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

---

FORM 10-Q

|(Mark one)                                   |                                                                                         
|-------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                            | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended June 30, 2005
|OR                                          
|o                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from            to

Commission file number 333-110442-04

---

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

|DELAWARE(State or other jurisdiction of
incorporation or organization)                             |  | 56-2381368(I.R.S. Employer Identification No.)
|-------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|8750 N. CENTRAL EXPRESSWAY, SUITE 1800
DALLAS, TEXAS 75231(Address of principal executive offices)
|(214) 526-6740(Registrant's telephone number, including area code)                                

Indicate
by check mark whether the registrant (1) 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 o    No ý    (1)

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes o    No ý

The number of shares of registrant's common stock outstanding as of August 2, 2005 was 13,934,348.

---



---





REDDY ICE HOLDINGS, INC. AND SUBSIDIARY  QUARTERLY REPORT ON FORM 10-Q  FOR THE PERIOD ENDED JUNE 30, 2005    TABLE OF CONTENTS

|                             |  |                                                                                       |  |                                                                                                                                  |  | Page
|---------------------------- |  | ------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART IFINANCIAL INFORMATION |  |                                                                                      
|Item 1.                      |  | Condensed Consolidated Financial Statements                                           |  |                                                                                                                                 
|                             |  |                                                                                       |  | Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2005 and December 31, 2004                                      |  | 2   
|                             |  |                                                                                       |  | Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2005 and 2004 (restated) |  | 3   
|                             |  |                                                                                       |  | Condensed Consolidated Statement of Stockholders' Equity (unaudited) for the six months ended June 30, 2005                      |  | 4   
|                             |  |                                                                                       |  | Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2005 and 2004                      |  | 5   
|                             |  |                                                                                       |  | Notes to the Condensed Consolidated Financial Statements                                                                         |  | 6   
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 19                                                                                                                              
|Item 3.                      |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 38                                                                                                                              
|Item 4.                      |  | Controls and Procedures                                                               |  | 38                                                                                                                              
|PART IIOTHER INFORMATION    |  |                                                                                      
|Item 1.                      |  | Legal Proceedings                                                                     |  | 39                                                                                                                              
|Item 2.                      |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 39                                                                                                                              
|Item 3.                      |  | Defaults Upon Senior Securities                                                       |  | 39                                                                                                                              
|Item 4.                      |  | Submission of Matters to a Vote of Security Holders                                   |  | 39                                                                                                                              
|Item 5.                      |  | Other Information                                                                     |  | 39                                                                                                                              
|Item 6.                      |  | Exhibits                                                                              |  | 39                                                                                                                              
|SIGNATURES                   |  | 40                                                                                   
|INDEX TO EXHIBITS            |  | 41                                                                                   

1

---





PART IFINANCIAL INFORMATION

Item 1.Financial Statements

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY  CONDENSED CONSOLIDATED BALANCE SHEETS  (Unaudited)  (in thousands, except share amounts)

ASSETS

|                                       |                                                                                                                                                                           | June 30,
2005              |         | December 31,
2004 |       
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ----------------- | ------
|CURRENT ASSETS:                        |                                                                                                                                                                           |                            |         |                   |       
|                                       | Cash and cash equivalents                                                                                                                                                 |                            | $       | 3,527             |       
|                                       | Accounts receivable, net                                                                                                                                                  |                            |         | 43,740            |       
|                                       | Inventories                                                                                                                                                               |                            |         | 11,334            |       
|                                       | Prepaid expenses                                                                                                                                                          |                            |         | 2,935             |       
|                                       | Assets held for sale                                                                                                                                                      |                            |         | 447               |       
|                                       | Deferred tax assets                                                                                                                                                       |                            |         | 2,174             |       
|                                       |                                                                                                                                                                           |                            |         |                   |       
|                                       |                                                                                                                                                                           | Total current assets       |         |                   | 64,157
|PROPERTY AND EQUIPMENT, net            |                                                                                                                                                                           |                            | 234,787 |                   |       
|GOODWILL                               |                                                                                                                                                                           |                            | 214,723 |                   |       
|OTHER INTANGIBLE ASSETS, net           |                                                                                                                                                                           |                            | 89,478  |                   |       
|OTHER ASSETS                           |                                                                                                                                                                           |                            | 10      |                   |       
|                                       |                                                                                                                                                                           |                            |         |                   |       
|TOTAL                                  |                                                                                                                                                                           | $                          | 603,155 |                   | $     
|                                       |                                                                                                                                                                           |                            |         |                   |       
|LIABILITIES AND STOCKHOLDERS' EQUITY   |                                                                                                                                                                          
|CURRENT LIABILITIES:                   |                                                                                                                                                                           |                            |         |                   |       
|                                       | Current portion of long-term obligations                                                                                                                                  |                            | $       | 1,868             |       
|                                       | Notes payable                                                                                                                                                             |                            |         | 53                |       
|                                       | Revolving credit facility                                                                                                                                                 |                            |         | 20,000            |       
|                                       | Accounts payable                                                                                                                                                          |                            |         | 21,428            |       
|                                       | Accrued expenses                                                                                                                                                          |                            |         | 16,454            |       
|                                       |                                                                                                                                                                           |                            |         |                   |       
|                                       |                                                                                                                                                                           | Total current liabilities  |         |                   | 59,803
|LONG-TERM OBLIGATIONS                  |                                                                                                                                                                           |                            | 428,873 |                   |       
|DEFERRED TAX LIABILITIES, net          |                                                                                                                                                                           |                            | 33,363  |                   |       
|COMMITMENTS AND CONTINGENCIES (Note 9) |                                                                                                                                                                           |                            |        |                   |       
|STOCKHOLDERS' EQUITY:                  |                                                                                                                                                                           |                            |         |                   |       
|                                       | Common stock: $0.01 par value; 75,000,000 shares authorized; 13,934,348 and 13,686,150 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively |                            |         | 139               |       
|                                       | Additional paid-in capital                                                                                                                                                |                            |         | 93,001            |       
|                                       | Unearned compensation                                                                                                                                                     |                            |         | (93               | )     
|                                       | Accumulated deficit                                                                                                                                                       |                            |         | (11,931           | )     
|                                       |                                                                                                                                                                           |                            |         |                   |       
|                                       |                                                                                                                                                                           | Total stockholders' equity |         |                   | 81,116
|                                       |                                                                                                                                                                           |                            |         |                   |       
|TOTAL                                  |                                                                                                                                                                           | $                          | 603,155 |                   | $     
|                                       |                                                                                                                                                                           |                            |         |                   |       

See
notes to condensed consolidated financial statements.

2

---





REDDY ICE HOLDINGS, INC. AND SUBSIDIARY  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (Unaudited)  (in thousands, except per share amounts)

|                                                   |                                                    | Three Months Ended
June 30, |        | Six Months Ended
June 30, |  
|-------------------------------------------------- | -------------------------------------------------- | --------------------------- | ------ | ------------------------- | -
|
|
|Revenues                                           |                                                    | $                           | 93,123 |                           | $
|Cost of sales (excluding depreciation)             |                                                    |                             | 53,099 |                           |  
|Depreciation expense related to cost of sales      |                                                    |                             | 4,734  |                           |  
|                                                   |                                                    |                             |        |                           |  
|Gross profit                                       |                                                    |                             | 35,290 |                           |  
|Operating expenses                                 |                                                    |                             | 9,300  |                           |  
|Depreciation and amortization expense              |                                                    |                             | 1,452  |                           |  
|Loss on dispositions of assets                     |                                                    |                             | 38     |                           |  
|Impairment of assets                               |                                                    |                             | 5,725  |                           |  
|                                                   |                                                    |                             |        |                           |  
|Income from operations                             |                                                    |                             | 18,775 |                           |  
|Interest expense                                   |                                                    |                             | 9,829  |                           |  
|                                                   |                                                    |                             |        |                           |  
|Income (loss) before income taxes                  |                                                    |                             | 8,946  |                           |  
|Income tax benefit (expense)                       |                                                    |                             | (3,551 | )                         |  
|                                                   |                                                    |                             |        |                           |  
|Net income (loss)                                  |                                                    |                             | 5,395  |                           |  
|Preferred dividends                                |                                                    |                             |       |                           |  
|                                                   |                                                    |                             |        |                           |  
|Net income (loss) available to common stockholders |                                                    | $                           | 5,395  |                           | $
|                                                   |                                                    |                             |        |                           |  
|Basic net income (loss) per share:                 |                                                    |                             |        |                           |  
|                                                   | Net income (loss) available to common stockholders |                             | $      | 0.39                      |  
|                                                   |                                                    |                             |        |                           |  
|                                                   | Weighted average common shares outstanding         |                             |        | 13,934                    |  
|                                                   |                                                    |                             |        |                           |  
|Diluted net income (loss) per share:               |                                                    |                             |        |                           |  
|                                                   | Net income (loss) available to common stockholders |                             | $      | 0.36                      |  
|                                                   |                                                    |                             |        |                           |  
|                                                   | Weighted average common shares outstanding         |                             |        | 14,840                    |  
|                                                   |                                                    |                             |        |                           |  

See
notes to condensed consolidated financial statements.

3

---





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

|                                              |  | Common Stock |  |   |     |  |   |        |  |   |     
|--------------------------------------------- |  | ------------ |  | - | --- |  | - | ------ |  | - | ----
|
|Balance at January 1, 2005                    |  | 13,686       |  | $ | 137 |  | $ | 90,077 |  | $ | (135
|Amortization of unearned compensation         |  |             |  |   |    |  |   |       |  |   | 42  
|Compensation expense related to stock options |  |             |  |   |    |  |   | 527    |  |   |    
|Exercise of stock options                     |  | 248          |  |   | 2   |  |   | 1,797  |  |   |    
|Tax benefit of stock option exercises         |  |             |  |   |    |  |   | 600    |  |   |    
|Net loss                                      |  |             |  |   |    |  |   |       |  |   |    
|                                              |  |              |  |   |     |  |   |        |  |   |     
|Balance at June 30, 2005                      |  | 13,934       |  | $ | 139 |  | $ | 93,001 |  | $ | (93 
|                                              |  |              |  |   |     |  |   |        |  |   |     

See
notes to condensed consolidated financial statements.

4

---





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

|                                                  |                                                                                          | Six Months Ended
June 30,                                             |                                                    
|------------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ---------------------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:             |                                                                                          |                                                                       |                                                    
|                                                  | Net income (loss)                                                                        |                                                                       | $                                                  
|                                                  | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                                       |                                                    
|                                                  |                                                                                          | Depreciation and amortization                                         |                                                    
|                                                  |                                                                                          | Amortization of debt issue costs and debt discounts                   |                                                    
|                                                  |                                                                                          | Loss on dispositions of assets                                        |                                                    
|                                                  |                                                                                          | Impairment of assets                                                  |                                                    
|                                                  |                                                                                          | Stock-based compensation expense                                      |                                                    
|                                                  |                                                                                          | Deferred taxes                                                        |                                                    
|                                                  |                                                                                          | Tax benefit of stock option exercises                                 |                                                    
|                                                  |                                                                                          | Change in assets and liabilities, net of the effects of acquisitions: |                                                    
|                                                  |                                                                                          |                                                                       | Accounts receivable, inventory and prepaid expenses
|                                                  |                                                                                          |                                                                       | Accounts payable, accrued expenses and other       
|                                                  |                                                                                          |                                                                       |                                                    
|                                                  | Net cash provided by operating activities                                                |                                                                       |                                                    
|                                                  |                                                                                          |                                                                       |                                                    
|CASH FLOWS FROM INVESTING ACTIVITIES:             |                                                                                          |                                                                       |                                                    
|                                                  | Property and equipment additions                                                         |                                                                       |                                                    
|                                                  | Proceeds from dispositions of property and equipment                                     |                                                                       |                                                    
|                                                  | Cost of acquisitions                                                                     |                                                                       |                                                    
|                                                  |                                                                                          |                                                                       |                                                    
|                                                  | Net cash used in investing activities                                                    |                                                                       |                                                    
|                                                  |                                                                                          |                                                                       |                                                    
|CASH FLOWS FROM FINANCING ACTIVITIES:             |                                                                                          |                                                                       |                                                    
|                                                  | Proceeds from the exercise of employee stock options                                     |                                                                       |                                                    
|                                                  | Deferred debt costs                                                                      |                                                                       |                                                    
|                                                  | Borrowings under the credit facility, net                                                |                                                                       |                                                    
|                                                  | Repayment of long-term obligations                                                       |                                                                       |                                                    
|                                                  |                                                                                          |                                                                       |                                                    
|                                                  | Net cash provided by financing activities                                                |                                                                       |                                                    
|                                                  |                                                                                          |                                                                       |                                                    
|NET DECREASE IN CASH AND CASH EQUIVALENTS         |                                                                                          |                                                                       | (951                                               
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD    |                                                                                          |                                                                       | 4,478                                              
|                                                  |                                                                                          |                                                                       |                                                    
|CASH AND CASH EQUIVALENTS, END OF PERIOD          |                                                                                          | $                                                                     | 3,527                                              
|                                                  |                                                                                          |                                                                       |                                                    
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |                                                                                          |                                                                       |                                                    
|                                                  | Cash payments for interest                                                               |                                                                       | $                                                  
|                                                  |                                                                                          |                                                                       |                                                    
|                                                  | Borrowings under the credit facility                                                     |                                                                       | $                                                  
|                                                  |                                                                                          |                                                                       |                                                    
|                                                  | Repayments on the credit facility                                                        |                                                                       | $                                                  
|                                                  |                                                                                          |                                                                       |                                                    
|SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND   |                                                                                          |                                                                       |                                                    
|FINANCING ACTIVITIES:                             |                                                                                          |                                                                       |                                                    
|                                                  | Issuance of notes payable                                                                |                                                                       | $                                                  
|                                                  |                                                                                          |                                                                       |                                                    
|                                                  | Change in fair value of derivative liability                                             |                                                                       | $                                                  
|                                                  |                                                                                          |                                                                       |                                                    
|                                                  | Accretion of preferred dividends                                                         |                                                                       | $                                                  
|                                                  |                                                                                          |                                                                       |                                                    

See
notes to condensed consolidated financial statements.

5

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004

1.    General

The condensed consolidated financial statements of Reddy Ice Holdings, Inc. and its wholly owned subsidiary (together, the "Company") included herein are
unaudited, however the balance sheet as of December 31, 2004 has been derived from the audited financial statements for that date. These financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). As applicable under the SEC's regulations, certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. All significant intercompany balances and
transactions have been eliminated upon consolidation, and all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position, results of operations
and cash flows for the periods covered have been made and are of a normal and recurring nature. The financial statements included herein should be read in conjunction with the consolidated financial
statements and the related notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2004. Operating results for the six months ended
June 30, 2005 are not necessarily indicative of the results to be achieved for the full year.

Reddy
Ice Holdings, Inc., a Delaware corporation ("Reddy Holdings"), and its wholly owned subsidiary, Cube Acquisition Corp. ("Cube"), a Texas corporation, were formed on behalf
of Trimaran Fund Management LLC ("Trimaran") and Bear Stearns Merchant Banking ("Bear Stearns") on May 8, 2003 for the purpose of acquiring Packaged Ice, Inc. ("Packaged Ice") and
effecting certain capital transactions in connection with such acquisition. On August 15, 2003, Cube merged with and into Packaged Ice, with Packaged Ice being the surviving corporation. As a
result of the merger, Packaged Ice was delisted from the American Stock Exchange. Reddy Holdings and Cube conducted no operations during the period from May 8, 2003 through August 14,
2003. In connection with the merger, Packaged Ice was renamed Reddy Ice Group, Inc. ("Reddy Group"). Reddy Holdings and its wholly owned subsidiary Reddy Group are referred to collectively
herein as the "Company".

The
Company manufactures and distributes packaged ice products and bottled water and owns and operates refrigerated warehouses. The Company is the largest manufacturer of packaged ice
products
in the United States. The Company serves approximately 82,000 customer locations in 31 states and the District of Columbia.

On
August 2, 2005, the Company effected a 138 for 1 stock split and, in conjunction therewith, amended and restated the Company's certificate of incorporation to increase the
number of authorized shares of the Company's common stock and preferred stock. All common share and per common share amounts in these condensed consolidated financial statements have been
retroactively adjusted for all periods presented to give effect to the stock split, including reclassifying an amount equal to the increase in par value from additional paid-in capital to
common stock.

2.    Acquisitions

During 2004, the Company purchased 11 ice companies at various dates throughout the year. The total acquisition consideration was $16.9 million, which
included direct acquisition costs of $0.5 million. The total purchase price was allocated to the acquired assets and assumed liabilities based upon estimates of their respective fair values as
of the closing dates using valuations and other studies. The

6

---



following
table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition (dollars in millions):

Total assets acquired

$
6.1Total liabilities assumed


1.8Net assets acquired

$
4.3


The
excess of the aggregate purchase price over the net assets acquired of $12.6 million was allocated to goodwill ($8.3 million) and other intangible assets
($4.3 million). Other intangible assets were comprised of customer lists, which are being amortized over useful lives of 15 to 30 years.

The
results of operations of the 2004 acquisitions are included in the Company's consolidated results of operations from the date of each acquisition, which ranged from March 1,
2004 to November 1, 2004. The following unaudited pro forma information presents the Company's consolidated results of operations for the three and six months ended June 30, 2004 as if
the 2004 acquisitions had all occurred on January 1, 2004:

Three Months
Ended
June 30, 2004

Six Months
Ended
June 30, 2004(in thousands)Pro forma revenues

$
90,706

$
129,233Pro forma net income (loss) available to common stockholders


12,626


(2,423
)


3.    Inventories

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

June 30,
2005

December 31,
2004(in thousands)Raw materials and supplies

$
9,243

$
7,584Finished goods


2,091


1,851Total

$
11,334

$
9,435


In
November 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory Costsan
amendment of ARB No. 43, Chapter 4". SFAS No. 151 seeks to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage)
in the determination of inventory carrying costs. The statement requires such costs to be treated as a current period expense. This statement is effective for fiscal years beginning after
July 15, 2005. The Company is currently evaluating the effect this standard could have on its results of operations and financial position.

7

---



4.    Accrued Expenses

|                                                                                     |       | June 30, 2005 |       | December 31,
2004
|------------------------------------------------------------------------------------ | ----- | ------------- | ----- | -----------------
|
|Accrued compensation and employee benefits, including workers compensation insurance |       | $             | 5,127 |                  
|Accrued interest                                                                     |       |               | 5,730 |                  
|Accrued property, sales and other taxes                                              |       |               | 1,768 |                  
|Accrued utilities                                                                    |       |               | 1,654 |                  
|Other accrued insurance                                                              |       |               | 1,314 |                  
|Other                                                                                |       |               | 861   |                  
|                                                                                     |       |               |       |                  
|                                                                                     | Total |               | $     | 16,454           
|                                                                                     |       |               |       |                  

5.    Revolving Credit Facility and Long-Term Obligations

On July 17, 2003, Cube issued $152.0 million of 87/8% Senior Subordinated Notes due August 1, 2011 (the "Senior Subordinated
Notes") in a private placement offering. The Senior Subordinated Notes were subsequently registered with the SEC. The Senior Subordinated Notes were sold at 99.297% of the stated principal amount,
which resulted in gross proceeds of $150.9 million. Interest on the Senior Subordinated Notes is payable semiannually on February 1 and August 1, with such payments having
commenced on February 1, 2004. The Senior Subordinated Notes are unsecured senior subordinated obligations of Reddy Group and are:



The
Senior Subordinated Notes include customary covenants that restrict, among other things, the ability to incur additional debt, pay dividends or make certain other restricted
payments, incur liens, merge or sell all or substantially all of the assets, or enter into various transactions with affiliates. Prior to August 1, 2006, Reddy Group may redeem up to 35% of the
principal amount of the Senior Subordinated Notes at a redemption price of 108.875% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption, with funds raised in
specified equity offerings. On or after August 1, 2007, Reddy Group may redeem all or a portion of the Senior Subordinated Notes at a pre-determined redemption price plus any
accrued interest. The redemption price, as a percentage of the outstanding principal amount, is 104.438% in 2007, 102.219% in 2008 and 100.000% in 2009 and subsequent years. If Reddy Group experiences
a change of control and does not elect to redeem the outstanding Senior Subordinated Notes as previously described, Reddy Group will be required to make an offer to repurchase the Senior Subordinated
Notes at a price equal to 101% of the outstanding principal amount plus accrued interest.

8

---



The
Senior Subordinated Notes are guaranteed, fully, jointly and severally, and unconditionally, on a senior subordinated basis by Reddy Holdings and all of Reddy Group's subsidiaries
(the "Subsidiary Guarantors"). There are currently no restrictions on the ability of the Subsidiary Guarantors to transfer funds to Reddy Group in the form of cash dividends, loans or advances.
Condensed consolidated financial statements for Reddy Holdings and its wholly-owned subsidiary are not presented as Reddy Holdings has no significant independent assets or operations. Condensed
consolidating financial statements for Reddy Group and its subsidiaries, all of which are wholly owned, are not presented as Reddy Group has no significant independent assets or operations. Reddy
Group has no subsidiaries that do not guarantee the Senior Subordinated Notes.

On
October 27, 2004, Reddy Holdings issued $151.0 million in aggregate principal amount at maturity of 101/2% Senior Discount Notes due 2012 (the "Discount
Notes") in a private placement offering. The Discount Notes were sold at 66.333% of the stated principal amount, which resulted in gross proceeds
of $100.2 million. Each Discount Note has an initial accreted value of $663.33 per $1,000 principal amount at maturity. The accreted value of each Discount Note will increase from the date of
issuance until November 1, 2008 at a rate of 101/2% per annum such that the accreted value will equal the stated principal amount at maturity on November 1, 2008.
Thereafter, cash interest will accrue and be payable semi-annually at a rate of 101/2% per annum.

The
Discount Notes are unsecured obligations of Reddy Holdings and are:



The
Discount Notes include customary covenants that restrict, among other things, the ability to incur additional debt or issue certain preferred stock, pay dividends or redeem,
repurchase or retire our capital stock or subordinated indebtedness, make certain investments, incur liens, enter into arrangements that restrict dividends from our subsidiaries, merge or sell all or
substantially all of the assets or enter into various transactions with affiliates. Prior to November 1, 2007, Reddy Holdings may redeem up to 35% of the principal amount of the Discount Notes
at a redemption price of 110.5% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption, with funds raised in equity offerings that are specified in the indenture
governing the Discount Notes. If a change of control occurs on or prior to November 1, 2007, Reddy Holdings may, at its option, redeem all, but not less than all, of the Discount Notes at a
redemption price equal to the sum of (i) the accreted value of the notes as of the redemption date, (ii) a premium equal to 125% of one year's coupon payment and (iii) any accrued
and unpaid interest to the date of redemption. If Reddy Holdings experiences a change of control and does not elect to make the optional redemption described in the previous sentence, Reddy Holdings
will be required to make an offer to repurchase the Discount Notes

9

---



at
a price equal to 101% of their accreted value, plus accrued and unpaid interest, if any, to the date of purchase.

The
Discount Notes are subject to registration with the SEC pursuant to the Registration Rights Agreement (the "Rights Agreement") entered into at the time of issuance. Pursuant to the
Rights Agreement, Reddy Holdings must, within 150 days after the issuance date, file a registration statement with the SEC to exchange the Discount Notes for new notes of Reddy Holdings
having terms substantially identical in all material respects to the Discount Notes and to use its commercially reasonable efforts to cause the registration statement to be declared effective within
240 days after the issuance date. The 150th day following the issuance of the Discount Notes was March 26, 2005. Reddy Holdings did not file the required registration statement until
April 6, 2005 and, as a result, incurred additional interest expense from March 26, 2005 to April 6, 2005 at an annual rate of 0.50%. The 240th day following the issuance of the
Reddy Holdings notes was June 24, 2005 and, as a result of the registration statement not having been declared effective by the SEC on or prior to that date, Reddy Holdings began accruing
additional interest on the Reddy Holdings notes from June 24, 2005. Such additional interest accrues at an annual rate of 0.50% for the first 90 days following such date, and accrues by
additional 0.50% thereafter until such registration statement is declared effective.

On
August 15, 2003, Reddy Group entered into a $170 million senior secured credit facility, with the lenders being a syndicate of banks, financial institutions and other
entities, including Credit Suisse First Boston as Administrative Agent, Canadian Imperial Bank of Commerce and Bear Stearns Corporate Lending, Inc. (the "Credit Facility"). The Credit Facility
provides for a six-year term loan in the amount of $135 million (the "Original Term Loan") and a five-year revolving credit facility (the "Revolving Credit Facility") in
the amount of $35 million. On November 6, 2003, the Credit Facility was amended to provide a Supplemental Term Loan (together with the Original Term Loan, referred to as the "Term
Loans") in the amount of $45 million. The Supplemental Term Loan has substantially the same terms as the Original Term Loan.

At
June 30, 2005, the Company had $9.3 million of availability under the Revolving Credit Facility, which was net of outstanding standby letters of credit of
$5.7 million. The standby letters of credit are used primarily to secure certain insurance obligations.

Principal
balances outstanding under the Credit Facility bear interest per annum, at Reddy Group's option, at the sum of the base rate plus the applicable margin or LIBOR plus the
applicable margin. The base rate is defined as the greater of the prime rate (as announced from time to time by the Administrative Agent) or the federal funds rate plus 0.5%. The applicable margin is
different for revolving and term loans and varies depending on Reddy Group's leverage ratio. On February 20, 2004, the Credit Facility was amended to reduce the applicable margin on term loans
by 0.5%. At June 30, 2005, the weighted average interest rate of borrowings outstanding under the Credit Facility was 6.0%. Interest on base rate loans is payable on the last day of each
quarter. Interest on LIBOR loans is payable upon maturity of the LIBOR loan or on the last day of the quarter if the term of the LIBOR loan exceeds 90 days. Reddy Group pays a quarterly fee on
the average availability under the Revolving Credit Facility based on an annual rate of 0.5%.

The
Credit Facility requires that, beginning in 2004, Reddy Group will repay all borrowings under the Revolving Credit Facility and maintain a zero outstanding balance for a period of 30
consecutive calendar days during each year. This requirement has not yet been fulfilled for 2005. The Term Loans

10

---



amortize
in quarterly installments over a five-year period in an annual aggregate amount equal to 1% of the original balance, with any remaining unpaid balance to be repaid in the sixth
year in equal, quarterly installments. Subject to certain conditions, mandatory repayments of the Revolving Credit Facility and Term Loans are required to be made with portions of the proceeds from
(1) asset sales, (2) the issuance of debt securities, (3) an initial public offering of stock of Reddy Holdings and (4) insurance and condemnation awards. In the event of a
change in control, as defined in the Credit Facility, all amounts outstanding will become due and payable immediately. Furthermore, within 100 days after close of the each fiscal year
(beginning with the close of the 2004 fiscal year), a mandatory prepayment of the Term Loans is required in an amount equal to a certain percentage of Reddy Group's annual excess cash flow, as defined
in the Credit Facility. The percentage is based on Reddy Group's leverage ratio at the end of such fiscal year and ranges from 25% to 75%. In connection with the offering of the Discount Notes
discussed above, Reddy Group amended the Credit Facility on October 27, 2004 to permit certain related transactions (see Note 6). In addition to allowing those related transactions, the
amendment modified the calculation of Reddy Group's excess cash flow for 2004 such that a mandatory prepayment based on Reddy Group's 2004 results was not required. On June 30, 2005, Reddy
Group made a voluntary prepayment of the Term Loans in the amount of $5.0 million. Such prepayment will reduce Reddy Group's annual excess cash flow for 2005 and thereby reduce the mandatory
prepayment required to be made in early 2006.

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 substantially all of Reddy Group's assets and the capital stock of all of its significant subsidiaries. At June 30, 2005, Reddy Group was in compliance with these
covenants.

In
connection with the proposed initial public offering ("IPO") of its common stock (see Note 6), the Company also indicated its intention to enter into a new bank credit
facility. This new credit facility is currently being negotiated and will be contingent upon the closing of the IPO. In addition to paying fees and expenses, the proceeds of the new bank credit
facility, along with proceeds from the IPO, will be used to repay the existing Credit Facility and repurchase the Company's existing Senior Subordinated Notes.

On
March 22, 2005, Reddy Group commenced a cash tender offer for any and all of its outstanding Senior Subordinated Notes. In connection with the tender offer, Reddy Group also
solicited consents to amend the indenture governing the Senior Subordinated Notes to, among other things, eliminate substantially all of the restrictive covenants and certain events of default. The
offer is subject to the satisfaction of certain conditions, including there being validly tendered and not validly withdrawn at least a majority of the aggregate principal amount of the Senior
Subordinated Notes outstanding and Reddy Group having available funds sufficient to pay the aggregate total consideration to the holders of tendered notes from the anticipated proceeds of the
borrowings under Reddy Group's new credit facilities and from the proposed initial public offering of Reddy Holdings' common stock.

11

---



At
June 30, 2005 and December 31, 2004, long-term obligations consisted of the following:

June 30, 2005

December 31,
2004(in thousands)87/8% Senior Notes

$
152,000

$
152,000Less: Unamortized debt discount on 87/8% Senior Notes


(813
)

(879
)101/2% Senior Discount Notes


151,000


151,000Less: Unamortized debt discount on 101/2% Senior Discount Notes


(43,609
)

(48,957
)Credit facilityterm loans


171,850


177,750Other


313


347Total long-term obligations


430,741


431,261Less: Current maturities


1,868


1,869Long-term obligations, net

$
428,873

$
429,392


6.    Capital Stock

Common Stock.Reddy Holdings is authorized to issue up to 75,000,000 shares of common stock, par value $0.01 per share.
Holders of Reddy Holdings' common stock are entitled to one vote per share on all matters to be voted on by stockholders and are entitled to receive dividends, if any, as may be declared from time to
time by the Board of Directors of Reddy Holdings. Upon any liquidation or dissolution of Reddy Holdings, 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 stockholders after payment of all liabilities.

On
February 11, 2005, Reddy Holdings filed a registration statement on Form S-1 with the SEC for a proposed initial public offering of its common stock. A
portion of the shares will be sold by Reddy Holdings and a portion will be sold by certain of Reddy Holdings' stockholders. The number of shares to be offered by Reddy Holdings and the selling
stockholders are 6,911,765 and 3,288,235, respectively. The price range for the offering is expected to be between $16.00 and $18.00 per share. Amendments No. 1, 2 and 3 to the registration
statement were filed on April 6, 2005, May 25, 2005 and July 26, 2005, respectively.

On
March 17, 2005, certain employees exercised stock options granted under the Reddy Ice Holdings, Inc. 2003 Stock Option Plan (the "Stock Option Plan") to purchase 248,198
shares of Reddy
Holdings' common stock for an aggregate purchase price of approximately $1.8 million. As of June 30, 2005, 1,385,765 shares of common stock were reserved for issuance under the Stock
Option Plan.

Preferred Stock.Reddy Holdings is authorized to issue up to 25,000,000 shares of $0.01 par value preferred stock. During
2003 and 2004, Reddy Holdings issued a total of 99,075 shares of Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"). The terms of the Series A Preferred
Stock were set forth in a certificate of designation (the "Series A Preferred Stock Designation"). The liquidation preference per share of the Series A Preferred Stock was equal to the
sum of (a) $1,000 plus (b) the amount of all accumulated but unpaid dividends on such shares. The holders of the outstanding shares of Series A Preferred Stock immediately
preceding the dividend payment date were entitled to receive dividends, as declared by the Board of Directors, at a rate per

12

---



annum
equal to 12% of the liquidation amount per share. All dividends were cumulative, whether or not earned or declared, accruing on a daily basis from the issue date and were payable in cash
quarterly in arrears on each dividend payment date commencing on November 15, 2003. If Reddy Holdings did not pay the cash dividends on a quarterly basis, all unpaid dividends were to be added
to the liquidation amount in respect of such shares on each dividend payment date. Reddy Holdings had the ability to redeem the Series A Preferred Stock at its option in whole at any time or in
part from time to time, subject to restrictions as defined in the Series A Preferred Stock Designation. Series A Preferred Stock holders were not entitled or permitted to vote on any
matter upon which the holders of common stock are required or permitted to vote upon.

On
October 27, 2004, Reddy Holdings issued $151 million of its 101/2% Senior Discount Notes (see Note 5). Reddy Holdings used the net proceeds of the
note offering, together with an approximately $28.4 million dividend from Reddy Group, to redeem all of Reddy Holdings' outstanding Series A Preferred Stock (99,175 shares) for an
aggregate liquidation amount of $114.2 million and to pay a dividend of $10.4 million on its common stock. In connection with these events, Reddy Group made a special transaction payment
of approximately $1.2 million in the aggregate to certain members of management and certain directors.

7.    Stock-Based Compensation

At June 30, 2005, the Company had one stock-based employee compensation plan, the Reddy Ice Holdings, Inc. 2003 Stock Option Plan (the "Stock Option
Plan"), under which stock options are granted from time to time. Effective January 1, 2005, the Company adopted the fair value recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure". Under the provisions of SFAS No. 148, the Company
selected the modified prospective method of adoption and therefore began recognizing stock-based employee compensation cost related to the Stock Option Plan beginning January 1, 2005, as if the
fair value based accounting method had been used to account for all employee awards granted, modified, or settled since the inception of the Stock Option Plan on
August 15, 2003. The Company has also recorded stock-based compensation expense related to the issuance of restricted common and preferred stock since the date of grant of August 15,
2003.

13

---





Through December 31, 2004, the Company accounted for the Stock Option Plan under the intrinsic value method prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. No stock-based employee compensation cost is reflected in net income (loss) available to common stockholders for the three and
six months ended June 30, 2004. The following table illustrates the effect on the net income (loss) available to common stockholders and basic and diluted earnings per share for the three and
six months ended June 30, 2004 as if the Company had applied the fair value recognition provisions of stock-based compensation as described in SFAS No. 123, as amended by
SFAS 148.

|                                                                                                                                   |             | Three Months
Ended
June 30, 2004 |        | Six Months
Ended
June 30, 2004 |  
|---------------------------------------------------------------------------------------------------------------------------------- | ----------- | -------------------------------- | ------ | ------------------------------ | -
|
|Net income (loss) available to common stockholders, as reported                                                                    |             | $                                | 12,164 |                                | $
|Add: Employee stock-based compensation expense included in reported net income (loss) available to common stockholders, net of tax |             |                                  | 26     |                                |  
|Less: Total stock-based compensation expense determined under fair value based methods for all awards, net of tax                  |             |                                  | (182   | )                              |  
|                                                                                                                                   |             |                                  |        |                                |  
|Pro forma net income (loss) available to common stockholders                                                                       |             | $                                | 12,008 |                                | $
|                                                                                                                                   |             |                                  |        |                                |  
|Basic net income (loss) per share:                                                                                                 |             |                                  |        |                                |  
|                                                                                                                                   | As reported |                                  | $      | 0.89                           |  
|                                                                                                                                   |             |                                  |        |                                |  
|                                                                                                                                   | Pro forma   |                                  |        | 0.88                           |  
|                                                                                                                                   |             |                                  |        |                                |  
|Diluted net income (loss) per share:                                                                                               |             |                                  |        |                                |  
|                                                                                                                                   | As reported |                                  | $      | 0.86                           |  
|                                                                                                                                   |             |                                  |        |                                |  
|                                                                                                                                   | Pro forma   |                                  |        | 0.85                           |  
|                                                                                                                                   |             |                                  |        |                                |  

In
December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment", which establishes accounting standards for all transactions in which an entity exchanges its
equity instruments for goods and services. SFAS No. 123(R) focuses primarily on accounting for transactions with employees, and carries forward without change prior guidance for share-based
payments for transactions with non-employees.

SFAS
No. 123(R) eliminates the intrinsic value measurement objective in APB Opinion 25 and generally requires companies to measure the cost of employee services received in
exchange for an award of equity instruments based on the fair value of the award on the date of the grant. The standard requires grant date fair value to be estimated using either an option-pricing
model which is consistent with the terms of the award or a market observed price, if such a price exists. Such cost must be recognized over the period during which an employee is required to provide
service in exchange for the award, which is usually the vesting period. The standard also requires the Company to estimate the number of instruments that will ultimately be issued, rather than
accounting for forfeitures as they occur.

The
Company is required to apply SFAS No. 123(R) to all awards granted, modified or settled on or after the first day of the next fiscal year beginning after June 15, 2005.
SFAS No. 123(R) also requires the use of either the "modified prospective method" or the "modified retrospective method."

14

---



Under
the modified prospective method, compensation cost is recognized for all awards granted after adoption of the standard and for the unvested portion of previously granted awards that are
outstanding on that date. Under the modified retrospective method, previously issued financial statements must be restated to recognize the expense amounts previously calculated and reported on a pro
forma basis, as if the prior standard had been adopted. Under both methods, either the straight line or an accelerated method may be used to amortize the compensation cost associated with awards with
graded vesting. The standard permits and encourages early adoption.

The
Company plans to adopt SFAS No. 123(R) on January 1, 2006 using the modified prospective method. Management does not believe that the adoption of this standard will
have a material effect on the Company's results of operations or financial position.

8.    Income Taxes

The Company's effective tax rate differs from the federal statutory income tax rate of 35% due to state income taxes and the effect of permanent differences,
primarily the non-deductible portion of the interest expense recognized on the 101/2% Senior Discount Notes.

9.    Commitments and Contingencies

The Company is involved in various claims, lawsuits and proceedings arising in the ordinary course of business. 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. Other than those lawsuits described below, 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.

The
Company is involved in litigation in connection with an ammonia release at its Baton Rouge, Louisiana manufacturing facility in June 2001. The case, which is a consolidation
of seven lawsuits, was titled Wallace Acey, Jr., et al vs. ^Reddy Ice Corporation, is pending in the 19th Judicial District Court, Parish of East Baton Rouge, Louisiana. The plaintiffs, which were
certified as a settlement class, have alleged injuries primarily consisting of inconvenience, watery eyes and offensive odors. No specific amount of damages was specified in the action. The fairness
of the settlement was approved by the court on January 25, 2005. Management believes the settlement will be finalized during 2005. The Company recognized $150,000 of expense in its 2004 results
related to its obligation under the settlement. Management does not believe that the final resolution of this litigation will have a material impact on the Company's business, financial condition or
results of operations.

10.    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 and the manufacturing and
distribution of bottled water.

15

---



The
Company evaluates performance of each segment based on earnings before interest, taxes, depreciation, amortization, gain or loss on disposition of assets, impairment of assets, gain
on extinguishment of debt and the cumulative effect of changes in accounting principles ("Segment EBITDA"). Segment assets are not a factor in the evaluation of performance. There were no intersegment
sales during the three months and six months ended June 30, 2005 and 2004.

Segment
information for the three months ended June 30, 2005 and 2004 was as follows:

Three Months Ended June 30, 2005

Three Months Ended June 30, 2004Ice

Non-Ice

Total

Ice

Non-Ice

Total(as restated, see Note 13)(in thousands)Revenues

$
89,587

$
3,536

$
93,123

$
83,941

$
4,588

$
88,529Cost of sales (excluding depreciation)


50,908


2,191


53,099


47,330


2,519


49,849Operating expenses


8,847


453


9,300


8,363


416


8,779Segment EBITDA

$
29,832

$
892

$
30,724

$
28,248

$
1,653

$
29,901Total assets

$
575,874

$
27,281

$
603,155

$
595,443

$
33,515

$
628,958


Segment
information for the six months ended June 30, 2005 and 2004 was as follows:

Six Months Ended June 30, 2005

Six Months Ended June 30, 2004Ice

Non-Ice

Total

Ice

Non-Ice

Total(as restated, see Note 13)(in thousands)Revenues

$
125,576

$
6,791

$
132,367

$
117,522

$
8,387

$
125,909Cost of sales (excluding depreciation)


80,372


4,406


84,778


73,580


4,777


78,357Operating expenses


17,164


970


18,134


16,203


894


17,097Segment EBITDA

$
28,040

$
1,415

$
29,455

$
27,739

$
2,716

$
30,455Total assets

$
575,874

$
27,281

$
603,155

$
595,443

$
33,515

$
628,958


16

---



The
reconciliation of Segment EBITDA to net income (loss) for the three and six month periods ended June 30, 2005 and 2004 was as follows:

|                                              |  | Three Months Ended
June 30, |        | Six Months Ended
June 30, |  
|--------------------------------------------- |  | --------------------------- | ------ | ------------------------- | -
|
|
|
|Segment EBITDA                                |  | $                           | 30,724 |                           | $
|Loss on dispositions of assets                |  |                             | (38    | )                         |  
|Depreciation expense related to cost of sales |  |                             | (4,734 | )                         |  
|Depreciation and amortization expense         |  |                             | (1,452 | )                         |  
|Impairment of assets                          |  |                             | (5,725 | )                         |  
|Interest expense                              |  |                             | (9,829 | )                         |  
|Income tax benefit (expense)                  |  |                             | (3,551 | )                         |  
|                                              |  |                             |        |                           |  
|Net income (loss)                             |  | $                           | 5,395  |                           | $
|                                              |  |                             |        |                           |  

11.    Impairment of Assets

Due to the significant reduction in cold storage sales volumes related to a particular customer, the Company evaluated the goodwill recorded in the cold storage
portion of its non-ice business segment in accordance with SFAS No. 142, "Goodwill and Other Intangibles" as of June 30, 2005. The goodwill was valued using a market
valuation approach based on valuations of comparable businesses, multiples of earnings of comparable businesses and discounted cash flows. As a result of such evaluation, the Company recorded a
non-cash impairment charge of $5.7 million during the three months ended June 30, 2005.

12.    Subsequent Event

On July 19, 2005, Reddy Holdings commenced a consent solicitation for the primary purpose of amending the definition of the term "Consolidated Net Income"
in the indenture governing the Discount Notes in order to exclude certain one-time costs and expenses associated with Reddy Holdings' proposed initial public offering of its common stock
(see Note 6). Reddy Holdings
received the requisite consents from registered holders of the Discount Notes on July 28, 2005. The payment of the $1.3 million consent fee is contingent upon the closing of the proposed
initial public offering of Reddy Holdings' common stock.

13.    Restatement of Condensed Consolidated Statement of Operations

In the process of preparing its consolidated financial statements for the year ended December 31, 2004, and in responding to comments from the SEC on the
Company's Registration Statement on Form S-1 relating to the Company's contemplated initial public offering of common stock (see Note 6), the Company determined that its
presentation of "cost of sales" and "gross profit", as previously reported, was not consistent with accounting principles generally accepted in the United States of America.

17

---



Historically,
the Company did not include depreciation expense related to cost of sales as a component of cost of sales and therefore had excluded it from gross profit calculations.
Consistent with presentations of other companies in related industries, the Company added the caption "depreciation expense related to cost of sales" above "gross profit" in its consolidated
statements of operations. In addition, the Company renamed the caption "cost of sales" to "cost of sales (excluding depreciation)" to clarify that depreciation expense attributable to cost of sales is
not included in that caption. The Company has restated the accompanying consolidated statements of operations for the three and six months ended June 30, 2004 to reclassify $4.6 million
and $9.1 million, respectively, from "depreciation and amortization expense" to "depreciation expense related to cost of sales", which had the effect of reducing gross profit, but did not have
any effect on income from operations or net income (loss). This restatement did not affect the Company's historical consolidated balance sheets or consolidated statements of cash flows.

18

---



Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial
statements and the related notes and other information included elsewhere in this Form 10-Q and our Annual Report on Form 10-K for the year ended
December 31, 2004, previously filed with the Securities and Exchange Commission ("SEC"). As used in this section, "Reddy Group" refers to Reddy Ice Group, Inc., formerly known as
Packaged Ice, Inc., and not its subsidiaries, and "Reddy Holdings" refers to Reddy Ice Holdings, Inc. and not its subsidiaries.

Uncertainty of Forward Looking Statements and Information

Other than statements of historical facts, statements made in this Form 10-Q, statements made by us in periodic press releases or oral
statements made by our management to analysts and stockholders and statements made in the course of presentations about our company constitute "forward-looking statements" within the meaning of such
terms under the Private Securities Litigation Reform Act of 1995. We believe the expectations reflected in such forward-looking statements are accurate. However, we cannot assure you that such
expectations will occur. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be
materially different from future results expressed or implied by the forward-looking statements. Factors you should consider that could cause these differences are:



You
should not unduly rely on these forward-looking statements as they speak only as of the date of this report. Except as required by law, we are not obligated to publicly release any
revisions to these forward looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events. Important factors that
could cause our actual results to differ materially from our expectations are discussed elsewhere in this report.

General

Our Business.We are the largest manufacturer and distributor of packaged ice in the United States
and currently serve approximately 82,000 customer locations in 31 states and the District of Columbia. We operate in two business segmentsice products and non-ice products and
operations. Ice products accounted for approximately 95% of our revenues in the six months ended June 30, 2005 and 93% of revenues in the six months ended June 30, 2004. Our ice products
business consists of:

19

---





Our
other business segment, non-ice products and operations, consists of refrigerated warehousing for third parties and the manufacture and sale of bottled water.

Seasonality.Our results of operations are highly seasonal, characterized by peak demand during the
warmer months of May through September, with an extended peak selling season in the southern United States. Revenues within specific markets can also be affected by weather conditions, with cool or
rainy weather negatively impacting demand and extremely hot weather increasing our costs as we
respond to excess customer demand for our products. Approximately 68%, 66% and 68% of our revenues occurred during the second and third calendar quarters in 2004, 2003 and 2002, respectively. The
proportion of revenues in the second and third calendar quarters of 2003 was lower than in 2004 and 2002 primarily due to the timing of our 2003 acquisitions, which all occurred in the fourth quarter
of 2003. As a result of seasonal revenue declines and a less than proportional decline in expenses during the first and fourth quarters, we typically experience lower profit margins resulting in
losses during these periods. In addition, because a significant portion of our annual sales are generated during the second and third calendar quarters, our annual results of operations may fluctuate
significantly if the weather during these periods is cool or rainy.

Revenues.Our revenues primarily represent sales of packaged ice, packaged ice bags for use in our
Ice Factory equipment, bottled water and cold storage services. There is no right of return with respect to these products or services. A portion of our revenue also represents fees earned under
management agreements for Ice Factories located outside our primary territories that are recognized as earnings under contract terms.

Cost of Sales (Excluding Depreciation).Our cost of sales (excluding depreciation) consists of costs
related to the manufacture and distribution of our products, including, in particular:



Depreciation Related to Cost of Sales and Depreciation and Amortization Expense.Depreciation and amortization are divided into two line
itemsdepreciation expense related to cost of sales and depreciation and amortization expense. Depreciation expense related to cost of sales consists of depreciation expense for our
production and distribution equipment. Depreciation and amortization expense consists of depreciation and amortization expense for our selling, general and administrative functions.

Operating Expenses.Our operating expenses are costs associated with selling, general and
administrative functions. These costs include executive officers' compensation, office and administrative salaries, insurance, legal and other professional services and costs associated with leasing
office space.

20

---



Labor
costs, including associated payroll taxes and benefit costs but excluding non-cash stock-based compensation expense, included in operating expenses represented approximately 5% and
6% of revenues in the three months ended June 30, 2005 and 2004, respectively, and 7% and 8% of revenues in the six months ended June 30, 2005 and 2004, respectively.

Facilities.At June 30, 2005, we owned or operated 58 ice manufacturing facilities, 53
distribution centers, approximately 79,000 merchandisers (cold storage units installed at customer locations), approximately 3,000 Ice Factories, five refrigerated warehouses and one bottled water
plant. We had a combined, rated manufacturing capacity of over 16,000 tons per day.

Restatement of Statement of Operations.In the process of preparing our consolidated financial
statements for the year ended December 31, 2004, and in responding to comments from the SEC on our Registration Statement on Form S-1 relating to our contemplated initial
public offering of common stock, we determined that our presentation of "cost of sales" and "gross profit", as previously reported, was not consistent with accounting principles generally accepted in
the United States of America.

Historically,
we have not included depreciation expense related to cost of sales as a component of cost of sales and therefore had excluded it from gross profit calculations. Consistent
with presentations of other companies in related industries, we added the caption "depreciation expense related to cost of sales" above "gross profit" in our consolidated statements of operations. In
addition, we renamed the caption "cost of sales" to "cost of sales (excluding depreciation)" to clarify that depreciation expense attributable to cost of sales is not included in that caption. We have
restated the accompanying consolidated statements of operations for the three and six months ended June 30, 2004 to reclassify $4.6 million and $9.1 million, respectively, from
"depreciation and amortization expense" to "depreciation expense related to cost of sales", which had the effect of reducing gross profit, but did not have any effect on income from operations or net
income (loss). This restatement did not affect our historical consolidated balance sheets or consolidated statements of cash flows.

Management's
discussion and analysis of financial condition and results of operations which follows gives effect to the restatement.

21

---



Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004

|                                              |  | Three Months Ended
June 30, |        | Change from Last Year |  
|--------------------------------------------- |  | --------------------------- | ------ | --------------------- | -
|
|
|Consolidated Results                          |  |                             |        |                       |  
|Revenues                                      |  | $                           | 93,123 |                       | $
|Cost of sales (excluding depreciation)        |  |                             | 53,099 |                       |  
|Depreciation expense related to cost of sales |  |                             | 4,734  |                       |  
|                                              |  |                             |        |                       |  
|Gross profit                                  |  |                             | 35,290 |                       |  
|Operating expenses                            |  |                             | 9,300  |                       |  
|Depreciation and amortization expense         |  |                             | 1,452  |                       |  
|Loss on dispositions of assets                |  |                             | 38     |                       |  
|Impairment of assets                          |  |                             | 5,725  |                       |  
|                                              |  |                             |        |                       |  
|Income from operations                        |  |                             | 18,775 |                       |  
|Interest expense                              |  |                             | 9,829  |                       |  
|                                              |  |                             |        |                       |  
|Income before income taxes                    |  |                             | 8,946  |                       |  
|Income tax expense                            |  |                             | (3,551 | )                     |  
|                                              |  |                             |        |                       |  
|Net income                                    |  | $                           | 5,395  |                       | $
|                                              |  |                             |        |                       |  
|Ice Operations:                               |  |                             |        |                       |  
|Revenues                                      |  | $                           | 89,587 |                       | $
|Cost of sales (excluding depreciation)        |  |                             | 50,908 |                       |  
|Depreciation expense related to cost of sales |  |                             | 4,461  |                       |  
|                                              |  |                             |        |                       |  
|Gross profit                                  |  |                             | 34,218 |                       |  
|Operating expenses                            |  |                             | 8,847  |                       |  
|Non-Ice Operations:                           |  |                             |        |                       |  
|Revenues                                      |  | $                           | 3,536  |                       | $
|Cost of sales (excluding depreciation)        |  |                             | 2,191  |                       |  
|Depreciation expense related to cost of sales |  |                             | 273    |                       |  
|                                              |  |                             |        |                       |  
|Gross profit                                  |  |                             | 1,072  |                       |  
|Operating expenses                            |  |                             | 453    |                       |  

Revenues:Revenues increased $4.6 million from the three months ended
June 30, 2004 to the three months ended June 30, 2005. This increase is primarily due to the effects of the acquisitions of eight ice companies made from April 1, 2004 to
November 1, 2004 (approximately $2.2 million), changes in terms under which we do business with the majority of our distributors (approximately $1.0 million), slightly higher
average pricing and slightly increased volume sales. The modifications to our distributor business occurred mostly in the second quarter of 2004 and resulted in a corresponding increase in cost of
sales (excluding depreciation). Partially offsetting these increases in revenues was a $1.1 million decrease in non-ice revenue, primarily due to volume decreases in our cold
storage business.

Cost of Sales Excluding Depreciation:Cost of sales (excluding depreciation) increased
$3.3 million from the three months ended June 30, 2004 to the three months ended June 30, 2005. This increase in cost of sales (excluding depreciation) is primarily due to an
additional $1.1 million of costs in the three months ended June 30, 2005 associated with the ice operations acquired during 2004, a $1.0 million increase in distribution costs
related to changes in terms under which we do business with the majority of our distributors and a $1.2 million net increase in other costs, primarily fuel and bag costs (primarily due to
market increases in energy prices) and labor costs.

Labor
costs, including associated payroll taxes and benefit costs (including health insurance), accounted for approximately 22% of revenues in the three months ended June 30, 2005
and 2004. Cost

22

---



of
plastic bags represented approximately 7% and 6% of revenues in the three months ended June 30, 2005 and 2004, respectively. Fuel expenses represented approximately 3% of revenues in the
three months ended June 30, 2005 and 2004. Expenses for independent third party distribution services represented approximately 6% of revenues in the three months ended June 30, 2005, as
compared to 5% of revenues in the same period in 2004. Electricity expense represented approximately 5% of revenues in the three months ended June 30, 2005 and 2004.

Depreciation Expense Related to Cost of Sales:Depreciation expense related to cost of sales
increased $0.1 million from the three months ended June 30, 2004 to the three months ended June 30, 2005 as a result of additional depreciation expense associated with new
production and distribution equipment placed in service during 2004 and early 2005 and the ice operations acquired in 2004, partially offset by the effect of asset dispositions.

Operating Expenses:Operating expenses increased $0.5 million from the three months ended
June 30, 2004 to the three months ended June 30, 2005. This increase is primarily due to the effects of the ice operations acquired in 2004 ($0.3 million) and increases in
non-cash stock-based compensation expense of $0.2 million.

Depreciation and Amortization:Depreciation and amortization increased $0.4 million from the
three months ended June 30, 2004 to the three months ended June 30, 2005. This increase is primarily due to additional amortization expense associated with the intangible assets recorded
in connection with the acquisitions completed in 2004.

Impairment of assets:As a result of the significant reduction in cold storage sales volumes related
to a particular customer, goodwill in the cold storage portion of our non-ice business segment was evaluated in accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangibles", which resulted in an non-cash impairment charge of $5.7 million.

Interest Expense:Interest expense increased $3.3 million from the three months ended
June 30, 2004 to the three months ended June 30, 2005, due to $2.8 million of non-cash interest expense associated with the senior discount notes issued on
October 27, 2004 and the effects of higher interest rates on our variable rate debt.

Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004

|                                              |  | Six Months Ended
June 30, |         | Change from Last Year |  
|--------------------------------------------- |  | ------------------------- | ------- | --------------------- | -
|
|
|Consolidated Results                          |  |                           |         |                       |  
|Revenues                                      |  | $                         | 132,367 |                       | $
|Cost of sales (excluding depreciation)        |  |                           | 84,778  |                       |  
|Depreciation expense related to cost of sales |  |                           | 9,475   |                       |  
|                                              |  |                           |         |                       |  
|Gross profit                                  |  |                           | 38,114  |                       |  
|Operating expenses                            |  |                           | 18,134  |                       |  
|Depreciation and amortization expense         |  |                           | 2,867   |                       |  
|Loss on dispositions of assets                |  |                           | 187     |                       |  
|Impairment of assets                          |  |                           | 5,725   |                       |  
|                                              |  |                           |         |                       |  
|Income from operations                        |  |                           | 11,201  |                       |  
|Interest expense                              |  |                           | 19,137  |                       |  
|                                              |  |                           |         |                       |  
|Income before income taxes                    |  |                           | (7,936  | )                     |  
|Income tax benefit (expense)                  |  |                           | 3,151   |                       |  
|                                              |  |                           |         |                       |  
|Net income (loss)                             |  | $                         | (4,785  | )                     | $
|                                              |  |                           |         |                       |  
|                                              |  |                           |         |                       |  

23

---



|Ice Operations:                               |  |   |         |  |   |         |  |   |        |   |       |  
|--------------------------------------------- |  | - | ------- |  | - | ------- |  | - | ------ | - | ----- | -
|Revenues                                      |  | $ | 125,576 |  | $ | 117,522 |  | $ | 8,054  |   | 6.9   |  
|Cost of sales (excluding depreciation)        |  |   | 80,372  |  |   | 73,580  |  |   | 6,792  |   | 9.2   |  
|Depreciation expense related to cost of sales |  |   | 8,926   |  |   | 8,589   |  |   | 337    |   | 3.9   |  
|                                              |  |   |         |  |   |         |  |   |       
|Gross profit                                  |  |   | 36,278  |  |   | 35,353  |  |   | 925    |   | 2.6   |  
|Operating expenses                            |  |   | 17,164  |  |   | 16,203  |  |   | 961    |   | 5.9   |  
|Non-Ice Operations:                           |  |   |         |  |   |         |  |   |        |   |       |  
|Revenues                                      |  | $ | 6,791   |  | $ | 8,387   |  | $ | (1,596 | ) | (19.0 | )
|Cost of sales (excluding depreciation)        |  |   | 4,406   |  |   | 4,777   |  |   | (371   | ) | (7.8  | )
|Depreciation expense related to cost of sales |  |   | 549     |  |   | 537     |  |   | 12     |   | 2.2   |  
|                                              |  |   |         |  |   |         |  |   |       
|Gross profit                                  |  |   | 1,836   |  |   | 3,073   |  |   | (1,237 | ) | (40.2 | )
|Operating expenses                            |  |   | 970     |  |   | 894     |  |   | 76     |   | 8.5   |  

Revenues:Revenues increased $6.5 million from the six months ended
June 30, 2004 to the six months ended June 30, 2005. This increase was primarily due to the effects of the acquisitions of 11 ice companies made from March 1, 2004 to
November 1, 2004 (approximately $3.3 million), changes in terms under which we do business with the majority of our distributors (approximately $2.1 million) and slightly higher
average pricing. The modifications to our distributor business occurred mostly in the second quarter of 2004 and resulted in a corresponding increase in cost of sales (excluding depreciation).
Partially offsetting these increases in revenues was a $1.6 million decrease in non-ice revenue, primarily due to volume decreases in our cold storage business.

Cost of Sales (Excluding Depreciation):Cost of sales (excluding depreciation) increased
$6.4 million from the six months ended June 30, 2004 to the six months ended June 30, 2005. This increase in cost of sales (excluding depreciation) was primarily due to an
additional $2.1 million of costs associated with the ice operations acquired during 2004, a $2.1 million increase in distribution costs related to changes in terms under which we do
business with the majority of our distributors, a $0.6 million increase in health insurance costs and a $2.0 million net increase in other costs, primarily fuel and bag costs (primarily
due to market increases in energy prices) and labor costs. Partially offsetting these increases was a $0.4 million reduction of costs in our non-ice operations, primarily labor
costs in our cold storage operations related to decreased sales volumes. The company has put initiatives in place related to health insurance and other insurance lines which are expected to offset a
portion, if not all, of the negative insurance impact noted above, which occurred during the first quarter of 2005.

Labor
costs, including associated payroll taxes and benefit costs (including health insurance), accounted for approximately 26% of revenues in the six months ended June 30, 2005
and 2004. Cost of plastic bags represented approximately 7% and 6% of revenues in the six months ended June 30, 2005 and 2004, respectively. Fuel expenses represented approximately 3% of
revenues in the six months ended June 30, 2005 and 2004. Expenses for independent third party distribution services represented approximately 6% of revenues in the six months ended
June 30, 2005, as compared to 4% of revenues in the same period in 2004. Electricity expense represented approximately 5% of revenues in the six months ended June 30, 2005 as compared to
6% of revenues in the six months ended June 30, 2004.

Depreciation Expense Related to Cost of Sales:Depreciation expense related to cost of sales
increased $0.3 million from the six months ended June 30, 2004 to the six months ended June 30, 2005 as a result of additional depreciation expense associated with new production
and distribution equipment placed in service during 2004 and early 2005 and the ice operations acquired in 2004, partially offset by the effect of asset dispositions.

24

---



Operating Expenses:Operating expenses increased $1.0 million from the six months ended
June 30, 2004 to the six months ended June 30, 2005. This increase was primarily due to the effects of the ice operations acquired in 2004 (approximately $0.7 million) and
increases in non-cash stock-based compensation expense of $0.5 million, partially offset by an aggregate decrease of $0.2 million in
other costs (primarily as a result of decreases in accrued incentive compensation and insurance costs other than health insurance, partially offset by increased professional services and bad debt
costs).

Depreciation and Amortization:Depreciation and amortization increased $0.7 million from the
six months ended June 30, 2004 to the six months ended June 30, 2005. This increase was primarily due to additional amortization expense associated with the intangible assets recorded in
connection with the acquisitions completed in 2004.

Impairment of assets:Due to the significant reduction in cold storage sales volumes related to a
particular customer, we evaluated the goodwill recorded in the cold storage portion of our non-ice business segment in accordance with SFAS No. 142, "Goodwill and Other Intangibles"
as of June 30, 2005. As a result of such evaluation, we recorded a non-cash impairment charge of $5.7 million during the three months ended June 30, 2005.

Interest Expense:Interest expense increased $5.9 million from the six months ended
June 30, 2004 to the six months ended June 30, 2005, due to $5.6 million of non-cash interest expense associated with the senior discount notes issued on
October 27, 2004 and the effects of higher interest rates on our variable rate debt.

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 replacing and modernizing the capital equipment in our traditional ice
plants and acquiring and installing additional Ice Factories and (e) acquisitions. Historically, we have financed our capital and working capital requirements, including our acquisitions,
through a combination of cash flows from operations, borrowings under our revolving credit facilities and operating leases.

Our
ability to generate cash from our operations is subject to weather, general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
As a result, we cannot assure you that our business will generate sufficient cash flow from operations in amounts sufficient to enable us to service our debt and to fund our other liquidity needs. If
we do not have sufficient liquidity, we will have to take actions such as reducing or delaying strategic acquisitions, investments and joint ventures, selling assets, restructuring or refinancing our
debt or seeking additional equity capital. We cannot assure you that any of these remedies could, if necessary, be effected on commercially reasonable terms, or at all. In addition, the terms of our
debt instruments may restrict us from adopting some of these alternatives.

During
the six months ended June 30, 2005, capital expenditures totaled $11.6 million. As we have consolidated acquisitions into the existing company infrastructure, we
have identified non-core and excess assets which can be disposed of. From time to time, we also dispose of other assets which are no longer useful in our operations. As a result of
dispositions of these non-core and excess assets, we realized proceeds of approximately $0.4 million in the six months ended June 30, 2005. Our net capital expenditures in
the six months ended June 30, 2005 were $11.2 million.

During
2004, we completed the acquisition of 11 small ice companies for a total cash purchase price of approximately $16.9 million. Although we have not made any acquisitions
during the six months ended June 30, 2005, we will continue to evaluate acquisition opportunities as they become

25

---



available.
In conjunction with these evaluations, we will consider our liquidity, availability under Reddy Group's senior credit facility, mandatory principal repayments under our debt agreements and
the availability of other capital resources.

Cash Flows for the Six Months Ended June 31, 2005 and 2004

Net cash provided by operating activities was $0.2 million and $1.0 million in the six months ended June 30, 2005 and 2004, respectively. As
the change in working capital is consistent from period to period, the decrease in net cash provided by operating activities from 2004 to 2005 is due to the decrease in net income of
$8.5 million, offset by net increases in non-cash expenses such as depreciation and amortization, amortization of debt issue costs and impairment of assets.

Net
cash used in investing activities was $11.2 million and $11.0 million in the six months ended June 30, 2005 and 2004, respectively. The increase in net cash used
in investing activities from 2004 to 2005 was due to an increase in property and equipment additions of $3.7 million, primarily related to the timing of our budgeted capital expenditures in
2005 as compared with 2004, and a decrease of $1.7 million in proceeds from dispositions, partially offset by a $5.3 million reduction in the cost of acquisitions. In the six months
ended June 30, 2004, we completed six acquisitions for $5.3 million. We did not complete any acquisitions in the six months ended June 30, 2005.

Net
cash provided by financing activities was $10.0 million and $3.8 million in the six months ended June 30, 2005 and 2004, respectively. The increase is due to a
$9.3 million increase in net borrowings under our revolving credit facility and the receipt of $1.8 million of proceeds from the exercise of employee stock options in the six months
ended June 30, 2005, offset by a $5.4 million increase in repayments of debt, primarily due to a $5.0 million voluntary prepayment of term loans under our credit facility made
during the six months ended June 30, 2005.

Long-term Debt and Other Obligations

Overview.At June 30, 2005, we had approximately $450.8 million of total debt outstanding as follows:



Senior Subordinated Notes.On July 17, 2003, Reddy Group issued $152.0 million of
87/8% senior subordinated notes. These notes were issued in connection with a private placement offering and were subsequently registered with the SEC. The 87/8% senior
subordinated notes were priced at 99.297%, which resulted in gross proceeds of $150.9 million. Interest on the 87/8% senior subordinated notes is payable semiannually on
February 1 and August 1, with such payments having commenced on February 1, 2004. The 87/8% senior subordinated notes are unsecured obligations of Reddy Group and
are:



26

---





The
87/8% senior subordinated notes include customary covenants that restrict, among other things, the ability to incur additional debt, pay dividends or make certain
other restricted payments, incur liens, merge or sell all or substantially all of the assets or enter into various transactions with affiliates. Prior to August 1, 2006, Reddy Group may redeem
up to 35% of the principal amount of the 87/8% senior subordinated notes at a redemption price of 108.875% of the principal amount thereof, plus accrued and unpaid interest to the date
of redemption, with funds raised in equity offerings that are specified in the indenture governing the 87/8% senior subordinated notes. On or after August 1, 2007, Reddy Group
may redeem all or a portion of the senior subordinated notes at a pre-determined redemption price plus any accrued interest. The redemption price, as a percentage of the outstanding
principal amount, is 104.438% in 2007, 102.219% in 2008 and 100.000% in 2009 and subsequent years. If Reddy Group experiences a change of control and does not elect to redeem the outstanding senior
subordinated notes as previously described, Reddy Group will be required to make an offer to repurchase the senior subordinated notes at a price equal to 101% of the outstanding principal amount plus
accrued interest.

The
87/8% senior subordinated notes are guaranteed, fully, jointly and severally, and unconditionally, on a senior subordinated basis by Reddy Holdings and all of Reddy
Group's subsidiaries. The terms of the indenture governing the 87/8% senior subordinated notes significantly restrict Reddy Group from paying dividends and otherwise transferring assets
to Reddy Holdings. For example, Reddy Group's ability to make such payments is governed by a formula based on 50% of its consolidated net income. In addition, as a condition to making such payments
based on such formula, Reddy Group must have an EBITDA (as defined in the Reddy Group indenture) to interest expense ratio of at least 2.0 to 1.0 prior to August 1, 2006, and 2.25 to 1.0
thereafter, after giving effect to any such payments. Notwithstanding such restrictions, the indenture permits an aggregate of $10.0 million of such payments to be made whether or not there is
availability under the formula or the conditions to its use are met, provided that at the time of such payment, no default shall have occurred and be continuing under that indenture.

On
March 22, 2005 Reddy Group commenced a cash tender offer for any and all of its outstanding 87/8% senior subordinated notes. In connection with the tender offer
Reddy Group is also soliciting consents to amend the indenture governing these notes to, among other things, eliminate substantially all of the restrictive covenants and certain events of default. The
offer is subject to the satisfaction of certain conditions, including there being validly tendered and not validly withdrawn at least a majority of the aggregate principal amount of these notes
outstanding and our having available funds sufficient to pay the aggregate total consideration to the holders of tendered notes from the anticipated proceeds of our borrowings under our new credit
facilities and from the proposed initial public offering of our common stock. On April 13, 2005, Reddy Group announced that it had received the requisite number of consents to amend the
indenture as described above. On July 18, 2005, Reddy Group extended the expiration date of the tender offer and consent solicitation to August 12, 2005 and announced that the expected
total purchase price for each $1,000 principal amount note tendered will be approximately $1,113.63, which included $20 per $1,000 principal amount of each note for the consent fee. As of the close of
business on July 27, 2005, tenders and consents had been received with respect to approximately 99.9% of the outstanding principal amount of the senior subordinated notes.

Senior Discount Notes.On October 27, 2004, Reddy Holdings issued $151.0 million in
aggregate principal amount at maturity of 101/2% Senior Discount Notes due 2012 in a private placement offering. The senior discount notes were sold at 66.333% of the stated principal
amount, which resulted in gross proceeds of $100.2 million. We used the net proceeds of the offering, together with a dividend of approximately $28.4 million from Reddy Group to redeem
all of Reddy Holdings' existing series A preferred stock for approximately $99.2 million, to pay accumulated dividends on such stock as of the date of redemption in the amount of
approximately $15.0 million and to pay a dividend of approximately $10.4 million to our common stockholders. In connection with these transactions, Reddy

27

---



Group
made a special transaction payment of approximately $1.2 million in the aggregate to certain members of management and certain directors. In connection with the offering of notes and the
related transactions, Reddy Ice Group amended its credit agreement (see "Senior Credit Facility" below).

Each
senior discount note has an initial accreted value of $663.33 per $1,000 principal amount at maturity. The accreted value of each senior discount note increases from the date of
issuance until November 1, 2008 at a rate of 101/2% per annum such that the accreted value will equal the stated principal amount at maturity on November 1, 2008.
Thereafter cash interest will accrue and be payable semi-annually at a rate of 101/2% per annum. The senior discount notes are unsecured obligations of Reddy Holdings and
are:



The
senior discount notes include customary covenants that restrict, among other things, the ability to incur additional debt or issue certain preferred stock, pay dividends or redeem,
repurchase or retire our capital stock or subordinated indebtedness, make certain investments, incur liens, enter into arrangements that restrict dividends from our subsidiaries, merge or sell all or
substantially all of the assets or enter into various transactions with affiliates. Prior to November 1, 2007, we may redeem up to 35% of the principal amount of the senior discount notes at a
redemption price of 110.5% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption, with funds raised in equity offerings that are specified in the indenture
governing the senior discount notes. From and after November 1, 2008, we may redeem any or all of the senior discount notes by paying a redemption premium which is initially 5.25% of the
principal amount at maturity of the notes, and will decline annually to 0% commencing on November 1, 2010. If a change of control occurs on or prior to November 1, 2007, we may, at our
option, redeem all, but not less than all, of the senior discount notes at a redemption price equal to the sum of (i) the accreted value of the notes as of the redemption date, (ii) a
premium equal to 125% of one year's coupon payment and (iii) any accrued and unpaid interest to the date of redemption. If we experience a change of control and do not elect to make the
optional redemption described in the previous sentence, we will be required to make an offer to repurchase the senior discount notes at a price equal to 101% of their accreted value, plus accrued and
unpaid interest, if any, to the date of purchase. We may also be required to make an offer to purchase the senior discount notes with proceeds of asset sales that are not reinvested in our business or
used to repay other indebtedness.

The
senior discount notes are subject to registration with the SEC pursuant to a Registration Rights Agreement (the "Rights Agreement") entered into at the time of issuance. Pursuant to
the Rights Agreement, Reddy Holdings is required to, within 150 days after the issuance date, file a registration statement with the SEC to exchange the Reddy Holdings notes for new
notes of Reddy Holdings having terms substantially identical in all material respects to the Reddy Holdings notes and to use its commercially reasonable efforts to cause the registration statement to
be declared effective within 240 days after the issue date. The 150th day following the issuance of the Reddy Holdings notes was March 26, 2005 and, as a result of not filing the
registration statement with the SEC on or prior to that date, we accrued additional interest on the Reddy Holdings notes from March 26, 2005 through April 5, 2005, the date on which the
registration statement was actually filed. Such additional interest accrued at an annual rate of 0.50%. The 240th day following the issuance of the Reddy Holdings notes was June 24, 2005 and,
as a result of the registration statement not having been declared effective by

28

---



the
SEC on or prior to that date, we have begun accruing additional interest on the Reddy Holdings notes from June 24, 2005 to the date on which the registration statement is actually declared
effective. Such additional interest accrues at an annual rate of 0.50% for the first 90 days following such date, and accrues by another 0.50% thereafter until such registration statement is
declared effective.

On
July 19, 2005, Reddy Holdings commenced a consent solicitation for the primary purpose of amending the definition of the term "Consolidated Net Income" in the indenture
governing the Discount Notes in order to exclude certain one-time costs and expenses associated with Reddy Holdings' proposed initial public offering of its common stock (see Note 6
to our condensed consolidated financial statements). The consent fee was $12.50 per $1,000 of accreted value. As of July 19, 2005, the accreted value of the Discount Notes equaled $714.62 per
$1,000 principal amount at maturity of the Discount Notes. Reddy Holdings received the requisite consents from registered holders of the Discount Notes on July 28, 2005. The payment of the
consent fee of $1.3 million is contingent upon the closing of Reddy Holdings proposed initial public offering.

Senior Credit Facility.On August 15, 2003, Reddy Group entered into a senior credit facility
in an aggregate amount of $170.0 million, with the lenders being a syndicate of banks, financial institutions and other entities, including Credit Suisse First Boston, as Administrative Agent,
Canadian Imperial Bank of Commerce and Bear Stearns Corporate Lending, Inc. The credit facility provided for a six-year term loan in the amount of $135.0 million and a
five-year revolving credit facility in the amount of $35.0 million. On October 17, 2003, the senior credit facility was amended to, among other things, allow for an
additional term loan of $45.0 million, which contains substantially all the same terms, conditions and financial covenants as the original term loan. The combined term loan continues to
amortize in quarterly installments over a five-year period in an annual aggregate amount equal to 1% of the combined term loan balance of $180.0 million, with any remaining unpaid
balance to be repaid in the sixth year in equal, quarterly installments

At
June 30, 2005, we had $9.3 million of availability under the revolving credit facility, which was net of outstanding standby letters of credit of $5.7 million.
The standby letters of credit are used primarily to secure certain insurance obligations. As our insurance policies are renewed in 2005, we expect to issue
new standby letters of credit during the last half of 2005 for the new policy year. However, we also expect to receive some reductions in previously issued standby letters of credit related to earlier
policy years.

Principal
balances outstanding under the revolving credit facility bear interest per annum, at our option, at the sum of the base rate plus the applicable margin or LIBOR plus the
applicable margin. The base rate is defined as the greater of the prime rate (as announced from time to time by the Administrative Agent) or the federal funds rate plus 0.5%. The applicable margin is
different for revolving and term loans and varies depending on our leverage ratio. At June 30, 2005, the weighted average interest rate of borrowings outstanding under the senior credit
facility was 6.0%. Interest on base rate loans is payable on the last day of each quarter. Interest on LIBOR loans is payable upon maturity of the LIBOR loan or on the last day of the quarter if the
term of the LIBOR loan exceeds 90 days. Reddy Group pays a quarterly fee on the average availability under our existing revolving credit facility based on an annual rate of 0.5%.

The
terms of the senior credit facility prohibit Reddy Group from paying dividends and otherwise transferring assets to Reddy Holdings, except for certain limited dividends, the proceeds
of which must be used to maintain Reddy Holdings' corporate existence.

The
senior credit facility requires that, beginning in 2004, we will repay all borrowings under the revolving credit facility and maintain a zero outstanding balance for a period of 30
consecutive calendar days during each year. This requirement has not yet been fulfilled for 2005. The term loan amortizes in quarterly installments over a five-year period in an annual
aggregate amount equal to 1% of the original balance, with any remaining unpaid balance to be repaid in the sixth year in equal, quarterly installments. Subject to certain conditions, mandatory
repayments of the revolving credit facility and

29

---



term
loans are required to be made with portions of the proceeds from (1) asset sales, (2) the issuance of debt securities, (3) an initial public offering of stock of Reddy
Holdings and (4) insurance and condemnation awards. In the event of a change in control, as defined in the credit agreement governing the senior credit facility, all amounts outstanding will
become due and payable immediately. Furthermore, within 100 days after close of each fiscal year (beginning with the close of the 2004 fiscal year), a mandatory prepayment of the term loan is
required based on a percentage of Reddy Group's annual excess cash flow, as defined in the senior credit facility. The percentage is based on Reddy Group's leverage ratio at the end of such fiscal
year and ranges from 25% to 75%.

On
October 27, 2004, in connection with the offering of the senior discount notes and related transactions discussed above, the senior credit facility was amended to, among other
things, modify the calculation of Reddy Group's excess cash flow for 2004 such that a mandatory prepayment based on Reddy Group's 2004 results was not required. On June 30, 2005, Reddy Group
made a voluntary prepayment of the term loan in the amount of $5.0 million. Such prepayment will reduce Reddy
Group's annual excess cash flow for 2005 and thereby reduce the mandatory prepayment required to be made in early 2006.

The
senior credit facility also contains financial covenants which include limitations on capital expenditures and the maintenance of certain financial ratios, as defined in the credit
agreement, and is collateralized by substantially all of its assets and the capital stock of it and all of its current subsidiaries. At June 30, 2005, we were in compliance with these
covenants.

Liquidity Outlook.Due to the seasonal nature of our business, we record the majority of our sales
and profits during the months of May through September. The majority of the cash generated from those operations is received between July and November.

We
estimate that our capital expenditures for 2005 will approximate $17.5 million to $18.5 million, which will primarily be used to maintain and expand our traditional ice
operations. This estimate includes approximately $2.0 million of expenditures related to the implementation of mobile technology with our delivery personnel to create and record sales
transactions. There can be no assurance that capital expenditures will not exceed this estimate. As we have consolidated acquisitions into the existing company infrastructure we have identified
non-core and excess assets. As a result of dispositions of these non-core and excess assets, we estimate that we will generate proceeds of approximately $1.5 million to
$2.5 million in 2005.

Based
on our expected level of operations, we believe that cash flows from operations, together with available borrowings under our revolving credit facility, will be adequate to meet
our future liquidity needs for at least the next twelve months. As of August 2, 2005, we had approximately $12.7 million of availability under our revolving credit facility, which
reflected an outstanding balance under our revolving credit facility of $16.6 million and standby letters of credit of $5.7 million. The availability under our revolving credit facility
typically decreases to its annual low point in late-April or early May of each year due to the seasonality of our business. Our cash flows from operations decline to their lowest point
each March and April due to reduced sales in January and February and the need to finance seasonal increases in accounts receivable and inventories as temperatures and sales volumes begin to increase
in April and May.

Through
the end of the third quarter of 2005, availability under our revolving credit facility is expected to increase significantly due to the seasonality of our business and reach a
maximum of $29.3 million as the outstanding balance is fully repaid, assuming a constant balance of outstanding standby letters of credit. As noted previously, we record the majority of our
sales and profits during the months of May through September and the majority of the cash generated from those operations is received in August through November. During those months in 2005, we expect
to repay all amounts borrowed under our revolving credit facility in the spring, fund current capital expenditures and debt service and build up cash balances. We anticipate that a significant portion
of such excess cash flow will be used in early 2006 to repay amounts outstanding under the senior credit facility as required by mandatory prepayment provisions in the senior credit facility.

30

---



Critical Accounting Policies

Allowances for Doubtful Accounts.We maintain allowances for doubtful accounts for estimated losses resulting from the
inability of our customers to make the required payments on their accounts. We have attempted to reserve for these estimated losses based on our past experience with similar accounts receivable and
believe our reserves to be adequate. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments on their accounts, additional
allowances may be required.

Long-Lived Assets.Property and equipment is carried at cost and is being depreciated on a
straight-line basis over estimated lives of 2.5 to 36 years. Maintenance and repairs are charged to expense as incurred, while capital improvements that extend the useful lives of
the underlying assets are capitalized. We accounted for all of our historical acquisitions using the purchase method of accounting and as a result recorded significant amounts of goodwill. Other
intangible assets include the following that are amortized over their useful lives:

Intangible Assets

Useful LifeGoodwill

Indefinite lifeTrade name

Indefinite lifeCustomer relationships

Straight line method over economic lives of 15 to 30 yearsDebt issue costs

Interest method over the term of the debt


Impairment of Long-Lived Assets.In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," long-lived assets and certain identifiable intangible assets to be held and used are reviewed for
impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The determination of recoverability of
long-lived assets and certain other identifiable intangible assets is based on an estimate of undiscounted future cash flows resulting from the use of the asset or its disposition.
Measurement of an impairment loss for long-lived assets and other intangible assets that management expects to hold and use are based on the fair value of the asset. Long-lived
assets to be disposed of are reported at the lower of carrying amount or net realizable value. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill is evaluated
using a market valuation approach based on valuations of comparable businesses, multiples of earnings of comparable businesses and discounted cash flows. As a result of the significant reduction in
cold storage sales volumes related to a particular customer, goodwill in the cold storage portion of our non-ice business segment was evaluated in accordance with SFAS No. 142,
which resulted in an non-cash impairment charge of $5.7 million during the three months ended June 30, 2005.

Inherent
in the determination of such future cash flows and valuations are certain estimates and judgments, including the interpretation of current economic indicators and market values
and assumptions about our strategic plans with regards to our operations. To the extent additional information arises or our strategies change, it is possible that our conclusions regarding the
impairment of goodwill or other long-lived assets could change and result in a material effect on our financial position or results of operations.

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 Ice Factory management agreements and
cold storage services is recognized as earned under contract terms.

31

---



Recently Adopted Accounting Pronouncements

Effective January 1, 2005, we adopted the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148. Under the provisions
of SFAS No. 148, we have selected the modified prospective method of adoption; therefore, we will recognize stock-based employee compensation cost beginning January 1, 2005, as if the
fair value based accounting method had been used to account for all employee and director awards granted, modified, or settled since the merger on August 15, 2003.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R), "Share-Based Payment", which establishes accounting
standards for all transactions in which an entity exchanges its equity instruments for goods and services. SFAS No. 123(R) focuses primarily on accounting for transactions with employees, and
carries forward without change prior guidance for share-based payments for transactions with non-employees.

SFAS
No. 123(R) eliminates the intrinsic value measurement objective in APB Opinion 25 and generally requires companies to measure the cost of employee services received in
exchange for an award of equity instruments based on the fair value of the award on the date of the grant. The standard requires grant date fair value to be estimated using either an option-pricing
model which is consistent with the terms of the award or a market observed price, if such a price exists. Such cost must be recognized over the period during which an employee is required to provide
service in exchange for the award, which is usually the vesting period. The standard also requires us to estimate the number of instruments that will ultimately be issued, rather than accounting for
forfeitures as they occur.

We
are required to apply SFAS No. 123(R) to all awards granted, modified or settled on or after the first day of our next fiscal year beginning after June 15, 2005. We are
also required to use either the "modified prospective method" or the "modified retrospective method." Under the modified prospective method, compensation cost is recognized for all awards granted
after adoption of the standard and for the unvested portion of previously granted awards that are outstanding on that date. Under the modified retrospective method, previously issued financial
statements must be restated to recognize the expense amounts previously calculated and reported on a pro forma basis, as if the prior standard had been adopted. Under both methods, either the straight
line or an accelerated method may be used to amortize the compensation cost associated with awards with graded vesting. The standard permits and encourages early adoption.

We
plan to adopt SFAS No. 123(R) on January 1, 2006 using the modified prospective method. We do not believe that the adoption of this standard will have a material effect
on our results of operations or financial position.

In
November 2004, the FASB issued SFAS No. 151, "Inventory Costsan amendment of ARB No. 43, Chapter 4". SFAS No. 151 seeks to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) in the determination of inventory carrying costs. The statement requires such costs to
be treated as a current period expense. This statement is effective for fiscal years beginning after July 15, 2005. We are currently evaluating the effect this standard could have on our
results of operations and financial position.

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.
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, with the bulk of demand coming in the warmer spring and summer months. We experience seasonal fluctuations in our net sales and profitability. We
make a disproportionate amount of our sales in the second and third calendar quarters. We also typically have

32

---



net
income in these same periods, whereas we typically experience net losses in the first and fourth quarters. We believe that over two-thirds of our revenues will occur during the second
and third calendar quarters when the weather conditions are generally warmer and demand is greater, while less than one-third of our revenues will occur during the first and fourth
calendar quarters when the weather is generally cooler. This belief is consistent with historical trends. As a result of seasonal revenue declines and the lack of proportional corresponding expense
decreases, we will most likely experience lower profit margins and 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 adverse weather during this peak selling period if the weather is unusually cool or rainy on a
more national or regional basis.

Risks Relating to Our Indebtedness

We have a substantial amount of indebtedness, which may reduce our cash flow and impede our ability to remain in compliance with debt
covenants, make payments on our indebtedness and operate our business.

We
are highly leveraged and have significant debt service obligations. As of June 30, 2005, we had total debt of approximately $450.8 million and total stockholders' equity
of $81.1 million.

Our
substantial indebtedness could have other important consequences. For example, it could:



Any
of the above listed factors could make us more vulnerable to defaults and place us at a competitive disadvantage. Further, if we do not have sufficient earnings to service our debt,
we would need to refinance all or part of our existing debt, sell assets, borrow more money or sell securities, none of which we can guarantee we will be able to do on commercially reasonable terms or
at all.

We could incur more indebtedness, which may increase the risks associated with our substantial leverage, including our ability to service our
indebtedness.

The
indentures governing Reddy Group's 87/8% senior subordinated notes and Reddy Holdings' 101/2% senior discount notes and our senior credit facility
permit us, under certain circumstances, to incur a significant amount of additional indebtedness. In addition, we may incur additional indebtedness
through our revolving credit facility. If we incur additional debt, the risks associated with our substantial leverage, including our ability to service our debt, would increase.

Our ability to service our indebtedness requires a significant amount of cash, and our ability to generate cash depends on many factors beyond our
control.

We
cannot be certain that our earnings and the earnings of our operating subsidiaries will be sufficient to allow us to make payments in respect of the securities and meet our other
obligations. Our ability to generate cash from our operations is subject to weather, general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. As
a result, our business may not generate cash flows from operations in amounts sufficient to enable us to make payments in respect of the notes or service our debt and to fund our other liquidity
needs. If we do not have sufficient liquidity, we will have to take actions such as reducing or delaying strategic acquisitions, investments and joint ventures, selling assets, restructuring or
refinancing our debt or seeking additional equity capital. These remedies may not, if necessary, be effected on commercially reasonable terms, or

33

---



at
all. In addition, the terms of existing or future debt instruments, including the credit agreement governing our senior credit facility and the indentures for Reddy Group's 87/8%
subordinated notes and Reddy Holdings' 101/2% senior discount notes, may restrict us from adopting some of these alternatives. Therefore, because of these and other factors beyond our
control, we may be unable to service our debt.

Our subsidiaries may not be able to generate sufficient cash to service all of their indebtedness and may be forced to take other actions to satisfy their
obligations under such indebtedness, which may not be successful.

If
our subsidiaries are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest
on their indebtedness, or if they otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing their indebtedness (including the
financial maintenance covenants in our senior credit facility), we or they could be in default under the terms of the agreements governing such indebtedness. If Reddy Group's operating performance
declines in the future, Reddy Group may need to obtain waivers from the lenders under our senior credit facility to avoid being in default under that facility. If Reddy Group breaches its covenants
under its senior credit facility and seeks a waiver, it may not be able to obtain a waiver from the required lenders. In the event of such default, the holders of such indebtedness could elect to
declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under Reddy Group's senior credit facility could elect to terminate their
commitments thereunder, cease making further loans and institute foreclosure proceedings against Reddy Group's assets and Reddy Group could be forced into bankruptcy or liquidation.

In
connection with the proposed initial public offering of our common stock and the related transactions, Reddy Holdings and Reddy Group will have substantial expenses payable. If the
initial public offering of our common stock and the related transactions are not consummated, our financial condition and results of operations may be adversely affected when these expenses are
realized and we may be unable to comply with the financial covenants under our senior credit facility as a result. In addition, if the initial public offering and the related transactions are not
consummated, we would need to obtain a waiver from the lenders under our senior credit facility in order to pay the expenses incurred by Reddy Holdings.

If we fail to meet our payment or other obligations under our senior credit facility, the lenders under the senior credit facility could foreclose on, and acquire
control of, substantially all of our assets.

The
lenders under the our senior credit facility received a pledge of all of our equity interests of Reddy Group and its current subsidiaries. Additionally, these lenders have a lien on
substantially all of our assets. As a result of these pledges and liens, if we fail to meet our payment or other obligations under our senior credit facility, those lenders are entitled to foreclose
on substantially all of our assets and liquidate those assets.

Risks Relating to Our Business

The seasonal nature of the ice business results in losses and lower profit margins in the first and fourth quarters of the
year.

We
experience significant seasonal fluctuations in our net sales and profitability. We make a disproportionate amount of our sales in the second and third calendar quarters when the
weather is generally warmer, which results in an increased demand for ice. We also earn our net income during these same periods. As a result of seasonal revenue declines and the lack of a
corresponding decrease in expenses, we experience net losses and materially lower profit margins during the first and fourth calendar quarters. Variations in demand could have a material adverse
effect on the timing of our cash flows and therefore our ability to service our obligations with respect to our indebtedness, including the securities. In addition, because our operating results
depend significantly on sales during the second

34

---



and
third calendar quarters, our results of operations may fluctuate significantly if the weather during these periods is cool or rainy.

Weather conditions and weather events can decrease our sales and increase our expenses.

Cool
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
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 during periods of
warm, sunny weather, and conversely, demand decreases during periods of cool, rainy weather. During extended periods of cool or rainy weather on a national basis, our revenues and resulting net income
may decline substantially. Hot weather does not necessarily result in greater net income. During extended periods of 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, resulting in higher expenses and inconsistent service and product quality. Finally, although extreme weather events such as hurricanes can cause an increase in volume sales, those
sales are not necessarily profitable due to added costs and disruptions to our normal service and distribution routes.

Our failure to successfully compete in our markets, retain existing customers and obtain new customers could limit our prospects and cause us to lose market
share.

Our
businesses are highly competitive. We have many competitors in each of our geographic markets offering similar products and services. Competition in our businesses is based primarily
on service, quality and price. We could lose market share if we fail to successfully compete against our competitors in any of these areas, if our existing competitors expand their capacity, if new
entrants enter our markets, if we fail to adequately serve our existing base of customers or if our larger grocery or convenience store customers decide to manufacture their own ice rather than
purchase our products.

Increases in the prices of electricity, certain raw materials, insurance and other required expenses could, if we cannot pass those price increases along to our
customers, have an adverse effect on our results of operations.

We
use substantial amounts of electricity in connection with our manufacturing process, fuel to operate our refrigerated trucks for ice delivery and polyethylene, which is the primary
raw material used to manufacture the bags we use to package our ice. We also carry general liability, workers compensation, health and vehicle insurance. We have already experienced increases in fuel
costs, bag costs and insurance costs and may experience further increases in the future. If the prices for these items or other expenses increase beyond the amounts that we are able to pass along to
our customers, our profits and our operating cash flow would decrease.

Our acquisitions may not be successfully integrated and could cause unexpected financial or operational difficulties.

In
2004, we completed 11 acquisitions. We anticipate that we may, from time to time, selectively acquire additional businesses, assets or securities of companies that we believe would
provide a strategic fit with our business. Acquisitions are also accompanied by risks, such as potential exposure to
unknown liabilities of acquired companies and the possible loss of key employees and customers of the acquired business. Further, acquisitions are subject to risks associated with the difficulty and
expense of integrating the operations and personnel of the acquired companies, the potential disruption to our business and the diversion of management time and attention, any of which could increase
the costs of operating our business, negate the expected benefits of the acquisitions or result in the loss of customers.

35

---





We could incur substantial costs as a result of violations of or liabilities under environmental laws.

Our
ice manufacturing and cold storage operations are subject to a wide range of environmental laws and regulations governing, among other things, air emissions, wastewater discharges,
the use, management and disposal of hazardous and non-hazardous materials and wastes and the cleanup of contamination. Noncompliance with such laws and regulations, or incidents resulting
in environmental releases, could cause us to incur substantial costs, including cleanup costs, fines and penalties, third party claims for personal injury, investments to retrofit or upgrade our
facilities and programs or curtailment of our operations. For example, our ice manufacturing and cold storage operations use refrigerants such as ammonia and freon. Some of our facilities may not be
in compliance with certain freon refrigerant requirements, such as leak detection and repair, recordkeeping or reporting. In addition, the market price of freon is rising as a result of phase outs
under federal laws, which could significantly increase our operating costs in the future if we are not able to obtain approved substitutes. From time to time, our use of ammonia has resulted in
releases that have temporarily disrupted our manufacturing operations and resulted in lawsuits or administrative penalties. For example, we are currently in the process of settling litigation
resulting from an ammonia release in June 2001 at our Baton Rouge, Louisiana facility. See Part II, Item 1"Legal Proceedings". Material violations of, or liabilities under,
environmental laws may require us to incur substantial costs which could reduce our profits, or to divert resources from ongoing environmental programs and improvements, which could delay our efforts
to integrate acquisitions and upgrade our operations, or expose us to risk of further environmental liability.

Our business could be disrupted or we could incur substantial costs because of government laws and regulations.

We
are subject to various federal, state and local 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 cause a disruption in our operations or require additional expenditures by us, some of
which could be material. We may incur material costs and liabilities in order to comply with any such laws and regulations and such costs and liabilities may result in substantial expenses to us and
could divert management's time and attention.

If we are unable to retain senior executives and attract and retain other qualified employees, our business might be adversely affected.

Our
success depends in part on our ability to attract, hire, train and retain qualified managerial, sales and marketing personnel. Competition for these types of personnel is high. We
may be unsuccessful in attracting and retaining the personnel we require to conduct our operations successfully. Our success also depends to a significant extent on the continued service and
performance of our senior management team and in particular on the continued service of William P. Brick, our Chairman and Chief Executive Officer, and Jimmy C. Weaver, our President and Chief
Operating Officer. In addition, we do not carry "key man" life insurance. Our inability to successfully attract and retain personnel or the loss of any member of our senior management team could
impair our ability to execute our business plan.

Accidents involving our products and equipment could expose us to increased costs as a result of product liability claims.

We
are subject to a risk of product liability claims and adverse publicity if a consumer is or claims to be harmed while using our products or equipment. Any such claim may result in
negative publicity, loss of revenues or higher costs associated with litigation.

36

---



We
currently carry product liability insurance. However, this insurance may be insufficient to pay for all or a large part of these losses. If our insurance does not adequately cover
these losses, our results of operations and cash flow would decrease and such a decrease could be material.

We may lose customers' business to competitors as a result of our limited intellectual property protection, including on The Ice
Factory®.

As
the sole major ice supplier using an on-site production and delivery system at our customers' retail locations, we have enjoyed a competitive advantage over our
competitors. Our proprietary Ice Factory system is preferred by certain of our high volume customers to traditional ice delivery and gives us more flexibility during peak seasons. Competitors
sometimes test machines similar to The Ice Factory®. If any of our competitors are successful with the rollout of a competing system, we could lose business to these companies, which would
result in decreased cash flows and results of operations.

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.
Confidentiality or trade secrets may not be maintained and others may independently develop or obtain access to such
materials or processes which could adversely affect our competitive position and ability to differentiate our products and services from our competitors' offerings.

Limitations on our ability to utilize our tax assets before they expire may negatively affect financial results.

As
of December 31, 2004, we had net operating loss carry-forwards for U.S. federal income tax purposes of approximately $109 million, of which approximately
$86 million was attributable to Packaged Ice, Inc., which was acquired by Reddy Holdings on August 15, 2003 (the "Predecessor"). There are annual limitations on the utilization of
the net operating loss carry-forwards generated by the Predecessor due to changes in ownership on and prior to August 15, 2003. We cannot assure you that we will be able to utilize these tax
assets. Further, if our existing equity investors cease to own a majority of our common stock, then new limitations will apply to the approximately $23 million of net operating loss carry-
forwards that are currently unrestricted and additional limitations may apply to the net operating loss carry-forwards generated by the Predecessor. If we are not able to utilize our tax assets in the
manner or in the timeframe we anticipate, our future after-tax cash flow will be reduced.

Any significant reduction in goodwill and other intangible assets would have an adverse effect on the value of our business.

Our
acquisitions have resulted in significant amounts of goodwill and other intangible assets. Goodwill, which relates to the excess of cost over the fair value of the net assets of the
businesses acquired, and intangible assets totaled approximately $304.2 million at June 30, 2005, representing approximately 50.4% of our total assets. In the future, goodwill and
intangible assets may increase as a result of future acquisitions. Goodwill and intangible assets are reviewed at least annually for impairment. Impairment may result from, among other things,
deterioration in the performance of acquired businesses, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of the acquired
business, and a variety of other circumstances. The amount of any impairment must be charged to earnings. Any future determination requiring the write-off of a significant portion of the
goodwill and intangible assets recorded on our balance sheet would have an adverse effect on our financial condition and results of operations.

As
a result of the significant reduction in cold storage sales volumes related to a particular customer, goodwill in the cold storage portion of our non-ice business segment
was evaluated in accordance with SFAS No. 142, which resulted in an non-cash impairment charge of $5.7 million during the three months ended June 30, 2005.

37

---



We are controlled by our sponsors and their affiliates, whose interests in our business may be different from yours.

By
reason of our sponsors' and their affiliates' ownership of us and their collective ability, pursuant to a stockholders agreement among our stockholders, to designate a majority of the
members of the board of directors, our sponsors will control actions to be taken by us and our board of directors, including amendments to our certificate of incorporation and by-laws and
approval of significant corporate transactions, including mergers and sales of substantially all of our assets. The interests of our sponsors and their affiliates will likely differ from yours in
material respects.

Item 3.Quantitative and Qualitative Disclosures About Market Risks

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

We
are exposed to some market risk due to the floating interest rates under our senior credit facility. Principal balances outstanding under the revolving credit facility 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 the administrative agent) plus 2.5%. The term loans bear
interest, at our option, at LIBOR plus 2.5% or the prime rate plus 1.5%.

As
of June 30, 2005, the senior credit facility had an outstanding principal balance of $191.9 million at a weighted average interest rate of 6.0% per annum. At
June 30, 2005, the 30-day LIBOR rate was 3.33% and the prime rate was 6.25%. If LIBOR and the prime rate were to increase by 1% from June 30, 2005 levels, the annual increase
in interest expense given our principal balances at June 30, 2005 would be approximately $1.9 million.

Item 4.Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934. These controls and
procedures are designed to ensure that material information relating to the Company and its subsidiaries is communicated to the chief executive officer and the chief financial officer. Based on that
evaluation, our chief executive officer and our chief financial officer concluded that, as of June 30, 2005, our disclosure controls and procedures are effective to
ensure that information disclosed by us in reports that we file or submit with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

There
were no changes in our internal control over financial reporting during the quarter ended June 30, 2005, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

38

---



PART IIOTHER INFORMATION

Item 1.Legal Proceedings

We are from time to time party to legal proceedings that arise in the ordinary course of business. We do not believe that the resolution of any such threatened or
pending legal proceedings will have a material adverse affect on our financial position, results of operations or liquidity.

We
are involved in litigation in connection with an ammonia release at its Baton Rouge, Louisiana manufacturing facility in June 2001. The case, which is a consolidation of seven
lawsuits, was titled Wallace Acey, Jr., et al vs. Reddy Ice Corporation, is pending in the 19th Judicial District Court, Parish of East Baton Rouge, Louisiana. The plaintiffs, which were
certified as a settlement class, have alleged injuries primarily consisting of inconvenience, watery eyes and offensive odors. No specific amount of damages was specified in the action. The fairness
of the settlement was approved by the court on January 25, 2005. We believe the settlement will be finalized during 2005. We recognized $150,000 of expense in our 2004 results related to our
obligation under the settlement. We do not believe that the final resolution of this litigation will have a material impact on our business, financial condition or results of operations.

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

None.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Submission of Matters to a Vote of Security Holders

On May 20, 2005, the stockholders of Reddy Ice Holdings, Inc. unanimously elected the following individuals to the board of directors: William P.
Brick, Beth L. Bronner, Philip M. Carpenter III, Robert J. Fioretti, Andrew R. Heyer, David E. King, Douglas R. Korn, William P. Phoenix, Tracy L. Noll and Jimmy C. Weaver.

Item 5.Other Information

None.

Item 6.Exhibits

See Index to Exhibits on page 41.

39

---





SIGNATURES

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

|                     |  | REDDY ICE HOLDINGS, INC.
|-------------------- |  | ------------------------
|Date: August 3, 2005 |  | By:                     
|Date: August 3, 2005 |  | By:                     

40

---





INDEX TO EXHIBITS

|Exhibit No. |   | Description                                             
|----------- | - | --------------------------------------------------------
|31.1        |  | Rule 15d-14(a) Certification of Chief Executive Officer.
|31.2        |  | Rule 15d-14(a) Certification of Chief Financial Officer.
|32.1        |  | Rule 1350 Certification of Chief Executive Officer.     
|32.2        |  | Rule 1350 Certification of Chief Financial Officer.     

---

41

---



QuickLinks