daniel,
                Joseph A. Geloso, William A. Newberry and Neil D. Showalter,
                individually). (Exhibit 10.3)(15)

     10.15      Indemnification Agreement between the Company and William P.
                Brick, dated April 19, 2001. (Exhibit 10.4)(15)

     10.16      Severance Agreement between the Company and James F. Stuart,
                dated April 19, 2001. (Exhibit 10.5)(15)

     10.17      Severance Agreement between the Company and Leonard A. Bedell,
                dated June 1, 2001. (Exhibit 10.6)(15)

     10.18      Agreement between the Company and A.J. Lewis III, dated June 19,
                2001. (Exhibit 10.7)(15)

     10.19      The Second Amended and Restated Credit Agreement dated as of
                December 27, 2001 by and among Packaged Ice, Inc., as Borrower,
                the Lenders from Time to Time Party Hereto, and Ableco Finance
                LLC, as Collateral Agent and Administrative Agent. (Exhibit
                4.1)(17)

     10.20+     Amended and Restated Subsidiary Guaranty dated as of December
                27, 2001.

     10.21+     First Amendment to Second Amended and Restated Credit Agreement
                dated as of December 27, 2001.



                                      -29-
<PAGE>

     10.22+     Second Amendment to Second Amended and Restated Credit Agreement
                dated as of December 27, 2001.

     21.1+      List of subsidiaries.

     23.1+      Consent of Deloitte & Touche LLP.

----------
      +         Filed herewith.

     (1)        Filed as an Exhibit to Packaged Ice's Registration Statement on
                Form S-4 (File No. 333-29357), filed with the Commission on June
                16, 1997.

     (2)        Filed as an Exhibit to the Amendment No. 1 to Packaged Ice's
                Registration Statement on Form S-4 (No. 333-29357), filed with
                the Commission on July 29, 1997.

     (3)        Filed as an Exhibit to Packaged Ice's Third Quarter Disclosure
                on Form 10-Q with the Commission on November 14, 1997.

     (4)        Filed as an Exhibit to Form 8-K filed on behalf of Packaged Ice
                with the Commission on December 15, 1997.

     (5)        Filed as an Exhibit to Form 8-K/A filed on behalf of Packaged
                Ice with the Commission on May 12, 1998.

     (6)        Filed as an Exhibit to Amendment No. 1 to Packaged Ice's
                Registration Statement on Form S-1 (File No. 333-60627), filed
                with the Commission on October 2, 1998.

     (7)        Filed as an Exhibit to Packaged Ice's Form 8-K filed with the
                Commission on August 14, 1998.

     (8)        Filed as an Exhibit to Amendment No. 2 to Packaged Ice's
                Registration Statement on Form S-1 (File No. 333-60627), filed
                with the Commission on January 4, 1999.

     (9)        Filed as an Exhibit to Packaged Ice's Form 10-K filed with the
                Commission on March 30, 1999.

     (10)       Filed as an Exhibit to Packaged Ice's Form 10-K filed with the
                Commission on March 28, 2000.

     (11)       Filed as an Exhibit to Form 8-A12G filed on behalf of Packaged
                Ice with the Commission on November 1, 1999.

     (12)       Filed as an Exhibit to Packaged Ice's Form 10-K filed with the
                Commission on March 30, 2001.

     (13)       Filed as an Exhibit to Packaged Ice's First Quarter Disclosure
                on Form 10-Q with the Commission on May 15, 2001.

     (14)       Filed as an Exhibit to Packaged Ice's Definitive Proxy Statement
                filed with the Commission on May 17, 2001.

     (15)       Filed as an Exhibit to Packaged Ice's Second Quarter Disclosure
                on Form 10-Q with the Commission on August 9, 2001.

     (16)       Filed as an Exhibit to Packaged Ice's Third Quarter Disclosure
                on Form 10-Q with the Commission on November 14, 2001.

     (17)       Filed as an Exhibit to Packaged Ice's Form 8-K filed with the
                Commission on January 10, 2002.


(b)      Reports on Form 8-K.  None.




                                      -30-
<PAGE>




                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.

                                          PACKAGED ICE, INC.


March 28, 2002                            /s/  STEVEN J. JANUSEK
                                          --------------------------------------
                                          Steven J. Janusek
                                          Chief Financial and Accounting Officer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<Table>
<Caption>

                   NAME                              TITLE                       DATE
                   ----                              -----                       ----
<S>                                        <C>                              <C>
/s/  WILLIAM P. BRICK                      Chairman of the Board and        March 28, 2002
----------------------------------         Chief Executive Officer
William P. Brick


/s/  A. J. LEWIS III                       Director                         March 28, 2002
----------------------------------
A. J. Lewis III


/s/  STEVEN P. ROSENBERG                   Director                         March 28, 2002
----------------------------------
Steven P. Rosenberg


/s/  RICHARD A. COONROD                    Director                         March 28, 2002
----------------------------------
Richard A. Coonrod


/s/  ROBERT G. MILLER                      Director                         March 28, 2002
----------------------------------
Robert G. Miller


/s/  DAVID J. LOSITO                       Director                         March 28, 2002
----------------------------------
David J. Losito
</Table>


                                      -31-


<PAGE>

                          INDEPENDENT AUDITORS' REPORT



To the Shareholders of Packaged Ice, Inc.:

         We have audited the accompanying consolidated balance sheets of
Packaged Ice, Inc. and its subsidiaries (the "Company") as of December 31, 2001
and 2000, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company at December 31,
2001 and 2000, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.

         As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for its interest rate swap agreement
effective January 1, 2001, to conform with Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended.

/s/ Deloitte & Touche LLP
Houston, Texas
February 20, 2002



                                      F-1
<PAGE>


                       PACKAGED ICE, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<Table>
<Caption>

                                                                                                 DECEMBER 31,
                                                                                            ---------------------
                                                                                              2001         2000
                                                                                            ---------   ---------
                                                                                                (IN THOUSANDS)
<S>                                                                                         <C>         <C>
CURRENT ASSETS:
     Cash and cash equivalents ...........................................................  $  10,213   $   1,027
     Restricted cash .....................................................................      6,700          --
     Accounts receivable, net ............................................................     20,358      23,454
     Inventories .........................................................................      7,691      10,351
     Prepaid expenses ....................................................................      1,756       2,328
                                                                                            ---------   ---------
         Total current assets ............................................................     46,718      37,160
PROPERTY AND EQUIPMENT, net ..............................................................    181,977     191,404
GOODWILL AND OTHER INTANGIBLES, net ......................................................    232,079     242,041
OTHER ASSETS .............................................................................         10          55
                                                                                            ---------   ---------
TOTAL ....................................................................................  $ 460,784   $ 470,660
                                                                                            =========   =========


                                       LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
     Current portion of long-term obligations ............................................  $     188   $   6,748
     Line of credit ......................................................................     12,305          --
     Accounts payable ....................................................................     13,399      11,165
     Payable to affiliates ...............................................................          4         548
     Accrued expenses ....................................................................     25,056      17,585
                                                                                            ---------   ---------
         Total current liabilities .......................................................     50,952      36,046
LONG-TERM OBLIGATIONS ....................................................................    320,174     325,522
COMMITMENTS AND CONTINGENCIES (Note 14) ..................................................         --          --
MANDATORILY REDEEMABLE PREFERRED STOCK:
     10% Exchangeable - 365,697 shares issued and outstanding at December 31,
         2001 and 331,699 shares issued and outstanding at
         December 31, 2000, liquidation preference of $100 per share .....................     37,181      33,723
SHAREHOLDERS' EQUITY:
     Common stock, $0.01 par value, 50,000,000 shares authorized; 20,438,568 shares
         issued at December 31, 2001 and 19,692,315 shares issued at December 31, 2000 ...        204         197
     Additional paid-in capital ..........................................................    118,910     121,554
     Less:  298,231 shares of treasury stock, at cost ....................................     (1,491)     (1,491)
     Accumulated deficit .................................................................    (64,884)    (44,891)
     Accumulated other comprehensive loss ................................................       (262)         --
                                                                                            ---------   ---------
         Total shareholders' equity ......................................................     52,477      75,369
                                                                                            ---------   ---------
TOTAL ....................................................................................  $ 460,784   $ 470,660
                                                                                            =========   =========
</Table>



                 See notes to consolidated financial statements.



                                      F-2
<PAGE>


                       PACKAGED ICE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<Table>
<Caption>


                                                          YEAR ENDED DECEMBER 31,
                                                ------------------------------------------
                                                     2001          2000           1999
                                                ------------   ------------   ------------
                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                                             <C>            <C>            <C>
Revenues .....................................  $    244,247   $    244,044   $    231,723
Cost of sales ................................       156,434        149,889        139,386
                                                ------------   ------------   ------------
Gross profit .................................        87,813         94,155         92,337
Operating expenses ...........................        37,372         37,139         37,738
Depreciation and amortization expense ........        33,816         28,631         30,526
                                                ------------   ------------   ------------
Income from operations .......................        16,625         28,385         24,073
Other income, net ............................            19             17             21
Gain on disposition of assets ................            49             --             --
Interest expense, net ........................       (36,686)       (32,470)       (30,409)
                                                ------------   ------------   ------------
Loss before income taxes .....................       (19,993)        (4,068)        (6,315)
Income taxes .................................            --             --             --
                                                ------------   ------------   ------------
Net loss before preferred dividends ..........       (19,993)        (4,068)        (6,315)
Preferred dividends ..........................        (3,458)        (3,134)        (3,078)
                                                ------------   ------------   ------------
Net loss available to common shareholders ....  $    (23,451)  $     (7,202)  $     (9,393)
                                                ============   ============   ============

Net loss per share of common stock:
         Basic and diluted ...................  $      (1.19)  $      (0.37)  $      (0.53)
                                                ============   ============   ============

Weighted average common shares outstanding:
         Basic and diluted ...................        19,756         19,340         17,565
                                                ============   ============   ============
</Table>



                See notes to consolidated financial statements.



                                      F-3
<PAGE>


                       PACKAGED ICE, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<Table>
<Caption>

                                             COMMON STOCK
                                            --------------                                            ACCUMULATED
                                            NUMBER          ADDITIONAL                                  OTHER
                                              OF      PAR    PAID-IN      TREASURY    ACCUMULATED    COMPREHENSIVE
                                            SHARES   VALUE   CAPITAL       STOCK        DEFICIT          LOSS          TOTAL
                                            ------   -----  ----------   ----------   ------------   --------------   --------
                                                                      (IN THOUSANDS)

<S>                                          <C>    <C>     <C>          <C>          <C>            <C>              <C>
Balance at December 31, 1998 .............   4,926  $   49  $   37,250   $   (1,491)  $    (34,508)  $           --   $  1,300
Issuance of common stock, net of
     issuance costs ......................  10,750     108      82,671           --             --               --     82,779
Conversion of preferred and
      common stock with put
      redemption option ..................     995      10       5,185           --             --               --      5,195
Conversion of warrants ...................   1,131      11          (9)          --             --               --          2
Common stock issued for redemption
      premium on 13% exchangeable
      preferred stock ....................     482       5          (5)          --             --               --         --
Common stock issued in consideration
      for acquisitions ...................   1,304      13       6,945           --             --               --      6,958
Common stock issued in consideration
      property acquisitions ..............      19      --          99           --             --               --         99
Dividends accumulated on 10%
      exchangeable preferred stock .......      --      --      (2,844)          --             --               --     (2,844)
Dividends accumulated on 13%
      exchangeable preferred stock .......      --      --        (234)          --             --               --       (234)
Net fair value of warrants issued in
      connection with 13% exchangeable
      preferred stock ....................      --      --      (4,571)          --             --               --     (4,571)
Net loss .................................      --      --          --           --         (6,315)              --     (6,315)
                                            ------  ------  ----------   ----------   ------------   --------------   --------
Balance at December 31, 1999 .............  19,607     196     124,487       (1,491)       (40,823)              --     82,369
Issuance of common stock in
    connection with the 2000
    Employee Stock Purchase Plan .........      67       1         202           --             --               --        203
Conversion of warrants ...................      18      --          --           --             --               --         --
Redemption of Series C preferred
       stock .............................      --      --          (1)          --             --               --         (1)
Dividends accumulated on 10%
       exchangeable preferred stock ......      --      --      (3,134)          --             --               --     (3,134)
Net loss .................................      --      --          --           --         (4,068)              --     (4,068)
                                            ------  ------  ----------   ----------   ------------   --------------   --------
Balance at December 31, 2000 .............  19,692     197     121,554       (1,491)       (44,891)              --     75,369
Issuance of common stock in
    connection with the 2000
    Employee Stock Purchase Plan .........     416       4         582           --             --               --        586
Exercise of employee stock options .......     100       1         159           --             --               --        160
Conversion of warrants ...................     231       2          (2)          --             --               --         --
Dividends accumulated on
    10% exchangeable preferred
    stock ................................      --      --      (3,458)          --             --               --     (3,458)
Fair value of employee stock
    options vested .......................      --      --          75           --             --               --         75
Comprehensive loss:
Net loss .................................      --      --          --           --        (19,993)              --    (19,993)
Initial recognition of derivative
    liability ............................      --      --          --           --             --           (1,653)    (1,653)
Change in fair value of derivative
    liability ............................      --      --          --           --             --           (2,246)    (2,246)
Realized loss on interest rate swap ......      --      --          --           --             --            3,637      3,637
Total comprehensive loss .................      --      --          --           --             --               --    (20,255)
                                            ------  ------  ----------   ----------   ------------   --------------   --------
Balance at December 31, 2001 .............  20,439  $  204  $  118,910   $   (1,491)  $    (64,884)  $         (262)  $ 52,477
                                            ======  ======  ==========   ==========   ============   ==============   ========
</Table>


                See notes to consolidated financial statements.



                                      F-4
<PAGE>


                       PACKAGED ICE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>

                                                                                       YEAR ENDED DECEMBER 31,
                                                                             ------------------------------------------
                                                                                 2001           2000           1999
                                                                             ------------   ------------   ------------
                                                                                           (IN THOUSANDS)

<S>                                                                          <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss .............................................................  $    (19,993)  $     (4,068)  $     (6,315)
     Adjustments to reconcile net loss to net cash provided by operating
     activities (excluding working capital from acquisitions):
         Depreciation and amortization ....................................        33,816         28,631         30,526
         Amortization of debt discount, net ...............................            40             40             40
         Gain from disposal of assets .....................................           (68)           (17)           (21)
         Fair value of employee stock options vested ......................            75             --             --
         Realized loss on interest rate swap ..............................         3,637             --             --
         Change in assets and liabilities:
              Restricted cash .............................................        (6,700)            --             --
              Accounts receivable, inventories and prepaid expenses .......         4,057         (4,564)        (6,558)
              Accounts payable and accrued expenses .......................         4,289           (920)        (3,263)
                                                                             ------------   ------------   ------------
     Net cash provided by operating activities ............................        19,153         19,102         14,409
                                                                             ------------   ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Property and equipment additions .....................................       (16,510)       (23,165)       (30,314)
     Cost of acquisitions .................................................          (500)        (7,993)       (11,284)
     Proceeds from disposition of property and equipment ..................        10,968          1,967          4,496
     Increase in other noncurrent assets ..................................        (1,560)          (177)           (26)
                                                                             ------------   ------------   ------------
     Net cash used in investing activities ................................        (7,602)       (29,368)       (37,128)
                                                                             ------------   ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from issuance of common and preferred stock .................           746            203         82,779
     Proceeds from conversion of warrants .................................            --             --              2
     Repurchase of common and preferred stock .............................            --             (1)       (43,607)
     Borrowings from credit facility ......................................       260,043         61,782         52,845
     Repayment of credit facility .........................................      (262,903)       (54,054)       (68,845)
     Repayment of long-term obligations ...................................          (251)          (256)          (263)
                                                                             ------------   ------------   ------------
     Net cash (used in) provided by financing activities ..................        (2,365)         7,674         22,911
                                                                             ------------   ------------   ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......................         9,186         (2,592)           192
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ..............................         1,027          3,619          3,427
                                                                             ------------   ------------   ------------
CASH AND CASH EQUIVALENTS, END OF YEAR ....................................  $     10,213   $      1,027   $      3,619
                                                                             ============   ============   ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash payments for interest ...........................................  $     32,909   $     32,714   $     30,712
                                                                             ============   ============   ============

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
     Initial recognition of derivative liability ..........................  $      1,653   $         --   $         --
                                                                             ============   ============   ============
     Change in fair value of derivative liability .........................  $      2,246   $         --   $         --
                                                                             ============   ============   ============
     Common stock issued in consideration for business acquisitions .......  $         --   $         --   $      6,958
                                                                             ============   ============   ============
     Common stock issued in consideration for property additions ..........  $         --   $         --   $         99
                                                                             ============   ============   ============
     Common stock issued in exchange for preferred stock ..................  $         --   $         --   $          5
                                                                             ============   ============   ============
     Amortization of warrants issued in connection with
         preferred stock ..................................................  $         --   $         --   $         43
                                                                             ============   ============   ============
     Conversion of preferred stock, common stock with put redemption
         option and warrants to common stock ..............................  $         --   $         --   $      5,204
                                                                             ============   ============   ============
     Long-term debt incurred to purchase assets ...........................  $         --   $         --   $        109
                                                                             ============   ============   ============
</Table>


                See notes to consolidated financial statements.



                                      F-5
<PAGE>


                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


1.  ORGANIZATION

         Packaged Ice, Inc. and its wholly owned subsidiaries (the "Company")
manufacture and distribute packaged ice products and bottled water, own and
operate refrigerated warehouses and sell and lease ice production equipment.
Packaged ice products are distributed by traditional delivery methods and
stand-alone automated ice merchandising systems (the "Ice Factory") that
produce, package, store and merchandise ice at the point of sale. At December
31, 2001, the Company served over 73,000 customer locations in 30 states and the
District of Columbia.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation. The consolidated financial statements
include the accounts of Packaged Ice, Inc. and its wholly owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.

         Accounts Receivable. Accounts receivable are net of allowances for
doubtful accounts of $1.0 and $0.5 million at December 31, 2001 and 2000,
respectively. Bad debt expense for the three years in the period ended December
31, 2001 was $1.1 million, $0.5 million and $0.4 million, respectively.

         Inventories. Inventories consist of raw materials and supplies and
finished goods. Raw materials and supplies include ice packaging material, spare
parts, bottled water supplies and merchandiser parts. Finished goods include
packaged ice and bottled water. Inventories are valued at the lower of cost or
market. Cost is determined using the first-in, first-out and average cost
methods.

         Property and equipment. Property and equipment is carried at cost and
is being depreciated on a straight-line basis over an estimated life of 2.5 to
40 years. Maintenance and repairs are charged to expense as incurred, while
capital improvements that extend the useful lives of the underlying assets are
capitalized.

         On January 1, 2000, the Company changed the useful life of its Ice
Factory equipment from seven to 12 years. If the Company had continued using a
seven-year useful life, depreciation and amortization for the years ended
December 31, 2001 and 2000 would have been $36.7 million and $31.5 million,
respectively. Net loss available to common shareholders for the years ended
December 31, 2001 and 2000 would have been $26.4 million and $10.1 million,
respectively. Basic and diluted net loss per common share for the years ended
December 31, 2001 and 2000 would have been $1.33 and $0.52, respectively.

         Goodwill and Other Intangibles. Goodwill and other intangibles include
the following that are amortized over their useful lives:

<Table>
<Caption>

            INTANGIBLE ASSETS                                                      USEFUL LIFE
----------------------------------------                               -----------------------------------

<S>                                                                    <C>
Goodwill and other acquisition costs.................................. Straight line method over 40 years
Trade names........................................................... Straight line method over 40 years
Ice system patents.................................................... Straight line method over 17 years
Debt issue costs...................................................... Interest method over the terms of
                                                                          the debt
Other intangibles .................................................... Straight line method over the terms
                                                                           of the agreements
</Table>

         Upon adoption of SFAS 142 (see New Accounting Pronouncements) on
January 1, 2002, the Company ceased amortization of its goodwill, acquisition
costs and certain intangible assets with an indefinite life. Amortization
expense related to these items was $6.0 million for 2001.



                                      F-6
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         Long-Lived Assets. The Company records impairment losses on long-lived
assets, including goodwill, when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.

         Income Taxes. The Company accounts for income taxes under the liability
method, which requires, among other things, recognition of deferred income tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's consolidated financial statements or tax
returns. Under this method, deferred income tax assets and liabilities are
determined based on the temporary differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities and the
recognition of available tax carryforwards.

         Revenue Recognition. Revenue is recognized when product (packaged ice,
ice packaging bags, bottled water and ice equipment) is delivered to and
accepted by customers. There is no right of return with respect to the packaged
ice, bags delivered and bottled water. Revenue resulting from cold storage and
leased ice equipment is recognized as earned under contract terms.

         Earnings Per Share. The computation of loss per share is based on net
loss, after deducting the dividend requirement of preferred stock ($3.5 million
in 2001 and $3.1 million in 2000 and 1999), divided by the weighted average
number of shares outstanding. Options to purchase 2.1 million shares and
warrants to purchase 2.8 million shares of common stock that are outstanding but
exercisable at prices above the Company's average common stock price have not
been included in the computation of diluted net loss per share and weighted
average common shares outstanding. For the years ended December 31, 2001, 2000
and 1999, there are 0.49 million, 0.70 million and 0.73 million shares,
respectively, of anti-dilutive securities which are not included in the earnings
per share calculation.

<Table>
<Caption>

                                                                                   YEAR ENDED DECEMBER 31,
                                                                          ------------------------------------------
                                                                              2001           2000           1999
                                                                          ------------   ------------   ------------
                                                                           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                                       <C>            <C>            <C>
Net loss per share of common stock:
     Basic and diluted weighted average common shares outstanding ......        19,756         19,340         17,565
                                                                          ============   ============   ============
     Basic and diluted net loss available to common shareholders .......  $      (1.19)  $      (0.37)  $      (0.53)
                                                                          ============   ============   ============

Net loss for basic and diluted computation:
     Net loss before preferred dividends ...............................  $    (19,993)  $     (4,068)  $     (6,315)
     Preferred share dividends .........................................        (3,458)        (3,134)        (3,078)
                                                                          ------------   ------------   ------------
     Net loss available to common shareholders .........................  $    (23,451)  $     (7,202)  $     (9,393)
                                                                          ============   ============   ============
</Table>

         Cash Flows. The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.

         Fair Values of Financial Instruments. The Company's financial
instruments consist primarily of cash and cash equivalents (restricted and
unrestricted), accounts receivable, accounts payable and debt obligations. The
carrying amount of cash, cash equivalents, trade accounts receivable and trade
accounts payable are representative of their respective fair values due to the
short-term maturity of these instruments. It is not practicable to estimate the
fair values of the affiliate amounts due to their related party nature. The fair
value of the Company's credit facility is representative of its carrying value
based upon the variable rate terms and management's opinion that the current
rates offered to the Company with the same maturity and security structure are
equivalent to that of the credit facility. See Note 8 regarding the fair value
of the Company's 9 3/4% Senior Notes.

         Interest Rate Swap Agreement. The differential to be paid or received
on the interest rate swap agreement is accrued as interest rates change and is
recognized over the life of the agreement as an increase or decrease in interest
expense. The Company does not use this instrument for trading purposes. The



                                      F-7
<PAGE>
                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Company has entered into this swap arrangement for the purpose of hedging its
anticipated cash payments for interest associated with its variable rate debt.
See Note 8 regarding the fair value of the Company's interest rate swap
agreement.

         Use of Estimates. The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

         New Accounting Pronouncements. The Company implemented Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, on January 1, 2001. SFAS No.
133 requires that an entity recognize all derivatives as either assets or
liabilities measured at fair value. The accounting for changes in the fair value
of a derivative depends on the use of the derivative. The effective portion of
the change in the fair value of derivatives used as hedges are reported as other
comprehensive income, with all other changes reported in net income. Adoption of
this accounting standard resulted in an after-tax charge to other comprehensive
income of $1.7 million and had no effect on the Company's consolidated results
of operations.

         In July 2001, SFAS No. 141, "Business Combinations" was issued by the
Financial Accounting Standards Board ("FASB"). SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Goodwill and certain intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is reason
to suspect that their values have been diminished or impaired, these assets must
be tested for impairment, and write-downs may be necessary. The Company was
required to implement SFAS No. 141 on July 1, 2001. The adoption of this
Statement had no effect on the Company's consolidated financial position or
results of operations.

         In July 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
issued by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, ceased upon adoption
of this statement on January 1, 2002. Adoption of this new accounting standard
resulted in an after-tax charge to net income of $73.2 million for the
cumulative effect of this accounting change.

         In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" was issued by the FASB. SFAS No. 144 addresses
financial accounting and reporting requirements for the impairment and disposal
of long-lived assets. The Company adopted this Statement on January 1, 2002.
Adoption of this Statement did not have a significant effect on the Company's
consolidated financial position or results of operations.

         Reclassifications. Certain amounts from previous years have been
reclassified to conform to the current year presentation.

3.  ACQUISITIONS

         Since April 1997, the Company has completed 84 acquisitions for an
aggregate cost of $389.5 million. Significant acquisitions have included the
purchase of all of the outstanding stock of Reddy Ice Corporation from Suiza
Foods Corporation for approximately $180.8 million in cash in April 1998 and the
purchase of all of the outstanding stock of Cassco Ice & Cold Storage, Inc. from
WLR Foods, Inc. for approximately $59 million in cash in July 1998. The
Company's acquisition program has been financed almost exclusively through the
incurrence of debt and the issuance of capital stock.



                                      F-8
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         The acquisitions have been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
and liabilities acquired based on fair value at the date of the acquisitions.
The acquisitions included, at fair value, current assets of $26.1 million,
property and equipment of $158.3 million, other assets of $0.6 million, current
liabilities of $31.6 million and long-term debt, primarily paid at closings, of
$13.3 million. The excess of the aggregate purchase price over the fair market
value of the net assets acquired, including acquisition costs, of approximately
$249.4 million was recorded as goodwill and other intangibles and is being
amortized over 40 years. Total amortization expense for goodwill and other
intangible assets resulting from the Company's acquisitions was $7.6 million,
$6.2 million and $6.0 million for the three years ended December 31, 2001, 2000
and 1999, respectively.

         The operating results of the acquired companies have been included in
the Company's consolidated financial statements from the date of their
respective purchases. The following unaudited pro forma information presents
summaries of (i) the consolidated results of operations for the years ended
December 31, 2001 and 2000 as if the 2001 acquisition had occurred as of January
1, 2000 and (ii) the consolidated results of operations for the years ended
December 31, 2000 and 1999, as if the 2000 acquisitions had occurred as of
January 1, 1999.

<Table>
<Caption>

                                                                   2001          2000
                                                              ------------   ------------
                                                                 (IN THOUSANDS, EXCEPT
                                                                   PER SHARE AMOUNTS)
2001 Acquisitions:
<S>                                                           <C>            <C>
     Revenues ..............................................  $    247,373   $    247,170
     Net loss available to common shareholders .............       (23,451)        (7,202)
     Basic loss per share ..................................         (1.19)         (0.37)
     Diluted loss per share ................................         (1.19)         (0.37)
</Table>

<Table>
<Caption>

                                                                   2000          1999
                                                              ------------   ------------
                                                                 (IN THOUSANDS, EXCEPT
                                                                   PER SHARE AMOUNTS)


2000 Acquisitions:
<S>                                                           <C>            <C>
     Revenues ..............................................  $    244,558   $    232,804
     Net loss available to common shareholders .............        (7,092)        (9,157)
     Basic loss per share ..................................         (0.37)         (0.52)
     Diluted loss per share ................................         (0.37)         (0.52)
</Table>

4.  INVENTORIES

<Table>
<Caption>

                                                                      DECEMBER 31,
                                                                  2001           2000
                                                              ------------   ------------
                                                                     (IN THOUSANDS)
<S>                                                           <C>            <C>
Raw materials and supplies .................................  $      6,468   $      8,806
Finished goods .............................................         1,223          1,545
                                                              ------------   ------------
     Total .................................................  $      7,691   $     10,351
                                                              ============   ============
</Table>




                                      F-9
<PAGE>


                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


5.  PROPERTY AND EQUIPMENT

<Table>
<Caption>

                                                                                        DECEMBER 31,
                                                                                  ------------------------
                                                                                     2001         2000
                                                                                  -----------  -----------
                                                                                       (IN THOUSANDS)

<S>                                                                               <C>          <C>
Land............................................................................. $    16,913  $    17,545
Buildings........................................................................      65,133       62,045
Plant, equipment and machinery...................................................     177,801      169,551
Construction in progress.........................................................         791        2,567
                                                                                  -----------  -----------
Total property and equipment.....................................................     260,638      251,708
Less:  Accumulated depreciation..................................................      78,661       60,304
                                                                                  -----------  -----------
     Total....................................................................... $   181,977  $   191,404
                                                                                  ===========  ===========
</Table>

         Depreciation expense for the three years in the period ended December
31, 2001 was $20.6 million, $20.1 million and $20.9 million, respectively.

6.  GOODWILL AND OTHER INTANGIBLES

<Table>
<Caption>

                                                                                        DECEMBER 31,
                                                                                  ------------------------
                                                                                     2001         2000
                                                                                  -----------  -----------
                                                                                       (IN THOUSANDS)

<S>                                                                               <C>          <C>
Goodwill and other acquisition costs............................................. $   214,239  $   216,845
Trade names......................................................................      27,500       27,500
Debt issue costs.................................................................      12,093       12,798
Other intangibles................................................................       8,225        7,205
                                                                                  -----------  -----------
                                                                                      262,057      264,348
Less:  Accumulated amortization..................................................      29,978       22,307
                                                                                  -----------  -----------
     Total....................................................................... $   232,079  $   242,041
                                                                                  ===========  ===========
</Table>


7.  ACCRUED EXPENSES

<Table>
<Caption>

                                                                                        DECEMBER 31,
                                                                                  ------------------------
                                                                                     2001         2000
                                                                                  -----------  -----------
                                                                                       (IN THOUSANDS)

<S>                                                                               <C>          <C>
Accrued interest................................................................. $    11,222  $    11,082
Accrued compensation.............................................................       4,697        3,106
Derivative liability.............................................................       3,899            -
Accrued taxes....................................................................       1,652        1,474
Other............................................................................       3,586        1,923
                                                                                  -----------  -----------
     Total....................................................................... $    25,056  $    17,585
                                                                                  ===========  ===========
</Table>


8.  LINE OF CREDIT AND LONG-TERM OBLIGATIONS

         The Company has $270 million aggregate principal amount of 9 3/4%
Senior Notes outstanding as of December 31, 2001. The 9 3/4% Senior Notes were
issued pursuant to the indenture dated January 28, 1998, as amended (the
"Indenture"). The 9 3/4% Senior Notes are general unsecured obligations of the
Company and are senior in right of payment to all existing and future
subordinated indebtedness of the Company and pari passu to all senior
indebtedness of the Company. The 9 3/4% Senior Notes are effectively
subordinated to the Company's bank credit facility. The 9 3/4% Senior Notes
contain certain covenants that, among other things, limit the ability of the
Company and its restricted subsidiaries to pay any cash dividends or make
distributions with respect to the Company's capital stock, to incur indebtedness
or to




                                      F-10
<PAGE>


                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


create liens. The Company's 9 3/4% Senior Notes are guaranteed, fully, jointly
and severally, and unconditionally, on a senior unsecured basis by each of the
Company's current and future wholly owned subsidiaries. At December 31, 2001,
the fair value of the Senior Notes was $202.5 million, based on market
quotations.

         On December 27, 2001, the Company's bank credit facility was refinanced
with a new lender. The total commitment under the new facility is $88 million
(the "Credit Facility"), consisting a $38 million revolving loan (the "Line of
Credit") and a $50 million term loan (the "Term Loan"). Costs incurred to
refinance the Credit Facility were paid through draws on the Line of Credit. At
December 31, 2001, the Company had $19.6 million of availability under the Line
of Credit.

         Principal balances outstanding under the Line of Credit bear interest
per annum, at the Company's option, at the London Inter-Bank Offered Rate
("LIBOR") plus 3.5% or the prime rate (as announced from time to time by
JPMorgan Chase Bank) plus 1.5%. The outstanding balance of the Line of Credit
was $12.3 million at December 31, 2001 and was classified as a current liability
because of the Company's intention to use the Line of Credit to fund its working
capital. No principal payments are required until the final maturity date of
October 31, 2004. Principal balances outstanding under the Term Loan bear
interest per annum, at the Company's option, at LIBOR plus 4% or the prime rate
plus 2%, with a minimum of 9.5%. At December 31, 2001, the weighted average
interest rate of borrowings outstanding under the Credit Facility was 8.86%.
Interest is payable monthly. The Company pays a 0.5% fee monthly on the average
availability under the Credit Facility, a $20,000 per quarter loan servicing fee
and a $360,000 annual fee on the anniversary date of the Credit Facility.

         For fiscal years beginning on or after January 1, 2002, there is a
mandatory principal payment on the Term Loan equal to 65% of the Company's
Excess Cash Flow (as defined in the Credit Facility). This principal payment is
due within 10 days of delivery of the annual audited financial statements to the
lenders, which may occur no later than 90 days after a fiscal year end. In
accordance with the Credit Facility, the principal payment can be waived if
certain conditions are met and the Company pays the Amortization Waiver Fee (as
defined in the Credit Facility). Any balance outstanding under the Term Loan is
due upon the final maturity date of October 31, 2004.

         On November 28, 2000, the Company entered into an interest rate collar
agreement (the "Collar Agreement"). If the Index Rate (30-day LIBOR, as defined
in the Collar Agreement) exceeds 7.75%, the Company will receive the difference
between the Index Rate and 7.75%. If the Index Rate falls below 5.75%, the
Company will pay the difference plus 1%. Any amounts payable or receivable are
settled monthly. The Collar Agreement has a notional amount of $50 million and a
term of 4 years. When the Credit Facility was refinanced on December 27, 2001,
$3.6 million of amounts previously deferred in accumulated other comprehensive
loss on the balance sheet were realized in current period income as the original
hedged, forecasted transaction was no longer deemed probable of occurring. The
Collar Agreement was redesignated as a hedge of the new Credit Facility with
subsequent changes in fair value deferred in other comprehensive income or loss.
During 2001, interest expense included $5.0 million related to the Collar
Agreement, of which $3.6 million was the non-cash charge related to the balances
previously deferred in accumulated other comprehensive loss. During 2000, there
was no financial statement impact as the Index Rate was between 5.75% and 7.75%.

         If the Company had been required to settle the Collar Agreement as of
December 31, 2001, the Company would have had to pay $3.9 million. The Company
is exposed to credit risk in the event of nonperformance by the counterparty to
the Collar Agreement, however the Company anticipates that the counterparty will
fully perform its obligations under the Collar Agreement.

         The Credit Facility contains financial covenants which include
limitations on capital expenditures and the maintenance of certain financial
ratios, as defined in the Credit Facility, and is collateralized by


                                      F-11
<PAGE>


                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

substantially all of the Company's assets and the capital stock of all of the
Company's significant subsidiaries. At December 31, 2001, the Company was in
compliance with these covenants.

         At December 31, 2001, the Company had $6.4 million of standby letters
of credit outstanding, primarily to secure certain insurance obligations. Due to
the timing of the refinancing of the Credit Facility, the Company was required
to cash collateralize the letters of credit at 105% of the face amount. This
collateral is reported as restricted cash in the balance sheet as of December
31, 2001.

         At December 31, 2001 and 2000, long-term obligations consisted of the
following:

<Table>
<Caption>

                                                                                        DECEMBER 31,
                                                                                  ------------------------
                                                                                     2001         2000
                                                                                  -----------  -----------
                                                                                       (IN THOUSANDS)

<S>                                                                               <C>          <C>
9 3/4% Senior Notes.............................................................. $   270,000  $   270,000
Unamortized debt discount on 9 3/4% Senior Notes.................................        (123)        (163)
Term Loan........................................................................      50,000       61,697
Other............................................................................         485          736
                                                                                  -----------  -----------
Total long-term obligations......................................................     320,362      332,270
Less:  Current maturities........................................................        (188)      (6,748)
                                                                                  -----------  -----------
     Long-term obligations, net.................................................. $   320,174  $   325,522
                                                                                  ===========  ===========
</Table>

     As of December 31, 2001, principal maturities of long-term obligations for
the next five years are as follows:

<Table>
<Caption>

                                                                                             (IN THOUSANDS)

<S>                                                                                            <C>
2002.......................................................................................... $       188
2003..........................................................................................          72
2004..........................................................................................      50,045
2005..........................................................................................     269,927
2006..........................................................................................          50
And thereafter................................................................................          80
                                                                                               -----------
     Total.................................................................................... $   320,362
                                                                                               ===========
</Table>

         See Note 12 for information regarding subsidiary guarantors of
long-term obligations.

9.  INCOME TAXES

         The Company incurred losses for each of the three years ended December
31, 2001, 2000 and 1999 for both financial reporting and tax return purposes.
Due to the uncertainty of being able to utilize such losses to reduce future
taxes, a valuation allowance has been provided to reduce to zero the net
deferred tax assets resulting primarily from the loss carryforwards available.

         The total provision for income taxes varied from the U.S. federal
statutory rate due to the following:

<Table>
<Caption>

                                                                            YEAR ENDED DECEMBER 31,
                                                                        2001         2000         1999
                                                                     -----------  -----------  -----------
                                                                                (IN THOUSANDS)

<S>                                                                  <C>          <C>          <C>
Federal income tax benefit at statutory rate.......................  $    (6,798) $    (1,383) $    (2,147)
State income taxes, net of federal income tax benefits.............         (660)        (134)        (208)
Increase (decrease) in valuation allowance.........................        5,367       (5,056)         823
Change in deferred taxes due to acquisitions.......................           --        5,276           --
Non-deductible expenses and other..................................        2,091        1,297        1,532
                                                                     -----------  -----------  -----------
     Total provision for income taxes..............................  $        --  $        --  $        --
                                                                     ===========  ===========  ===========
</Table>



                                      F-12
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         Deferred tax assets and liabilities computed at the statutory rate
related to temporary differences were as follows:


<Table>
<Caption>

                                                                            YEAR ENDED DECEMBER 31,
                                                                     -----------  -----------  -----------
                                                                        2001         2000         1999
                                                                     -----------  -----------  -----------
                                                                                (IN THOUSANDS)

<S>                                                                  <C>          <C>          <C>
Deferred Tax Liability:
     Property and equipment........................................  $   (26,858) $   (23,007) $   (12,351)
                                                                     ===========  ===========  ===========

Deferred Tax Asset:
     Other assets..................................................  $     3,254  $     1,507  $       619
     Net operating loss carryforwards..............................       33,535       26,064       21,352
                                                                     -----------  -----------  -----------
         Total deferred tax assets.................................  $    36,789  $    27,571  $    21,971
                                                                     ===========  ===========  ===========

Net deferred tax assets............................................  $     9,931  $     4,564  $     9,620
Valuation allowance................................................       (9,931)      (4,564)      (9,620)
                                                                     -----------  -----------  -----------
     Total deferred taxes..........................................  $         -  $         -  $         -
                                                                     ===========  ===========  ===========
</Table>

         At December 31, 2001, the Company had approximately $90 million of net
operating loss carryforwards that expire between 2005 and 2021. There will be an
annual limitation on the utilization of the outstanding net operating loss
carryforwards due to an ownership change, as defined by Section 382 of Internal
Revenue Code, as amended.


10.  CAPITAL STOCK

         Preferred Stock. The Company's Board of Directors authorized 450,000
shares of $0.01 par value Series A convertible preferred stock ("Series A"),
which were issued in a private placement offering during 1995.

         In conjunction with the private placement of the Series A convertible
preferred stock, the Company also issued 700,000 shares of common stock, of
which 420,000 shares contain a "put" option that provided the respective
shareholders with the ability to require the Company to repurchase the common
shares under certain circumstances.

         During January 1997, the Company's Board of Directors authorized the
designation of 200,000 shares of $0.01 par value Series B convertible preferred
stock ("Series B"). The Company issued 124,831 Series B shares in full
satisfaction of 10% convertible demand notes. The Series A and Series B shares
were also subject to the same put redemption option described above for the
420,000 common shares.

         In connection with the Company's offering of common stock on February
3, 1999, as discussed below, the holders of Series A and Series B exercised
their convertibility rights and received 450,000 and 124,831 common shares,
respectively, and the put redemption feature on the 420,000 common shares
referred to above was satisfied.

         The Company's Board of Directors has authorized the designation of
500,000 shares of $0.01 par value 10% exchangeable preferred stock, and 100
shares of $0.01 par value Series C preferred stock. Holders of the 10%
exchangeable preferred stock are entitled to receive dividends equal to 10% of
the liquidation preference of $100 per share, and all dividends are fully
cumulative. Dividends may be paid in cash or in kind by issuing a number of
additional shares of the 10% exchangeable preferred stock. Dividend payments
made after December 2, 2001, are required to be made in cash, except to the
extent prohibited by the Company's 9 3/4% Senior Note Indenture and Credit
Facility. Both the Indenture and the Credit Facility prohibit the payment of any
cash dividends during the terms of the agreements. If




                                      F-13
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


dividends are paid in kind, the Company shall also issue to holders of the 10%
exchangeable preferred stock, additional warrants to purchase common stock at an
exercise price of $13.00 per share. Holders of the 10% exchangeable preferred
stock have no voting rights other than approval rights with respect to the
issuance of parity or senior securities. The Company may redeem the 10%
exchangeable preferred stock at any time subject to contractual and other
restrictions. The Company is obligated to redeem the 10% exchangeable preferred
stock for cash on April 15, 2005.

         On December 2, 1997, the Company entered into a securities purchase
agreement with Culligan Water Technologies, Inc. and an existing shareholder
pursuant to which the Company issued 250,000 shares of the 10% exchangeable
preferred stock, 100 shares of Series C preferred stock and warrants, with an
exercise price of $13.00 per share, to purchase 1,923,077 shares of the
Company's common stock, in exchange for an aggregate purchase price of $25.0
million less issuance costs of $856,017. The warrants are valid until the
earlier to occur of (a) April 15, 2005 or (b) the first anniversary of the last
day of the first period of 20 consecutive days following a qualifying initial
public offering, as defined in the securities purchase agreement, during which
there is a closing price on each such trading day and the closing price on each
such trading day equals or exceeds the threshold price, as defined. On March 1,
2000, the Company exercised its right to redeem its $0.01 par value Series C
preferred stock. The 100 outstanding shares were redeemed for $10 per share.

         On April 30, 1998, the Company entered into a securities purchase
agreement with Ares Leveraged Investment Fund, L.P. ("Ares") and SV Capital
Partners, L.P. ("SV") to acquire 400,000 shares of the Company's 13%
exchangeable preferred stock at $100 per share for an aggregate amount of $40
million. In connection with the securities purchase agreement, Ares and SV
entered into warrant agreements granting warrants to purchase an aggregate of
975,752 shares of the Company's common stock with an exercise price of $0.01 per
share. Dividends shall be fully cumulative and payable quarterly in cash, except
that during the first five years after issuance, dividends may be payable in
kind by issuing additional shares of 13% exchangeable preferred stock.

         In July 1998, the Company completed an offer to exchange the 13%
exchangeable preferred stock with new 13% exchangeable preferred stock
registered under the Securities Act of 1933, as amended. The form and terms of
the registered stock were identical in all material respects, except for certain
transfer restrictions and registration rights.

         In connection with the Company's offering of common stock on February
3, 1999, as discussed below, the Company repurchased the 13% exchangeable
preferred stock for $43.6 million that included accrued but unpaid dividends and
a redemption premium. The holders of the 13% exchangeable preferred stock also
exercised warrants to purchase 974,603 shares of common stock in a cashless
transaction.

         During 2001, 2000 and 1999, the Company paid no cash dividends on the
10% exchangeable preferred stock or the 13% exchangeable preferred stock,
electing to pay in kind dividends on the respective dividend dates. Payments for
the years ended December 31, 2001, 2000 and 1999 totaled 33,998, 30,838 and
27,971 shares of 10% exchangeable preferred stock, respectively, and warrants to
purchase 261,525, 237,217 and 215,163 shares of common stock, respectively, at
$13 per share.

         Common Stock. Holders of the Company's common stock are entitled to one
vote per share on all matters to be voted on by shareholders and are entitled to
receive dividends, if any, as may be declared from time to time by the Board of
Directors of the Company. Upon any liquidation or dissolution of the Company,
the holders of common stock are entitled, subject to any preferential rights of
the holders of preferred stock, to receive a pro rata share of all of the assets
remaining available for distribution to shareholders after payment of all
liabilities.

         On February 3, 1999, the Company completed an initial public offering
of 10,750,000 shares of common stock, par value $0.01 per share. The net
proceeds from the sale were approximately $85 million



                                      F-14
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


before deducting estimated expenses related to the offering of approximately
$1.9 million. The use of proceeds was approximately $43.6 million to repurchase
the Company's 13% exchangeable preferred stock, which included approximately
$1.3 million of accrued but unpaid dividends, and approximately $39.5 million to
pay amounts outstanding under the Company's credit facility. The redemption
premium on the 13% exchangeable preferred stock of approximately $3.8 million
was paid with 481,887 shares of common stock at $7.91 per share.

11.  EMPLOYEE BENEFIT PLANS

         401(k) Plan. The Company has established a 401(k) defined contribution
savings plan for the benefit of all employees who have completed one year of
service and have met the eligibility requirements to participate. Employees may
contribute up to the maximum amount allowed by the Internal Revenue Service,
while Company contributions are made at the discretion of the Board of
Directors. The Company contributed $481,582, $476,351 and $498,092 in 2001, 2000
and 1999, respectively.

         1994 Stock Option Plan. During 1994, the shareholders approved the
Packaged Ice, Inc. 1994 Stock Option Plan that reserved for issuance 400,000
shares of common stock. This plan provides for the granting of incentive awards
in the form of stock options to employees, outside directors and consultants and
advisors to the Company or any of its subsidiaries. Stock options have an
exercise price equal to the fair market value of the shares of common stock at
the date of grant, vest in equal annual installments over five years and expire
10 years from the date of grant. All outstanding options became fully vested at
the date of the Company's initial public offering.

         The following table indicates share and exercise price information with
respect to the 1994 Stock Option Plan for the three years ended December 31,
2001, 2000 and 1999:

<Table>
<Caption>

                                                   2001                   2000                      1999
                                        -----------------------  -----------------------  -----------------------
                                                      WEIGHTED                WEIGHTED                  WEIGHTED
                                                       AVERAGE                AVERAGE                   AVERAGE
                                                      EXERCISE                EXERCISE                  EXERCISE
                                          SHARES        PRICE      SHARES       PRICE       SHARES       PRICE
                                        ----------   ----------  ----------   ----------  ----------   ----------

<S>                                     <C>          <C>          <C>         <C>         <C>          <C>
Outstanding at beginning of year .....     335,200   $    11.24     385,700   $    11.01     391,200   $    11.01
Granted ..............................          --         0.00          --         0.00          --         0.00
Exercised ............................          --         0.00          --         0.00          --         0.00
Forfeited ............................     (21,250)        9.93     (50,500)        9.56      (5,500)       10.91
                                        ----------   ----------  ----------   ----------  ----------   ----------
Outstanding at end of year ...........     313,950   $    11.32     335,200   $    11.24     385,700   $    11.01
                                        ==========   ==========  ==========   ==========  ==========   ==========

Weighted average fair value of
   options granted during the year....               $     0.00               $     0.00               $     0.00
                                                     ==========               ==========               ==========
</Table>

         Options outstanding at December 31, 2001 consisted of the following:

<Table>
<Caption>

                                          WEIGHTED          WEIGHTED
           RANGE OF                       AVERAGE            AVERAGE
      EXERCISE PRICES    NUMBER OF     EXERCISE PRICE       REMAINING
           PER SHARE      OPTIONS        PER SHARE       CONTRACTUAL LIFE
      --------------------------------------------------------------------

<S>                     <C>           <C>               <C>
        $6.22-$7.50        37,000        $  6.62            3.3 years
          $10.00          127,750         $10.00            4.8 years
      $13.00-$15.00       149,200         $13.63            5.5 years
</Table>

         All options outstanding under the 1994 Stock Option Plan were
exercisable as of December 31, 2001.



                                      F-15
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         1998 Stock Option Plan. During 1998, the shareholders approved the
Packaged Ice, Inc. 1998 Stock Option Plan that reserved for issuance 1,000,000
shares of common stock. This plan provides for the granting of incentive awards
in the form of stock options, stock appreciation rights, restricted stock and
stock bonuses to officers, employees, outside directors and consultants and
advisors to the Company or any of its subsidiaries at the discretion of the
Compensation Committee of the Board of Directors. The plan provides for the
underlying shares that are no longer subject to purchase pursuant to an option
previously granted to be reoptioned. Stock options have an exercise price equal
to the fair market value of the shares of common stock at the date of grant,
become exercisable in annual increments for up to five years commencing one year
after the date of grant and expire not more than 10 years from the date of
grant. Certain option grants also provide for vesting based on the appreciation
of the Company's common stock price.

         The following table indicates share and exercise price information with
respect to the 1998 Stock Option Plan for the three years ended December 31,
2001, 2000 and 1999:

<Table>
<Caption>

                                                   2001                         2000                        1999
                                        ---------------------------  ---------------------------  ---------------------------
                                                         WEIGHTED                    WEIGHTED                      WEIGHTED
                                                         AVERAGE                     AVERAGE                       AVERAGE
                                                        EXERCISE                     EXERCISE                      EXERCISE
                                            SHARES        PRICE         SHARES         PRICE         SHARES          PRICE
                                        ------------   ------------  ------------   ------------  ------------   ------------
<S>                                     <C>            <C>           <C>            <C>           <C>            <C>
Outstanding at beginning of year .....       836,951   $       7.45       415,289   $      11.94       243,070   $      15.00
Granted ..............................       211,300           2.09       480,800           4.13       184,682           8.01
Exercised ............................            --           0.00            --           0.00            --           0.00
Forfeited ............................       (71,799)          8.91       (59,138)         11.97       (12,463)         13.33
                                        ------------   ------------  ------------   ------------  ------------   ------------

Outstanding at end of year ...........       976,452   $       6.18       836,951   $       7.45       415,289   $      11.94
                                        ============   ============  ============   ============  ============   ============

Weighted average fair value of
options granted during the year ......                 $       0.95                 $       2.28                 $       4.59
                                                       ============                 ============                 ============
</Table>


         Options outstanding at December 31, 2001 consisted of the following:

<Table>
<Caption>

                                                                              EXERCISABLE OPTIONS
                                                                           -----------------------------
                                          WEIGHTED-          WEIGHTED-                       WEIGHTED-
           RANGE OF                        AVERAGE            AVERAGE                        AVERAGE
       EXERCISE PRICES     NUMBER OF    EXERCISE PRICE      REMAINING       NUMBER OF    EXERCISE PRICE
           PER SHARE        OPTIONS       PER SHARE     CONTRACTUAL LIFE     OPTIONS        PER SHARE
      ----------------     ---------    --------------  ----------------    ---------    ---------------
<S>                       <C>           <C>             <C>                <C>           <C>
       $1.70-$2.00          196,500         $1.99            7.9 years            --             --
          $4.13             461,810         $4.13            6.1 years        93,850          $4.13
          $8.00             147,206         $8.00            6.0 years        59,979          $8.00
         $15.00             170,936        $15.00            5.3 years       103,706         $15.00
</Table>


         2001 Stock Option Plan. During 2001, the shareholders approved the
Packaged Ice, Inc. 2001 Stock Option Plan that reserved for issuance 1,000,000
shares of common stock. This plan provides for the granting of incentive awards
in the form of stock options, stock appreciation rights, restricted stock and
stock bonuses to officers, employees, outside directors and consultants and
advisors to the Company or any of its subsidiaries at the discretion of the
Compensation Committee of the Board of Directors. The plan provides for the
underlying shares that are no longer subject to purchase pursuant to an option
previously granted to be reoptioned. Stock options have an exercise price equal
to the fair market value of the shares of common stock at the date of grant and
expire not more than 10 years from the date of grant. Options become exercisable
in annual increments for up to five years commencing one year after the date of
grant, with the exception of one grant of 100,000 shares in 2001 which were
vested upon issuance. Certain option grants also provide for vesting based on
the appreciation of the Company's common stock price.



                                      F-16
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         The following table indicates share and exercise price information with
respect to the 2001 Stock Option Plan for the year ended December 31, 2001:

<Table>
<Caption>

                                                   2001
                                           ------------------------
                                                          WEIGHTED
                                                           AVERAGE
                                                          EXERCISE
                                            SHARES         PRICE
                                           ----------    ----------
<S>                                       <C>               <C>
Outstanding at beginning of year.........          --    $     0.00
Granted..................................   1,009,000          1.94
Exercised................................    (100,000)         1.60
Forfeited................................     (44,000)         2.00
                                           ----------    ----------
Outstanding at end of year...............     865,000    $     1.97
                                          ===========    ==========

Weighted average fair value of
options granted during the year                          $     1.42
                                                         ==========
</Table>


         Options outstanding at December 31, 2001 consisted of the following:

<Table>
<Caption>

                                                                              EXERCISABLE OPTIONS
                                                                           -----------------------------
                                          WEIGHTED-          WEIGHTED-                       WEIGHTED-
           RANGE OF                        AVERAGE            AVERAGE                        AVERAGE
       EXERCISE PRICES     NUMBER OF    EXERCISE PRICE      REMAINING       NUMBER OF    EXERCISE PRICE
           PER SHARE        OPTIONS       PER SHARE     CONTRACTUAL LIFE     OPTIONS        PER SHARE
      ----------------     ---------    --------------  ----------------    ---------    ---------------
<S>                       <C>           <C>             <C>                <C>           <C>
       $1.60-$1.85             80,000      $1.69            9.3 years              -                  -
          $2.00               785,000      $2.00            9.5 years              -                  -
</Table>


      The Company's reported net loss and loss per share would have been
increased had compensation cost for the Company's stock-based compensation plans
been determined using the fair value method of accounting as set forth in SFAS
No. 123, "Accounting for Stock-Based Compensation". For purposes of estimating
the fair value disclosure below, the fair value of each stock option issued in
1998 has been estimated on the grant date using the "minimum value" method for
option-pricing as there was no public market for the Company's common stock. The
"Black-Scholes" method was used determine the fair value of options issued
subsequent to 1998. Calculations used the following weighted average
assumptions:

<Table>
<Caption>

                                                                        2001         2000         1999
                                                                     -----------  -----------  -----------
<S>                                                                  <C>         <C>          <C>
         Dividend yield...........................................        0.00%       0.00%        0.00%
         Volatility...............................................       59.21%      58.35%       82.10%
         Risk free interest rate..................................        5.17%       6.03%        5.63%
         Expected lives...........................................     10 years    10 years     10 years
</Table>



                                      F-17
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         The effects of using the fair value method of accounting on net loss
and loss per share are indicated in the pro forma amounts below:

<Table>
<Caption>

                                                                         2001        2000         1999
                                                                     -----------  -----------  -----------
                                                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                                                                  <C>          <C>          <C>
Net Loss Available to Common Shareholders:
     As reported...................................................  $   (23,451) $    (7,202) $    (9,393)
     Pro forma.....................................................      (24,048)      (7,784)      (9,916)

Basic and Diluted Loss Per Share:
     As reported...................................................  $    (1.19)  $    (0.37)  $     (0.53)
     Pro forma.....................................................       (1.22)       (0.40)        (0.56)
</Table>

         2000 Employee Stock Purchase Plan. In January 2000, the Company adopted
the 2000 Employee Stock Purchase Plan (the "ESPP"). The ESPP is designed to be a
tax qualified plan under Section 423 of the Internal Revenue Code, as amended,
and offers employees of the Company the right to purchase shares of the
Company's common stock each quarter. The purchase price is the lesser of 85% of
the closing market price on the first or last trading day of each quarter. In
January 2000, the Company reserved 250,000 shares of common stock for issuance
under the ESPP. An additional 250,000 shares were reserved for issuance as a
result of the shareholder vote in May 2001. During 2001 and 2000, the Company
issued 415,906 and 66,936 shares at an average price of $1.41 and $3.02 per
share, respectively.


12.  SUBSIDIARY GUARANTORS

         The Company's 9 3/4% Senior Notes are guaranteed, fully, jointly and
severally, and unconditionally, on a senior subordinated basis by all of the
Company's current and future, direct and indirect subsidiaries (the "Subsidiary
Guarantors"). The following tables set forth the condensed consolidating
financial statements for Packaged Ice, Inc. (the "Parent") and its subsidiaries,
all of which are wholly owned. There are currently no restrictions on the
ability of the Subsidiary Guarantors to transfer funds to the Parent in the form
of cash dividends, loans or advances

         The following is the condensed consolidating balance sheet as of
December 31, 2001:

<Table>
<Caption>

                                                                      COMBINED
                                                                      SUBSIDIARY                 CONSOLIDATED
                                                          PARENT      GUARANTORS  ELIMINATIONS       TOTAL
                                                       -----------   ------------ ------------    -----------
                                                                          (IN THOUSANDS)


<S>                                                    <C>           <C>          <C>             <C>
CURRENT ASSETS:
   Cash and cash equivalents.......................... $         -   $    10,213  $         -     $    10,213
   Accounts receivable, net...........................           -        20,358            -          20,358
   Other current assets...............................       6,701         9,446            -          16,147
                                                       -----------   ------------  ----------     -----------
          Total current assets........................       6,701        40,017            -          46,718
INTERCOMPANY ADVANCES.................................     448,441      (448,441)           -               -
INVESTMENT IN SUBSIDIARIES............................     (25,509)            -       25,509               -
PROPERTY AND EQUIPMENT, net...........................           -       181,977            -         181,977
GOODWILL AND OTHER INTANGIBLES, net...................       7,350       224,729            -         232,079
OTHER ASSETS..........................................           -            10            -              10
                                                       -----------   -----------  -----------     -----------
TOTAL................................................. $   436,983   $    (1,708) $    25,509     $   460,784
                                                       ===========   ===========  ===========     ===========
</Table>




                                      F-18
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<Table>
<Caption>

CURRENT LIABILITIES:
<S>                                                    <C>           <C>          <C>          <C>
   Current portion of long-term obligations........... $        --   $       188  $        --  $       188
   Line of credit.....................................      12,305            --           --       12,305
   Accounts payable...................................                    13,403                    13,403
   Accrued expenses...................................      15,143         9,913           --       25,056
                                                       -----------   -----------   ----------  -----------
          Total current liabilities...................      27,448        23,504           --       50,952
LONG-TERM OBLIGATIONS.................................     319,877           297           --      320,174
MANDATORILY REDEEMABLE PREFERRED
    STOCK.............................................      37,181            --           --       37,181
SHAREHOLDERS' EQUITY:
   Common stock.......................................         204            --           --          204
   Additional paid-in capital.........................     118,910            24          (24)     118,910
   Less:  treasury stock, at cost.....................      (1,491)           --           --       (1,491)
   Accumulated deficit................................     (64,884)      (25,533)      25,533      (64,884)
   Accumulated other comprehensive loss...............        (262)           --           --         (262)
                                                       -----------   -----------  -----------  -----------
            Total shareholders' equity................      52,477       (25,509)      25,509       52,477
                                                       -----------   -----------  -----------  -----------
TOTAL................................................. $   436,983   $    (1,708) $    25,509  $   460,784
                                                       ===========   ===========  ===========  ===========
</Table>


         The following is the condensed consolidating balance sheet as of
December 31, 2000:

<Table>
<Caption>

                                                                     COMBINED
                                                                     SUBSIDIARY                CONSOLIDATED
                                                          PARENT     GUARANTORS   ELIMINATIONS    TOTAL
                                                       -----------   ---------- -------------- ------------
                                                                          (IN THOUSANDS)

CURRENT ASSETS:
<S>                                                    <C>           <C>          <C>          <C>
   Cash and cash equivalents.......................... $        51   $       976  $        --  $     1,027
   Accounts receivable, net...........................          --        23,454           --       23,454
   Other current assets...............................       1,201        11,478           --       12,679
                                                       -----------   -----------   ----------  -----------
          Total current assets........................       1,252        35,908            -       37,160
INTERCOMPANY ADVANCES.................................     449,945      (449,945)           -            -
INVESTMENT IN SUBSIDIARIES............................      (6,558)           --        6,558            -
PROPERTY AND EQUIPMENT, net...........................         357       191,047           --      191,404
GOODWILL AND OTHER INTANGIBLES, net...................       8,388       233,653           --      242,041
OTHER ASSETS..........................................          45            10           --           55
                                                       -----------   -----------  -----------  -----------
TOTAL................................................. $   453,429   $    10,673  $     6,558  $   470,660
                                                       ===========   ===========  ===========  ===========

CURRENT LIABILITIES:
   Current portion of long-term obligations........... $     6,500   $       248  $        --  $     6,748
   Accounts payable...................................       1,122        10,591                    11,713
   Accrued expenses...................................      11,681         5,904           --       17,585
                                                       -----------   -----------   ----------  -----------
          Total current liabilities...................      19,303        16,743           --       36,046
LONG-TERM OBLIGATIONS.................................     325,034           488           --      325,522
MANDATORILY REDEEMABLE PREFERRED
    STOCK.............................................      33,723            --           --       33,723
SHAREHOLDERS' EQUITY:
   Common stock.......................................         197            --           --          197
   Additional paid-in capital.........................     121,554            24          (24)     121,554
   Less:  treasury stock, at cost.....................      (1,491)           --           --       (1,491)
   Accumulated deficit................................     (44,891)       (6,582)       6,582      (44,891)
                                                       -----------   -----------  -----------  -----------
           Total shareholders' equity.................      75,369        (6,558)       6,558       75,369
                                                       -----------   -----------  -----------  -----------
TOTAL................................................. $   453,429   $    10,673  $     6,558  $   470,660
                                                       ===========   ===========  ===========  ===========
</Table>





                                      F-19
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         The following is the condensed consolidating statement of operations
for the year ended December 31, 2001:

<Table>
<Caption>

                                                                     COMBINED
                                                                     SUBSIDIARY               CONSOLIDATED
                                                          PARENT     GUARANTORS  ELIMINATIONS    TOTAL
                                                       -----------   ---------- -------------- -----------
                                                                          (IN THOUSANDS)

<S>                                                    <C>           <C>          <C>          <C>
Revenues.............................................. $        --   $   244,247  $        --  $   244,247
Cost of sales.........................................          --       156,434           --      156,434
                                                       -----------   -----------  -----------  -----------
Gross profit..........................................          --        87,813           --       87,813
Operating expenses....................................          --        37,372           --       37,372
Depreciation and amortization expense.................         120        33,696           --       33,816
                                                       -----------   -----------  -----------  -----------
Income from operations................................        (120)       16,745           --       16,625
Loss from guarantor subsidiaries......................     (18,951)           --       18,951            -
Other income, net.....................................          --            19           --           19
Gain on disposition of assets.........................          --            49           --           49
Interest expense, net.................................        (922)      (35,764)          --      (36,686)
                                                       ------------  ------------ -----------  -----------
Loss before income taxes..............................     (19,993)      (18,951)      18,951      (19,993)
Income taxes..........................................          --            --           --           --
                                                       -----------   -----------  -----------  -----------
Net loss.............................................. $   (19,993)  $   (18,951) $    18,951  $   (19,993)
                                                       ===========   ===========  ===========  ===========
</Table>


         The following is the condensed consolidating statement of operations
for the year ended December 31, 2000:

<Table>
<Caption>

                                                                      COMBINED
                                                                     SUBSIDIARY                CONSOLIDATED
                                                          PARENT     GUARANTORS  ELIMINATIONS     TOTAL
                                                       -----------   ---------- -------------- -----------
                                                                          (IN THOUSANDS)

<S>                                                    <C>           <C>          <C>          <C>
Revenues.............................................. $        --   $   244,044  $        --  $   244,044
Cost of sales.........................................          --       149,889           --      149,889
                                                       -----------   -----------  -----------  -----------
Gross profit..........................................          --        94,155           --       94,155
Operating expenses....................................       3,140        33,999           --       37,139
Depreciation and amortization expense.................          52        28,579           --       28,631
                                                       -----------   -----------  -----------  -----------
Income from operations................................      (3,192)       31,577           --       28,385
Loss from guarantor subsidiaries......................         (78)            -           78            -
Other income, net.....................................          --            17           --           17
Interest expense, net.................................        (798)      (31,672)          --      (32,470)
                                                       -----------   -----------  -----------  -----------
Loss before income taxes..............................      (4,068)          (78)          78       (4,068)
Income taxes..........................................          --            --           --           --
                                                       -----------   -----------  -----------  -----------
Net loss.............................................. $    (4,068)  $       (78) $        78  $    (4,068)
                                                       ===========   ===========  ===========  ===========
</Table>



                                      F-20
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         The following is the condensed consolidating statement of operations
for the year ended December 31, 1999:

<Table>
<Caption>

                                                                     COMBINED
                                                                     SUBSIDIARY                CONSOLIDATED
                                                          PARENT     GUARANTORS  ELIMINATIONS     TOTAL
                                                       -----------   ---------- -------------- ------------
                                                                          (IN THOUSANDS)

<S>                                                    <C>           <C>          <C>          <C>
Revenues.............................................. $        --   $   231,723  $        --  $   231,723
Cost of sales.........................................          --       139,386           --      139,386
                                                       -----------   -----------  -----------  -----------
Gross profit..........................................          --        92,337           --       92,337
Operating expenses....................................       3,429        34,309           --       37,738
Depreciation and amortization expense.................         246        30,280           --       30,526
                                                       -----------   -----------  -----------  -----------
Income from operations................................      (3,675)       27,748           --       24,073
Loss from guarantor subsidiaries......................        (521)            -          521            -
Other income, net.....................................         100           (79)          --           21
Interest expense, net.................................      (2,219)      (28,190)          --      (30,409)
                                                       -----------   -----------  -----------  -----------
Loss before income taxes..............................      (6,315)         (521)         521       (6,315)
Income taxes..........................................          --            --           --            -
                                                       -----------   -----------  -----------  -----------
Net loss.............................................. $    (6,315)  $      (521) $       521  $    (6,315)
                                                       ===========   ===========  ===========  ===========
</Table>


         The following is the condensed consolidating statement of cash flows
for the year ended December 31, 2001:

<Table>
<Caption>

                                                                     COMBINED
                                                                     SUBSIDIARY               CONSOLIDATED
                                                          PARENT     GUARANTORS  ELIMINATIONS    TOTAL
                                                       -----------   ----------  ------------ ------------
                                                                          (IN THOUSANDS)

<S>                                                    <C>           <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss........................................... $   (19,993)  $   (18,951) $    18,951  $   (19,993)
   Adjustments to reconcile net loss to net cash
     provided by operating activities:
        Depreciation, amortization and other non-cash
              expenses................................         326        37,242           --       37,568
        Gain from disposal of assets..................          --           (68)          --          (68)
        Loss from guarantor subsidiaries..............      18,951             -      (18,951)           -
        Change in assets and liabilities:
             Restricted cash..........................      (6,700)            -           --       (6,700)
             Accounts receivable, inventories and prepaid
                   expenses...........................        (356)        4,413           --        4,057
             Intercompany advances....................      10,001       (10,001)          --            -
             Accounts payable and accrued expenses....        (166)        4,455           --        4,289
                                                       -----------   -----------  -----------  -----------
     Net cash provided by operating activities........       2,063        17,090           --       19,153
                                                       -----------   -----------  -----------  -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Property and equipment additions...................          --       (16,510)          --      (16,510)
   Cost of acquisitions...............................          --          (500)          --         (500)
   Proceeds from disposition of property and equipment          --        10,968           --       10,968
   Increase in other noncurrent assets................          --        (1,560)          --       (1,560)
                                                       -----------   -----------  -----------  -----------
   Net cash used in investing activities..............          --        (7,602)          --       (7,602)
                                                       -----------   -----------  -----------  -----------

</Table>



                                      F-21
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<Table>

<S>                                                              <C>           <C>          <C>          <C>
                                                                 ------------   ------------   ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common and preferred
        stock.........................................                    746             -               -            746
   Borrowings from credit facility....................                260,043             -               -        260,043
   Repayment of credit facility.......................               (262,903)            -               -       (262,903)
   Repayment of debt..................................                      -          (251)              -           (251)
                                                                 ------------   ------------   ------------   ------------
   Net cash used in investing activities..............                 (2,113)         (251)              -         (2,365)
                                                                 ------------   ------------   ------------   ------------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS..................................                    (51)        9,237               -          9,186
CASH AND CASH EQUIVALENTS:
   BEGINNING OF YEAR..................................                     51           976               -          1,027
                                                                 ------------   -----------    ------------   ------------
   END OF YEAR........................................           $          -   $    10,213    $          -   $     10,213
                                                                 ============   ===========    ============   ============
</Table>

         The following is the condensed consolidating statement of cash flows
for the year ended December 31, 2000:

<Table>
<Caption>

                                                                                COMBINED
                                                                                SUBSIDIARY                    CONSOLIDATED
                                                                    PARENT      GUARANTORS     ELIMINATIONS      TOTAL
                                                                 ------------   ------------   ------------   ------------
                                                                                         (IN THOUSANDS)

<S>                                                              <C>            <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss ...................................................  $     (4,068)  $        (78)  $         78   $     (4,068)
   Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:
        Depreciation, amortization and other non-cash
              expenses ........................................            92         28,579             --         28,671
        Gain from disposal of assets ..........................            --            (17)            --            (17)
        Loss from guarantor subsidiaries ......................            78             --            (78)            --
        Change in assets and liabilities:
             Accounts receivable, inventories and prepaid
                   expenses ...................................          (172)        (4,392)            --         (4,564)
             Intercompany advances ............................        (7,398)         7,398             --             --
             Accounts payable and accrued expenses ............           726         (1,646)            --           (920)
                                                                 ------------   ------------   ------------   ------------
     Net cash provided by (used in) operating activities ......       (10,742)        29,844             --         19,102
                                                                 ------------   ------------   ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Property and equipment additions ...........................          (359)       (22,806)            --        (23,165)
   Cost of acquisitions .......................................            --         (7,993)            --         (7,993)
   Proceeds from disposition of property and equipment ........            --          1,967             --          1,967
   Increase in other noncurrent assets ........................           377           (554)            --           (177)
                                                                 ------------   ------------   ------------   ------------
   Net cash provided by (used in) investing activities ........            18        (29,386)            --        (29,368)
                                                                 ------------   ------------   ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common and preferred
        stock .................................................           203             --             --            203
   Repurchase of common and preferred stock ...................            (1)            --             --             (1)
   Borrowings from credit facility ............................        61,782             --             --         61,782
   Repayment of credit facility ...............................       (54,054)            --             --        (54,054)
   Repayment of debt ..........................................            --           (256)            --           (256)
                                                                 ------------   ------------   ------------   ------------
   Net cash provided by (used in) investing activities ........         7,930           (256)            --          7,674
                                                                 ------------   ------------   ------------   ------------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS ..........................................        (2,794)           202             --         (2,592)
CASH AND CASH EQUIVALENTS:
   BEGINNING OF YEAR ..........................................         2,845            774             --          3,619
                                                                 ------------   ------------   ------------   ------------
   END OF YEAR ................................................  $         51   $        976   $         --   $      1,027
                                                                 ============   ============   ============   ============
</Table>



                                      F-22
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         The following is the condensed consolidating statement of cash flows
for the year ended December 31, 1999:

<Table>
<Caption>

                                                                                 COMBINED
                                                                                 SUBSIDIARY                   CONSOLIDATED
                                                                    PARENT       GUARANTORS    ELIMINATIONS       TOTAL
                                                                 ------------   ------------   ------------   ------------
                                                                                         (IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                              <C>            <C>            <C>            <C>
   Net loss ...................................................  $     (6,315)  $       (521)  $        521   $     (6,315)
   Adjustments to reconcile net loss to net cash
     provided by operating activities:
        Depreciation, amortization and other non-cash
              expenses ........................................           286         30,280             --         30,566
        Gain from disposal of assets ..........................            --            (21)            --            (21)
        Loss from guarantor subsidiaries ......................           521             --           (521)            --
        Change in assets and liabilities:
             Accounts receivable, inventories and prepaid
                expenses ......................................          (900)        (5,658)            --         (6,558)
             Intercompany advances ............................       (11,778)        11,778             --             --
             Accounts payable and accrued expenses ............        (2,124)        (1,139)            --         (3,263)
                                                                 ------------   ------------   ------------   ------------
     Net cash provided by operating activities ................       (20,310)        34,719             --         14,409
                                                                 ------------   ------------   ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Property and equipment additions ...........................           (22)       (30,292)            --        (30,314)
   Cost of acquisitions .......................................            --        (11,284)            --        (11,284)
   Proceeds from disposition of property and equipment ........            --          4,496             --          4,496
   Increase in other noncurrent assets ........................            --            (26)            --            (26)
                                                                 ------------   ------------   ------------   ------------
   Net cash used in investing activities ......................           (22)       (37,106)            --        (37,128)
                                                                 ------------   ------------   ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common and preferred
        stock .................................................        82,779             --             --         82,779
   Proceeds from the conversion of warrants ...................             2             --             --              2
   Repurchase of common and preferred stock ...................       (43,607)            --             --        (43,607)
   Borrowings from credit facility ............................        52,845             --             --         52,845
   Repayment of credit facility ...............................       (68,845)            --             --        (68,845)
   Repayment of debt ..........................................            --           (263)            --           (263)
                                                                 ------------   ------------   ------------   ------------
   Net cash provided by (used in) investing activities ........        23,174           (263)            --         22,911
                                                                 ------------   ------------   ------------   ------------


NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS ..........................................         2,845         (2,653)            --            192
CASH AND CASH EQUIVALENTS:
   BEGINNING OF YEAR ..........................................            --          3,427             --          3,427
                                                                 ------------   ------------   ------------   ------------
   END OF YEAR ................................................  $      2,845   $        774   $         --   $      3,619
                                                                 ============   ============   ============   ============
</Table>


                                      F-23
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


13.  SEGMENT INFORMATION

         The Company has two reportable segments: (1) ice products and (2)
non-ice products and services. Ice products include the manufacture and
distribution of packaged ice products through traditional ice manufacturing and
delivery and the Ice Factory, which is a proprietary machine that produces,
packages, stores and merchandises ice at the point of sale through an automated,
self-contained system. Non-ice products and services include refrigerated
warehouses, manufacturing and distribution of bottled water and the sale and
leasing of ice production equipment. During 2001, the Company sold the majority
of its ice production equipment leasing business and two small refrigerated
warehouses.

         The accounting policies of the segments are the same as those described
in Note 2. The Company evaluates performance of each segment based on earnings
before interest, taxes, depreciation, amortization and gain or loss on
disposition of assets ("EBITDA") and does not allocate assets by segment.
Inter-segment sales are accounted for at current market prices. During the years
ended December 31, 2001 and 2000, there were no intersegment sales. Segment
information for the years ended December 31, 2001, 2000 and 1999 is as follows:

         For the Year Ended December 31, 2001:

<Table>
<Caption>

                                     ICE        NON-ICE       ELIMINATIONS       TOTAL
                                ------------  ------------   --------------   ------------
                                                    (IN THOUSANDS)

<S>                             <C>           <C>            <C>              <C>
Revenues .....................  $    223,019  $     21,228   $           --   $    244,247
Cost of sales ................       143,378        13,056               --        156,434
                                ------------  ------------   --------------   ------------
Gross profit .................        79,641         8,172               --         87,813
Operating expenses ...........        34,026         3,346               --         37,372
Other income (loss), net .....            26            (7)              --             19
                                ------------  ------------   --------------   ------------
EBITDA .......................  $     45,641  $      4,819   $           --   $     50,460
                                ============  ============   ==============   ============
</Table>

         For the Year Ended December 31, 2000:

<Table>
<Caption>

                                     ICE        NON-ICE       ELIMINATIONS       TOTAL
                                ------------  ------------   --------------   ------------
                                                    (IN THOUSANDS)
<S>                             <C>           <C>            <C>              <C>
Revenues .....................  $    224,034  $     20,010   $           --   $    244,044
Cost of sales ................       138,341        11,548               --        149,889
                                ------------  ------------   --------------   ------------
Gross profit .................        85,693         8,462               --         94,155
Operating expenses ...........        33,376         3,763               --         37,139
Other income, net ............            17            --               --             17
                                ------------  ------------   --------------   ------------
EBITDA .......................  $     52,334  $      4,699   $           --   $     57,033
                                ============  ============   ==============   ============
</Table>


         For the Year Ended December 31, 1999:

<Table>
<Caption>

                                     ICE        NON-ICE       ELIMINATIONS       TOTAL
                                ------------  ------------   --------------   ------------
                                                    (IN THOUSANDS)


<S>                             <C>           <C>            <C>              <C>
Revenues .....................  $    211,763  $     21,230   $       (1,270)  $    231,723
Cost of sales ................       127,848        12,610           (1,072)       139,386
                                ------------  ------------   --------------   ------------
Gross profit .................        83,915         8,620             (198)        92,337
Operating expenses ...........        34,707         3,031               --         37,738
Other income, net ............            21            --               --             21
                                ------------  ------------   --------------   ------------
EBITDA .......................  $     49,229  $      5,589   $         (198)  $     54,620
                                ============  ============   ==============   ============
</Table>




                                      F-24
<PAGE>

                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


     A reconciliation of EBITDA to net loss before dividends for the three years
ended December 31, 2001, 2000 and 1999 is as follows:


<Table>
<Caption>

                                                                            YEAR ENDED DECEMBER 31,
                                                                     -------------------------------------
                                                                        2001         2000         1999
                                                                     -----------  -----------  -----------
                                                                                (IN THOUSANDS)

<S>                                                                  <C>          <C>          <C>
EBITDA.............................................................  $    50,460  $    57,033  $    54,620
Depreciation and amortization......................................      (33,816)     (28,631)     (30,526)
Interest expense, net..............................................      (36,686)     (32,470)     (30,409)
Gain on disposition of assets......................................           49            -            -
Income taxes.......................................................            -            -            -
                                                                     -----------  -----------  -----------
     Net loss before preferred dividends...........................  $   (19,993) $    (4,068) $    (6,315)
                                                                     ===========   ==========  ===========
</Table>

14.  COMMITMENTS AND CONTINGENCIES

         The Company has an agreement to purchase the bagging component of the
Ice Factory from an exclusive manufacturer until a minimum of 3,600 components
are purchased. Since inception of this agreement, the Company has purchased
3,000 components. Expenditures related to this agreement were $0.6 million in
2001, $3.9 million in 2000 and $3.8 million in 1999.

         The Company has an exclusive agreement to purchase ice makers for the
Ice Factory from a related party. Expenditures related to this agreement were
$0.7 million in 2001, $2.3 million in 2000 and $3.1 million in 1999.

         The Company has leased certain facilities and equipment. Under these
and other operating leases, future minimum annual rentals at December 31, 2001
were approximately $11.5 million in 2002 (net of sublease income of $0.2
million), $11.0 million in 2003, $8.4 million in 2004, $6.1 million in 2005,
$4.7 million in 2006 and $6.4 million thereafter. Rent expense was $11.9
million, $8.1 million and $5.0 million for the years ended December 31, 2001,
2000 and 1999, respectively. Certain of these facilities are leased from a
related party. Rent expense related to these properties was $0.4 million per
year in 2001, 2000 and 1999.

         In June 1999, the Company entered into an exclusive supply agreement
with a merchandiser manufacturer in which the Company committed to purchase
4,000 merchandisers and/or Ice Factory merchandisers and a minimum of $1.5
million of replacement parts per twelve-month period commencing June 1, 1999.
The final twelve-month period ends May 31, 2004. As of December 31, 2001, the
Company had purchased approximately 7,900 merchandisers and $2.4 million of
parts since the inception of the contract. The Company does not anticipate being
in compliance with the contract at May 31, 2002 and is currently in negotiations
with the vendor to restructure the contract. Management believes the resolution
of this issue will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

         The Company is involved in various claims, lawsuits and proceedings
arising in the ordinary course of business. While there are uncertainties
inherent in the ultimate outcome of such matters and it is impossible to
presently determine the ultimate costs that may be incurred, management believes
the resolution of such uncertainties and the incurrence of such costs will not
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.





                                      F-25
<PAGE>
                       PACKAGED ICE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


15.  SUBSEQUENT EVENTS

         On January 9, 2002, the Company issued 16,967 shares of common stock in
connection with the ESPP at a price of $0.91 per share. Subsequently, only 191
shares remained available for issuance. Contributions to the ESPP have been
suspended until such time that additional shares are approved by the Company's
shareholders.

         On January 30, 2002, the Company repurchased and retired 9 3/4% Senior
Notes with a par value of $2.5 million, which resulted in a gain of $0.4
million.

         On February 18, 2002, the Company granted options under the 1998 Stock
Option Plan to an employee to purchase 20,000 shares of common stock at an
exercise price of $2.00 per share.


16.  QUARTERLY INFORMATION (UNAUDITED)

         The following table summarizes the unaudited quarterly information for
the years ended December 31, 2001 and 2000. In the opinion of management, all
adjustments necessary for a fair presentation of the unaudited results for the
periods are included.

<Table>
<Caption>

2001                                           1ST          2ND          3RD          4TH         YEAR
----                                      -----------  -----------   -----------  -----------  -----------
                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                       <C>          <C>           <C>          <C>          <C>
Revenues................................  $    32,518  $    77,472   $    88,328  $    45,929  $   244,247
Gross profit............................        4,824       32,625        37,720       12,644       87,813
Net income (loss) available to
   common shareholders..................      (20,728)       6,220        11,928      (20,871)     (23,451)
Earnings per Share:
   Basic................................        (1.07)        0.32         0.60        (1.04)        (1.19)
   Diluted..............................        (1.07)        0.31         0.58        (1.04)        (1.19)
</Table>

<Table>
<Caption>

2000                                           1ST          2ND          3RD          4TH         YEAR
----                                      -----------  -----------   -----------  -----------  -----------
                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                       <C>          <C>           <C>          <C>          <C>
Revenues................................  $    35,512  $    76,213   $    89,712  $    42,607  $   244,044
Gross profit............................        9,596       32,189        41,221       11,149       94,155
Net income (loss) available to
   common shareholders..................      (14,333)       5,729        15,278      (13,876)      (7,202)
Earnings per share:
   Basic................................        (0.74)        0.30         0.79        (0.72)        (0.37)
   Diluted..............................        (0.74)        0.29         0.76        (0.72)        (0.37)
</Table>

         The sum of the individual quarters earnings per share do not agree with
year-to-date earnings per share as each quarter's computation is based on the
weighted average number of shares outstanding during the quarter, the weighted
average stock price during the quarter and the dilutive effects of options and
warrants in each quarter. In periods of loss, dilutive effects become
antidilutive and are not considered in the computation of loss per share.


                                      F-26


<PAGE>

EXHIBIT NO.                              DESCRIPTION


     2.1        Stock Purchase Agreement between Packaged Ice, Inc. and Suiza
                Foods Corporation dated March 27, 1998. (Exhibit 2.1)(5)

     2.2        Stock Purchase Agreement among Packaged Ice, Inc., WLR Foods,
                Inc. and Cassco Ice & Cold Storage, Inc. dated July 31, 1998.
                (Exhibit 2.1)(7)

     3.1        Restated Articles of Incorporation of Packaged Ice filed with
                the Secretary of State of the State of Texas on February 5,
                1992. (Exhibit 3.2)(1)

     3.2        Articles of Amendment to the Restated Articles of Incorporation
                of Packaged Ice filed with the Secretary of State of the State
                of Texas on August 11, 1998. (Exhibit 3.2) (6)

     3.3        Amended and Restated Bylaws of Packaged Ice, effective as of
                January 20, 1997. (Exhibit 3.5)(1)

     4.1        Amended and Restated Certificate of Designation of 10%
                Exchangeable Preferred Stock. (Exhibit 4.12)(5)

     4.2        Indenture by and among Packaged Ice, as Issuer, the Subsidiary
                Guarantors and U.S. Trust Company of Texas, N.A. as Trustee
                dated as of January 28, 1998, Amended and Restated as of April
                30, 1998. (Exhibit 4.1)(5)

     4.3        Common Stock Purchase Warrant, dated July 17, 1997, executed by
                Packaged Ice for the benefit of SV Capital Partners LP. (Exhibit
                10.39)(2)

     4.4        Registration Rights Agreement by and between Packaged Ice and
                Silver Brands Partners, L.P. (formerly SV), dated February 3,
                1999. (Exhibit 4.7)(9)

     4.5        Warrant Agreement among Packaged Ice and U.S. Trust Company of
                Texas, N.A., a national banking association, as Warrant Agent,
                dated as of April 17, 1997. (Exhibit 10.12)(1)

     4.6        Warrant Agreement among Packaged Ice and U.S. Trust Company of
                Texas, N.A., a national banking association, as Warrant Agent,
                dated as of October 16, 1997. (Exhibit 10.7)(3)

     4.7        Common Stock Purchase Warrant Agreement issued by Packaged Ice
                and issued to Culligan Water Technologies, Inc. issuing
                1,807,692 fully paid and nonassessable shares of Packaged Ice's
                common stock at an exercise price of $13.00 per share dated
                December 2, 1997. (Exhibit 10.3)(4)

<PAGE>


     4.8        Registration Rights Agreement by and among Packaged Ice,
                Culligan Water Technologies, Inc. and Erica Jesselson. (Exhibit
                10.5)(4)

     4.9        Rights Agreement dated as of October 29, 1999, between the
                Company and American Stock Transfer & Trust Company as Rights
                Agent. (Exhibit 1)(11)

     4.10       First Amendment to the Warrant Agreement, dated April 24, 2001,
                between the Company and U.S. Trust Company of Texas, N.A.
                amending the Warrant Agreement dated October 16, 1997. (Exhibit
                4.1)(15)

     10.1       Packaged Ice, Inc. 2000 Employee Stock Purchase Plan. (Exhibit
                10.2)(10)

     10.2       1994 Stock Option Plan, dated July 26, 1994. (Exhibit 10.10)(1)

     10.3       1998 Stock Option Plan, dated June 19, 1998. (Exhibit 10.34)(8)

     10.4       2001 Stock Option Plan, dated May 9, 2001. (Exhibit B)(14)

     10.5       Form of Indemnification Agreement entered into by Packaged Ice
                in favor of members of the Board of Directors. (Exhibit
                10.31)(1)

     10.6       Development and Manufacturing Agreement by and between Lancer
                Corporation and Packaged Ice, dated April 13, 1993. (Exhibit
                10.32)(1)

     10.7       The Amended and Restated Credit Agreement dated as of November
                28, 2000 among the Financial Institutions named herein as the
                Lenders, Antares Capital Corporation as a Co-Agent and Bank of
                America, N.A. as a Co-Agent and the Administrative Agent and
                Packaged Ice, Inc. as Borrower. (Exhibit 10.8)(12)

     10.8       Subsidiary Guaranty dated as of November 28, 2000. (Exhibit
                10.10)(12)

     10.9       First Amendment and Limited Waiver to Amended and Restated
                Credit Agreement dated as of November 28, 2000.
                (Exhibit 10.9)(12)

     10.10      Second Amendment to Amended and Restated Credit Agreement dated
                as of November 28, 2000. (Exhibit 10.1)(13)

     10.11      Limited Waiver and Third Amendment to Amended and Restated
                Credit Agreement dated as of November 28, 2000. (Exhibit
                10.1)(16)

     10.12      Form of Strategic Management Team Change of Control Bonus
                Agreement, dated May 9, 2001 (entered into between the Company
                and each of William P. Brick and Jimmy C. Weaver, individually).
                (Exhibit 10.1)(15)

     10.13      Form of Strategic Management Team Change of Control Bonus
                Agreement, dated May 9, 2001 (entered into between the Company
                and each of Graham D. Davis, Steven J. Janusek and Ben D. Key,
                individually). (Exhibit 10.2)(15)

     10.14      Form of Strategic Management Team Change of Control Bonus
                Agreement, dated May 9, 2001 (entered into between the Company
                and each of Thomas L. Dann, Michael P. Busch, Billy W. Daniel,
                Joseph A. Geloso, William A. Newberry and Neil D. Showalter,
                individually). (Exhibit 10.3)(15)

     10.15      Indemnification Agreement between the Company and William P.
                Brick, dated April 19, 2001. (Exhibit 10.4)(15)

     10.16      Severance Agreement between the Company and James F. Stuart,
                dated April 19, 2001. (Exhibit 10.5)(15)

     10.17      Severance Agreement between the Company and Leonard A. Bedell,
                dated June 1, 2001. (Exhibit 10.6)(15)

     10.18      Agreement between the Company and A.J. Lewis III, dated June 19,
                2001. (Exhibit 10.7)(15)

     10.19      The Second Amended and Restated Credit Agreement dated as of
                December 27, 2001 by and among Packaged Ice, Inc., as Borrower,
                the Lenders from Time to Time Party Hereto, and Ableco Finance
                LLC, as Collateral Agent and Administrative Agent. (Exhibit
                4.1)(17)

     10.20+     Amended and Restated Subsidiary Guaranty dated as of December
                27, 2001.

     10.21+     First Amendment to Second Amended and Restated Credit Agreement
                dated as of December 27, 2001.
<PAGE>

     10.22+     Second Amendment to Second Amended and Restated Credit Agreement
                dated as of December 27, 2001.

     21.1+      List of subsidiaries.

     23.1+      Consent of Deloitte & Touche LLP.

----------
      +         Filed herewith.

     (1)        Filed as an Exhibit to Packaged Ice's Registration Statement on
                Form S-4 (File No. 333-29357), filed with the Commission on June
                16, 1997.

     (2)        Filed as an Exhibit to the Amendment No. 1 to Packaged Ice's
                Registration Statement on Form S-4 (No. 333-29357), filed with
                the Commission on July 29, 1997.

     (3)        Filed as an Exhibit to Packaged Ice's Third Quarter Disclosure
                on Form 10-Q with the Commission on November 14, 1997.

     (4)        Filed as an Exhibit to Form 8-K filed on behalf of Packaged Ice
                with the Commission on December 15, 1997.

     (5)        Filed as an Exhibit to Form 8-K/A filed on behalf of Packaged
                Ice with the Commission on May 12, 1998.

     (6)        Filed as an Exhibit to Amendment No. 1 to Packaged Ice's
                Registration Statement on Form S-1 (File No. 333-60627), filed
                with the Commission on October 2, 1998.

     (7)        Filed as an Exhibit to Packaged Ice's Form 8-K filed with the
                Commission on August 14, 1998.

     (8)        Filed as an Exhibit to Amendment No. 2 to Packaged Ice's
                Registration Statement on Form S-1 (File No. 333-60627), filed
                with the Commission on January 4, 1999.

     (9)        Filed as an Exhibit to Packaged Ice's Form 10-K filed with the
                Commission on March 30, 1999.

     (10)       Filed as an Exhibit to Packaged Ice's Form 10-K filed with the
                Commission on March 28, 2000.

     (11)       Filed as an Exhibit to Form 8-A12G filed on behalf of Packaged
                Ice with the Commission on November 1, 1999.

     (12)       Filed as an Exhibit to Packaged Ice's Form 10-K filed with the
                Commission on March 30, 2001.

     (13)       Filed as an Exhibit to Packaged Ice's First Quarter Disclosure
                on Form 10-Q with the Commission on May 15, 2001.

     (14)       Filed as an Exhibit to Packaged Ice's Definitive Proxy Statement
                filed with the Commission on May 17, 2001.

     (15)       Filed as an Exhibit to Packaged Ice's Second Quarter Disclosure
                on Form 10-Q with the Commission on August 9, 2001.

     (16)       Filed as an Exhibit to Packaged Ice's Third Quarter Disclosure
                on Form 10-Q with the Commission on November 14, 2001.

     (17)       Filed as an Exhibit to Packaged Ice's Form 8-K filed with the
                Commission on January 10, 2002.