Use these links to rapidly review the documentTABLE OF CONTENTS



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

FORM 10-Q

(Mark One)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from              to


Commission file number 001-32596

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes o    No ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The number of shares of registrant's common stock outstanding as of April 28, 2009 was 22,196,966.



---





Table of Contents



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY  QUARTERLY REPORT ON FORM 10-Q  FOR THE PERIOD ENDED MARCH 31, 2009

TABLE OF CONTENTS



PagePART IFINANCIAL INFORMATIONItem 1.

Condensed Consolidated Financial Statements


2Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31,
 2008 (unaudited)


2Condensed Consolidated Statements of Operations for the three months ended
March 31, 2009 and 2008 (unaudited)


3Condensed Consolidated Statement of Stockholders' Equity (Deficit)
for the three months ended March 31, 2009 (unaudited)


4Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2009 and 2008 (unaudited)


5Notes to the Condensed Consolidated Financial
Statements


6Item 2.

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


22Item 3.

Quantitative and Qualitative Disclosures about Market Risk


37Item 4.

Controls and Procedures


38PART IIOTHER INFORMATIONItem 1.

Legal Proceedings


39Item 1A.

Risk Factors


41Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


41Item 3.

Defaults Upon Senior Securities


41Item 4.

Submission of Matters to a Vote of Security Holders


41Item 5.

Other Information


41Item 6.

Exhibits


41SIGNATURES


42INDEX TO EXHIBITS


43


1

---





Table of Contents

PART IFINANCIAL INFORMATION

Item 1.    Financial Statements

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

March 31,
2009

December 31,
2008(in thousands, except
share data)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
16,373

$
39,684Accounts receivable, net


24,510


27,879Inventories, parts and supplies


13,776


12,323Prepaid expenses and other current assets


6,302


3,218Deferred tax assets


1,945


1,945Total current assets


62,906


85,049PROPERTY AND EQUIPMENT, net


211,810


213,015GOODWILL


79,493


79,493OTHER INTANGIBLES, net


74,988


76,640OTHER ASSETS


484


362TOTAL

$
429,681

$
454,559LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT LIABILITIES:Current portion of long-term obligations

$


$
Revolving credit facility





Accounts payable


13,391


19,106Accrued expenses


19,307


16,486Derivative liabilities


2,216


2,564Total current liabilities


34,914


38,156LONG-TERM OBLIGATIONS


390,500


390,500DEFERRED TAXES AND OTHER LIABILITIES, net


13,952


25,031COMMITMENTS AND CONTINGENCIES (Note 12)





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





Common stock, $0.01 par value; 75,000,000 shares authorized; 22,114,116 shares issued and outstanding at March 31, 2009 and December 31,
2008


221


221Additional paid-in capital


222,221


221,824Accumulated deficit


(230,943
)

(218,976
)Accumulated other comprehensive loss


(1,184
)

(2,197
)Total stockholders' equity (deficit)


(9,685
)

872TOTAL

$
429,681

$
454,559


See
notes to condensed consolidated financial statements.

2

---





Table of Contents

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

Three Months Ended
March 31,2009

2008(in thousands, except
per share amounts)Revenues

$
42,246

$
43,035Cost of sales (excluding depreciation)


35,480


37,288Depreciation expense related to cost of sales


5,128


5,150Gross profit


1,638


597Operating expenses


12,177


10,837Depreciation and amortization expense


1,709


1,641Gain on dispositions of assets


(4
)

(4
)Loss on diesel hedge


356


Cost of antitrust investigations and related litigation (Note 12)


2,882


1,187Transaction costs related to merger agreement (Note 1)





811Loss from operations


(15,482
)

(13,875
)Interest expense


(7,221
)

(7,896
)Interest income


70


283Gain on termination of merger agreement (Note 1)





17,000Loss before income taxes


(22,633
)

(4,488
)Income tax benefit


10,666


1,177Net loss

$
(11,967
)
$
(3,311
)Basic and diluted net loss per share:Net loss

$
(0.54
)
$
(0.15
)Weighted average common shares outstanding


22,064


22,000Cash dividends declared per share

$


$
0.42


See
notes to condensed consolidated financial statements.

3

---





Table of Contents

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

Common StockAccumulated
Other
Comprehensive
LossNumber
of
Shares

Par
Value

Additional
Paid-In
Capital

Accumulated
Deficit

Total(in thousands)Balance at January 1, 2009


22,114

$
221

$
221,824

$
(218,976
)
$
(2,197
)
$
872Compensation expense related to stock-based awards








397








397Comprehensive loss:Net loss











(11,967
)




(11,967
)Change in fair value of interest rate hedges, net of tax














1,013


1,013Total comprehensive loss

















(10,954
)Balance at March 31, 2009


22,114

$
221

$
222,221

$
(230,943
)
$
(1,184
)
$
(9,685
)


See
notes to condensed consolidated financial statements.

4

---





Table of Contents

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

Three Months Ended
March 31,2009

2008(in thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(11,967
)
$
(3,311
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities (excluding working capital from acquisitions):Depreciation and amortization expense


6,837


6,791Amortization of debt issue costs and debt discount


364


3,930Deferred tax benefit


(10,666
)

(1,177
)Gain on dispositions of assets


(4
)

(4
)Decrease in fair value of diesel hedge


254


Stock-based compensation expense


397


832Change in assets and liabilities:Accounts receivable


3,369


4,066Inventory, parts and supplies


(1,453
)

(1,978
)Prepaid expenses and other current assets


(3,080
)

219Accounts payable, accrued expenses and other


(2,697
)

(4,131
)Net cash provided by (used in) operating activities


(18,646
)

5,237CASH FLOWS FROM INVESTING ACTIVITIES:Property and equipment additions


(4,586
)

(4,768
)Proceeds from dispositions of property and equipment


48


1,345Cost of acquisitions, net of cash acquired





(3,113
)Decrease in restricted cash and cash equivalents





6,274Issuance of note receivable


(150
)

Collection of note receivable


23


10Net cash used in investing activities


(4,665
)

(252
)CASH FLOWS FROM FINANCING ACTIVITIES:Cash dividends paid





(9,240
)Borrowings under the credit facility, net





10,750Repayment of long-term obligations





(15
)Net cash provided by financing activities





1,495NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


(23,311
)

6,480CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


39,684


17,183CASH AND CASH EQUIVALENTS, END OF PERIOD

$
16,373

$
23,663SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash payments for interest

$
4,878

$
4,170Cash receipts of interest income

$
70

$
273Cash payments for income taxes

$


$
15Borrowings under the credit facility

$


$
19,250Repayments on the credit facility

$


$
(8,500
)Increase (decrease) in fair value of interest rate hedges

$
602

$
(2,978
)Cash dividends declared, not paid

$


$
9,240Additions to property and equipment included in accounts payable

$
878

$
618


See notes to condensed consolidated financial statements.

5

---





Table of Contents



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)        FOR THE THREE MONTHS ENDED MARCH 31, 2009
AND 2008

1. General

The condensed consolidated financial statements of Reddy Ice Holdings, Inc. and Subsidiary included herein are unaudited; however, the balance sheet as of December 31, 2008
has been derived from the audited financial statements for that date. These financial statements have been prepared by the Company pursuant to the applicable rules and regulations of the Securities
and Exchange Commission ("SEC"). Under the SEC's regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or omitted. All significant intercompany balances and transactions have been eliminated upon consolidation, and all adjustments
which, in the opinion of management, are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods 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, 2008. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results to
be achieved for the full year.

Reddy
Ice Holdings, Inc. ("Reddy Holdings"), and its wholly-owned subsidiary, Reddy Ice Corporation ("Reddy Corp."), referred to collectively as the "Company", manufactures and
distributes packaged ice products. The common stock of Reddy Holdings is publicly traded on the New York Stock Exchange under the ticker symbol "FRZ".

On
July 2, 2007, the Company announced that it had entered into an Agreement and Plan of Merger, dated as of July 2, 2007 (the "Merger Agreement"), by and among Reddy Ice
Holdings, Inc. and certain affiliates of GSO Capital Partners LP ("GSO"). On January 31, 2008, the Company reached an agreement with affiliates of GSO to terminate the Merger
Agreement. A settlement agreement (the "Settlement Agreement") was entered into which released all parties from any claims related to the contemplated acquisition and provided for a $21 million
termination fee to be paid by GSO. The Company agreed to pay up to $4 million of fees and expenses incurred by GSO and its third-party consultants in connection with the transaction. The
Company received a net payment of $17 million on February 5, 2008. During the three months ended March 31, 2008, the Company incurred $0.8 million of legal and other
professional service expenses in connection with the transaction and the related stockholder litigation, which was settled on December 31, 2008. Such costs are included in the caption
"Transaction costs related to merger agreement" in the consolidated statements of operations.

2. New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, "Fair Value Measurements". SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value estimates. In February 2008, the FASB issued FASB Staff Position ("FSP") No.
FAS 157-2 which delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair
value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008. The Company elected to defer the adoption of SFAS No. 157 for its nonfinancial
assets and nonfinancial liabilities until January 1, 2009. Adoption of this

6

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

2. New Accounting Pronouncements (Continued)

standard
on January 1, 2009 had no impact on the Company's results of operations and financial position.

In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations". SFAS No. 141(R) establishes principles and requirements for how the acquirer in a business
combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. SFAS No. 141(R)
significantly changes the accounting for business combinations in a number of areas, including the treatment of contingent consideration, preacquisition contingencies, transaction costs and
restructuring costs. In addition, under SFAS No. 141(R), changes in an acquired entity's deferred tax assets and uncertain tax positions after the measurement period will impact income tax
expense. SFAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. This standard requires the immediate expensing of acquisition related costs. This standard
is effective for acquisitions completed after December 31, 2008.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities". SFAS No. 161 will require enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), and its related interpretations and (c) how derivative instruments and related hedged items affect an entity's
financial position, financial performance and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company adopted SFAS
No. 161 on January 1, 2009 and has included the required disclosures under SFAS No. 161 (see Note 6).

In
April 2008, the FASB issued FSP No. FAS 142-3, "Determination of the Useful Life of Intangible Assets". This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, "Goodwill and Other Intangible Assets". FSP No.
FAS 142-3 is effective for fiscal years beginning on or after December 15, 2008 and will apply only to intangible assets acquired after the effective date.

In
June 2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities". This FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings
allocation in computing earnings per share ("EPS") under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128, "Earnings per Share". FSP No.
EITF 03-6-1 is effective for fiscal years beginning on or after December 15, 2008. All prior period EPS data presented after adoption is to be adjusted
retrospectively to conform with the provisions of FSP No. EITF 03-6-1. Adoption of this standard on January 1, 2009 had no impact on the Company's results of
operations and financial position.

In
January 2009, the FASB released Proposed Staff Position SFAS No. 107-b and Accounting Principles Board ("APB") Opinion No. 28-a, "Interim
Disclosures about Fair Value of Financial Instruments" ("SFAS 107-b" and "APB 28-a"). This proposal amends FASB Statement No. 107, "Disclosures about Fair
Values of Financial Instruments," to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. The

7

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

2. New Accounting Pronouncements (Continued)

proposal
also amends APB Opinion No. 28, "Interim Financial Reporting," to require those disclosures in all interim financial statements. This proposal is effective for interim periods ending
after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The Company plans to adopt SFAS 107-b and
APB 28-a and provide the additional disclosure requirements in the second quarter 2009.

3. Inventories, Parts and Supplies

Inventories consist of raw materials, finished goods and parts and supplies. Raw materials are composed of ice packaging material. Finished goods consist of packaged ice. Parts and
supplies consist of spare parts for production equipment and ice merchandisers and miscellaneous supplies. Inventories are valued at the lower of cost or market and include overhead allocations. Cost
is determined using the first-in, first-out method.

March 31,
2009

December 31,
2008(in thousands)Raw materials

$
6,756

$
6,510Finished goods


3,661


2,694Parts and supplies


3,359


3,119Total

$
13,776

$
12,323


4. Accrued Expenses

March 31,
2009

December 31,
2008(in thousands)Accrued interest

$
7,910

$
6,087Accrued compensation and employee benefits, including payroll taxes and workers compensation insurance


4,654


4,264Accrued utilities


1,435


1,433Accrued property, sales and other taxes


1,860


1,091Other accrued insurance


1,892


1,982Other


1,556


1,629Total

$
19,307

$
16,486


8

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

5. Revolving Credit Facility and Long-Term Obligations

At March 31, 2009 and December 31, 2008, long-term obligations consisted of the following:

March 31,
2009

December 31,
2008(in thousands)Credit facilityTerm Loan

$
240,000

$
240,000101/2% Senior Discount Notes


150,500


150,500Total long-term obligations


390,500


390,500Less: Current maturities





Long-term obligations, net

$
390,500

$
390,500


101/2% Senior Discount Notes.On October 27, 2004, Reddy Holdings issued $151 million in
aggregate principal amount at
maturity of 101/2% Senior Discount Notes due 2012 (the "Discount Notes") in a private placement offering. The Discount Notes were subsequently registered with the SEC, effective
August 26, 2005. Each Discount Note had an initial accreted value of $663.33 per $1,000 principal amount at maturity. The accreted value of each Discount Note increased from the date of
issuance until November 1, 2008 at a rate of 101/2% per annum such that the accreted value equaled the stated principal amount at maturity on November 1, 2008. Thereafter,
cash interest began accruing November 1, 2008 and is payable semi-annually at a rate of 101/2% per annum.

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



The
Discount Notes include customary covenants that restrict, among other things, Reddy Holdings' and its subsidiary's ability to incur additional debt or issue certain preferred stock,
pay dividends or redeem, repurchase or retire its capital stock or subordinated indebtedness, make certain investments, create liens, enter into arrangements that restrict dividends from its
subsidiary, merge or sell all or substantially all of its assets or enter into various transactions with affiliates. From and after November 1, 2008, Reddy Holdings may redeem any or all of the
Discount Notes by paying a redemption premium, which is initially 5.25% of the principal amount at maturity of the Discount Notes and declines annually to 0% for the period commencing on
November 1, 2010 and thereafter. If Reddy Holdings experiences a change of control, Reddy Holdings will be required to make an offer to repurchase the Discount Notes at a price equal to 101% of
their accreted value, plus accrued and unpaid interest, if any, to the date of purchase. Reddy Holdings may also be required to make an offer to purchase the Discount Notes with proceeds of asset
sales that are not reinvested in the Company's business or used to repay other indebtedness.

9

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

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

The indenture governing the Discount Notes restricts the amount of dividends, distributions and other restricted payments. Under the indenture, Reddy Holdings is restricted from paying
dividends on its common stock unless, at the time of such payment:



The
consolidated coverage ratio under the indenture governing the Discount Notes means the ratio of EBITDA (as defined in the indenture) for the most recent four fiscal quarters to
consolidated interest expense (as defined in the indenture) for such four quarter period. Reddy Holdings is generally required to calculate its consolidated coverage ratio on a pro forma basis to give
effect to incurrences and repayments of indebtedness as well as acquisitions and dispositions.

The
buildup amount equals 50% of consolidated net income accrued during the period (treated as one accounting period) from July 1, 2003 to the end of the most recent fiscal
quarter for which internal financial statements are available (or, if such consolidated net income is a deficit, minus 100% of such deficit), plus, the net cash proceeds of the issuance of capital
stock, subject to certain exceptions, and any cash capital contribution received by us from the Company's stockholders, in each case after August 15, 2003, plus the amount by which Reddy
Holdings indebtedness is reduced on its balance sheet as a result of the conversion or exchange of such indebtedness for capital stock, plus the net reduction in certain restricted investments made by
Reddy Holdings, less the amount of certain restricted payments made from time to time, including, among other things, the payment of cash dividends. Reddy Holdings is not currently permitted to pay
dividends under this provision.

In
addition, regardless of whether Reddy Holdings could make any restricted payments under the buildup amount provision referred to above, Reddy Holdings may (1) make dividend
payments at any time in an aggregate amount of up to $15.0 million if no default has occurred and is continuing under the indenture and (2) following the initial public offering on
August 12, 2005, pay dividends on Reddy Holdings' capital stock of up to 6.0% per year of the cash proceeds (net of underwriters' fees,
discounts, commissions or other expenses paid by us) received by us from all such public equity offerings subject to specified conditions. Accordingly, Reddy Holdings is able to pay approximately
$7.0 million annually in dividends under this 6.0% provision. However, the amount of dividend payments permitted under this 6.0% provision will correspondingly reduce the amount otherwise
available under the buildup amount for restricted payments, including dividends.

Senior Credit Facilities.On August 12, 2005, the Company amended and restated its credit facilities with a syndicate of
banks, financial
institutions and other entities as lenders, including Credit Suisse, Cayman Islands Branch, as Administrative Agent, CIBC World Markets Corp., Bear Stearns Corporate Lending Inc. and
Lehman Commercial Paper, Inc. (the "Credit Facilities"). The Credit Facilities provide for a $60 million revolving credit facility (the "Revolving Credit Facility") and a

10

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

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

$240 million
term loan (the "Term Loan"). The Credit Facilities are obligations of Reddy Corp. The Revolving Credit Facility and Term Loan mature on August 12, 2010 and August 12,
2012, respectively.

At
March 31, 2009, the Company had $53.0 million of availability under the Revolving Credit Facility, which was net of outstanding standby letters of credit of
$7.0 million. The standby letters of credit are used primarily to secure certain insurance obligations. Lehman Commercial Paper, Inc. ("LCP") has a $10 million commitment under
the Revolving Credit Facility, all of which is unfunded. LCP filed for bankruptcy in October 2008 and the Company understands that LCP has failed to fund on other revolving credit facilities for which
it has commitments subsequent to filing for bankruptcy. As a result, the Company believes LCP will likely not perform under the terms of the facility, which would effectively reduce the amount
available to the Company under the Revolving Credit Facility by $10 million.

Principal
balances outstanding under the Credit Facility bear interest per annum, at the Company's option, at the sum of the base rate plus 0.75% or LIBOR plus 1.75%. The base rate 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%. At March 31, 2009, the weighted average interest rate
of borrowings outstanding under the Credit Facility was 2.3%, excluding the effect of the interest rate hedges (see Note 6 for further information regarding interest rate hedges). 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. The Company also pays a quarterly fee on the average availability under the revolving credit facility at an annual rate of 0.5%. Amounts may be drawn under the Revolving Credit
Facility so long as no event of default exists.

The
Revolving Credit Facility and Term Loan do not require any scheduled principal payments prior to their stated maturity dates. Subject to certain conditions, mandatory repayments of
the Revolving Credit Facility and Term Loan (and if the Term Loan is no longer outstanding, mandatory commitment reductions of the Revolving Credit Facility) are required to be made with portions of
the proceeds from
(1) asset sales, (2) the issuance of debt securities and (3) insurance and condemnation awards, subject to various exceptions. In the event of a change in control, as defined in
the Credit Facilities, an event of default will occur under the Credit Facilities.

The
Credit Facilities contain financial covenants, which include the maintenance of certain financial ratios, as defined in the Credit Facilities, and are collateralized by substantially
all of the Company's assets. At March 31, 2009, Reddy Corp. was in compliance with these covenants. Reddy Holdings guarantees the Credit Facilities and such guarantee is collateralized by a
pledge of the capital stock of Reddy Corp.

Under
the restricted payments covenant in the Credit Facilities, Reddy Holdings is generally restricted from paying dividends to its stockholders from funds received from Reddy Corp.,
and Reddy Corp. is prohibited from paying dividends and otherwise transferring assets to Reddy Holdings. Reddy Corp. is permitted to pay certain limited dividends to Reddy Holdings, the proceeds of
which must be used to maintain Reddy Holdings' corporate existence.

Reddy
Corp. may also pay dividends to Reddy Holdings for specified purposes, including the payment of dividends by Reddy Holdings and the payment of cash interest and principal on the
Discount Notes, in an amount not greater than Reddy Corp.'s Cumulative Distributable Cash (as

11

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

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

defined
in the Credit Facilities) for the period (taken as one accounting period) from July 1, 2005 to the end of its most recently ended fiscal quarter for which a covenant compliance
certificate under the Credit Facilities has been delivered to the lenders. As of March 31, 2009, the amount of Cumulative Distributable Cash was $89.2 million. Such dividends may only be
paid if Reddy Corp.'s leverage ratio for the most recently ended fiscal quarter is less than or equal to 3.75 to 1.0. In addition, the Credit Facilities preclude Reddy Corp. from declaring any
dividends if an event of default under the credit facilities has occurred and is continuing. In particular, it will be an event of default if Reddy Corp.'s leverage ratio exceeds 4.0 to 1.0 or Reddy
Corp.'s interest coverage ratio is less than 3.25 to 1.0. If at the end of any fiscal quarter, Reddy Corp.'s leverage ratio is greater than 3.75 to 1.0, and therefore Reddy Corp. is not permitted to
pay dividends, Reddy Corp. will be required by the credit facilities to apply 50% of Reddy Corp.'s Available Cash generated during each such quarter to make a mandatory prepayment of the loans under
the credit facilities. If Reddy Corp. is not able to pay dividends to Reddy Holdings, Reddy Holdings may not be able to pay the interest due under the Discount Notes, which would cause a default under
the indenture governing the Discount Notes. A default under the Discount Notes would also result in a default under the Credit Facilities.

6. Financial Derivative Instruments

Interest Rate Hedging Agreements.Effective September 12, 2005, the Company entered into an interest rate hedging agreement
(the "2005 Hedge")
to lock the interest rate on a portion of its Term Loan. The 2005 Hedge has a term of three years and ten months and expires on July 12, 2009. The 2005 Hedge had an initial notional balance of
$220 million. The notional balance decreased by $20 million on October 12 of each of the next three years, beginning on October 12, 2006. As of March 31, 2009, the
notional balance was $160 million. The Company pays a fixed rate of 4.431% on the notional balance outstanding and receives an amount equal to 3-month LIBOR. Any net payable or
receivable amount is settled quarterly.

Effective
February 17, 2009, the Company entered into a second interest rate hedging agreement (the "2009 Hedge") to lock the interest rate on a portion of its Term Loan. The 2009
Hedge has a term of 10 months and expires on December 17, 2009. The 2009 Hedge had a notional balance of $50 million from the inception date to July 17, 2009, at which time
the notional balance increases to $210 million for the remaining term. As of March 31, 2009, the notional balance was $50 million. The Company pays a fixed rate of 1.165% on the
notional balance outstanding and receives an amount equal to 1-month LIBOR. Any net payable or receivable amount is settled monthly. The Company uses interest rate hedges to minimize the
risk of increases in floating interest rates. The interest rate hedges are not for trading purposes and are accounted for as cash flow hedges.

Diesel Hedging Agreement.On February 2, 2009, the Company entered into a hedge to fix the price per gallon of a portion of
the Company's
diesel fuel requirements (the "Diesel Hedge"). The Diesel Hedge began February 2, 2009 and expires on December 28, 2009. The notional amount of gallons hedged changes on a monthly basis
to match the Company's anticipated utilization. The Company will pay a fixed rate of $1.55 per gallon (wholesale basis) and receive an amount equal to a wholesale index rate. Any net payable or
receivable amount is settled monthly. The Company uses the Diesel Hedge to minimize the risk of rising fuel prices. The hedge is not for trading purposes and is

12

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

6. Financial Derivative Instruments (Continued)

accounted
for as an economic hedge and is not designated as a hedging instrument under SFAS No. 133.

Financial Statement Presentation.All cash flows associated with derivative activities, including collateral requirements, are
classified as
operating cash flows in the Condensed Consolidated Statements of Cash Flows. The following table presents the location of all liabilities associated with the Company's hedging instruments within the
Condensed Consolidated Balance Sheet (in thousands):

Asset Derivatives

Liability DerivativesBalance
Sheet
Location

Fair Value at
March 31,
2009

Fair Value at
December 31,
2008

Fair Value at
March 31,
2009(a)

Fair Value at
December 31,
2008(a)Derivatives designated as hedging instruments under SFAS No. 133Interest rate hedges

Derivative liabilitiescurrent

$


$


$
1,962

$
2,564Derivatives not designated as hedging instruments under SFAS No. 133Diesel hedge

Derivative liabilitiescurrent








254


Total derivatives



$


$


$
2,216

$
2,564


---

13

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

6. Financial Derivative Instruments (Continued)

The
following tables present the impact of derivative instruments and their location within the Condensed Consolidated Financial Statements (in thousands):

Derivatives designated as Cash Flow Hedges under SFAS No. 133Amount of Gain (Loss)
Recognized in
Accumulated Other
Comprehensive
Loss(a)(b)

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

Amount of Gain (Loss)
Recognized in Interest
Expense (Ineffective
Portion)(a)Three Months
Ended March 31,

Three Months
Ended March 31,

Three Months
Ended March 31,2009

2008

2009

2008

2009

2008Interest rate hedges

$
1,673

$
(3,010
)
$
(1,071
)
$
32

$
(310
)
$



---

Derivatives not designated as Hedging Instruments
under SFAS No. 133Amount of Loss
Recognized in
Condensed
Consolidated
Statements of
OperationsThree months ended
March 31,Location of Loss Recognized in
Condensed Consolidated
Statements of Operations2009

2008Diesel hedge:Non-cash change in fair value

$
(254
)
$
Cash settlements


(102
)

Total recognized loss

$
(356
)
$


Loss on diesel hedge


Collateral Requirements and Counterparty Risk.The Diesel Hedge and the 2009 Interest Rate Hedge require the Company to provide
collateral in a
minimum amount of $1.6 million. As of March 31, 2009, $3.0 million was held by the counterparty as collateral. The terms of the Credit Facilities limit the amount of cash
collateral that the Company can provide to a maximum of $5.0 million. In the event the cash collateral requirements exceed this amount, the Company will be forced to unwind all or a portion of
the hedges. As provided for in the Credit Facilities, the 2009 Interest Rate Hedge also shares in the collateral securing the Credit Facilities as the counterparty is also a lender under the Credit
Facilities.

The
Company is exposed to risk of loss in the event of non-performance by the counterparty to the interest rate hedges. The Company does not anticipate
non-performance by the counterparty, however recent dislocations in the credit markets have resulted in greater uncertainty regarding counterparty performance.

14

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

7. Fair Value of Financial Instruments

SFAS No. 157 establishes a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets and liabilities
carried at fair value be classified and disclosed in one of the following three categories:

Level 1:

Unadjusted quoted market prices in active markets for identical assets or liabilities.Level 2:

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

Unobservable inputs for the asset or liability.


The
following tables present the assets and liabilities as of March 31, 2009 that are measured at fair value on a recurring basis and are categorized using the fair value
hierarchy.

Carrying
Value

Fair
Value

Quoted Prices in
Active Markets for
Identical Assets
or Liabilities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)(in millions)Liabilities:Interest rate hedges

$
2.0

$
2.0




$
2.0


Diesel fuel hedge

$
0.3

$
0.3




$
0.3





The
interest rate hedges were valued using the income approach to calculate the present value of the future cash flows expected to be paid under the hedges. The value of the fixed legs
is the present value of the known fixed coupon payments discounted at a market interest rate. The value of the floating legs are the present value of the projected floating coupon payments based on
the forward LIBOR rates discounted at a market interest rate.

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

SFAS
No. 157 requires the Company to consider its own credit risk in the valuation of the interest rate hedges and Diesel Hedge. See Note 6 for information related to
collateral requirements related to the hedges.

8. Stock-Based Compensation

On August 8, 2005, the board of directors and stockholders of Reddy Holdings approved the Reddy Ice Holdings, Inc. Long-Term Incentive and Share Award Plan (the
"Plan"). Under the Plan, as amended, up to 1,250,000 shares of common stock may be issued to employees, directors and certain

15

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

8. Stock-Based Compensation (Continued)

third
parties in connection with various incentive awards, including stock options, restricted shares and restricted share units.

From
the inception of the Plan through March 31, 2009, the Company granted a total of 823,100 restricted share units ("RSUs") to certain employees and independent directors. Each
RSU provides for the grant of one share of unrestricted common stock on the date that the vesting terms of each RSU are satisfied. During 2008, certain employees were granted 50,000 shares of
restricted stock. The restricted shares will vest in June or September 2009 on the anniversary date of the grants, assuming the recipient remains employed with the Company through that date. During
2008, 45,000 Performance-vested RSUs were awarded to an employee. The performance targets for these Performance-vested RSUs were set by the Company's Compensation Committee in April 2009. No grants
were made during the three months ended March 31, 2009.

Generally,
fifty percent of each award of RSUs (the "Time-vested RSUs") will vest in annual installments on August 12 of each year through 2009, provided the recipient
remains employed with the Company through such vesting dates. The remaining fifty percent of each award of RSUs (the "Performance-vested RSUs") will vest in annual installments on August 12 of
each year through 2009,
provided the recipient remains employed with the Company through such vesting dates and the applicable performance condition for the applicable vesting period is met. For all awards of RSUs made
through March 31, 2009, fifty percent of each award is Time-vested RSUs and fifty percent is Performance-vested RSUs. The performance condition for each vesting period will be based
on the Company's earned distributable cash per share (as defined in the related restricted share unit agreement) for the related performance period. The performance period begins on July 1 of
each year and ends on June 30 of the subsequent year. The vesting date is the following August 12th. All RSUs will immediately vest in full, and shares will be distributed,
at the time of a Change in Control (as defined in the Plan). If in any performance period the performance condition for a subsequent performance period is achieved, Performance-vested RSUs will be
entitled to dividend equivalent rights in the subsequent performance period equal to the dividends which would be payable on the shares of common stock represented by the RSUs subject to vesting in
that period. Payments of such dividend equivalents will be made in cash to the holders of RSUs at the time of actual dividend payments and will not be subject to vesting. Time-vested RSUs
will not be entitled to dividend equivalent rights.

Approximately
twenty-five percent of the Time-vested RSUs are being expensed during each period ending August 12 in 2006 to 2009. Performance-vested RSUs
granted in 2005 are being expensed on the same basis, while Performance-vested grants made in 2006 to 2008 are being expensed on an accelerated method. In the three months ended December 31,
2008, the previously recognized compensation expense associated with the Performance-vested RSUs scheduled to vest on August 12, 2008 and 2009 was reversed as the Company no longer considered
it probable that those RSUs would vest.

Total
compensation expense associated with the Plan was $0.4 million and $0.8 million during the three months ended March 31, 2009 and 2008, respectively. Such
compensation expense was recorded in "Operating Expenses" in the consolidated statements of operations. As of March 31, 2009, approximately 264,000 shares were reserved for issuance and
approximately 436,000 shares were available for grant under the Plan.

16

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

9. Loss Per Share

The computation of net loss per share is based on net loss divided by the weighted average number of shares outstanding. For the three months ended March 31, 2009 and 2008, there
were 0.3 million and 0.4 million shares, respectively, of dilutive securities which are not included in the computation of diluted net loss per share as their effect would be
anti-dilutive.

10. 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 Discount Notes.

The
amount of gross unrecognized tax benefits related to uncertain tax positions was $3.6 million at March 31, 2009 and December 31, 2008, which included accrued
interest and penalties of $1.4 million as of each date. The total amount of interest and penalties, net of federal benefit, recognized in the consolidated statements of operations for the three
months ended March 31, 2009 and 2008 was $0.02 million.

As
a result of net operating loss carryforwards, the Company's tax years from 1997 through 2008 remain open and subject to examination by the Internal Revenue Service and/or certain
state taxing authorities. The Company is undergoing routine tax audits in certain U.S. state jurisdictions covering multiple years. The Company is not aware of any material proposed income tax
adjustments and expects the completion of the audits in the near term. A $2.2 million reduction of the $3.6 million total unrecognized tax benefit as of March 31, 2009 is possible
in the next 12 months as a result of the settlement of certain current tax audits and other potential settlements with U.S. state taxing authorities.

11. Acquisitions

No acquisitions were completed in the three months ended March 31, 2009. During 2008, the Company purchased seven ice companies. Including direct acquisition costs, the total
acquisition consideration was $4.0 million. The results of operations of the 2008 acquisitions are included in the Company's consolidated results of operations from their respective acquisition
dates, which range from February 29, 2008 to September 30, 2008.

The
following unaudited pro forma information presents the Company's consolidated results of operations (i) for the three months ended March 31, 2008 as if the 2008
acquisitions had all occurred on January 1, 2008 (in thousands):

Pro forma revenues

$
43,338Pro forma net loss


(3,240
)Pro forma basic and diluted net loss per share


(0.15
)


12. Commitments and Contingencies

In order to secure a long-term supply of plastic bags at favorable prices, the Company entered into a supply agreement with a plastic bag manufacturer (the "Bag Supply
Agreement") in which it committed to purchase 250 million bags per twelve-month period beginning March 1, 2008. The Bag

17

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

12. Commitments and Contingencies (Continued)

Supply
Agreement expires on March 1, 2013. On March 9, 2009, the Bag Supply Agreement was amended to start on January 1, 2008 and end on December 31, 2012 and modify
certain other provisions. The annual commitment to purchase 250 million bags remains in effect. The Company anticipates being in compliance with the terms of the contract at December 31,
2009.

The
following is a discussion of the Company's significant legal matters. The Company is involved in various claims, suits, investigations, and legal proceedings. As required by SFAS
No. 5, Accounting for Contingencies ("FAS 5"), the Company accrues a liability when it believes that it is both probable that a liability has been incurred and that it can reasonably
estimate the amount of the loss. At March 31, 2009, no accruals had been made in connection with the matters discussed below.

Antitrust Matters

In March 2008, the Company and certain of its employees, including members of its management, received subpoenas issued by a federal
grand jury in the Eastern District of Michigan seeking documents and information in connection with an investigation by the Antitrust Division of the United States Department of Justice ("DOJ") into
possible antitrust violations in the packaged ice industry. In addition, on March 5, 2008, federal officials executed a search warrant at the Company's corporate office in Dallas, Texas. On
August 28, 2008, the Company received a second
subpoena for documents from the federal grand jury sitting in the Eastern District of Michigan. The DOJ has also issued subpoenas to Company employees to appear in person before the federal grand jury
in the Eastern District of Michigan. The search warrant and subpoenas that the Company and its employees received are part of a broader industry inquiry by the Antitrust Division of the DOJ; at least
one other packaged ice manufacturer has also received a grand jury subpoena, and The Home City Ice Company has entered a guilty plea regarding a conspiracy to allocate customers and territories in
southeastern Michigan and the Detroit, Michigan metropolitan area.

On
March 25, 2008, the Company was served by the Office of the Attorney General of the State of Florida with an antitrust civil investigative demand (the "Florida CID") requesting
the production of documents and information relating to an investigation of agreements in restraint of trade and/or price-fixing with respect to the pricing or market allocation of packaged ice. On
June 11, 2008, the Company received a civil investigative demand from the Office of the Attorney General of the State of Arizona (the "Arizona CID"). All of the documents and information
requested by the Arizona CID are included in the Florida CID and the Arizona CID states that it will be satisfied by the production of information which has been and will be provided to Florida in
response to the Florida CID. The Company has been advised that the Florida CID and the Arizona CID were issued as part of a multi-state antitrust investigation of the packaged ice industry and that
the Attorneys General of 19 states and the District of Columbia are participating in the multi-state investigation. The states' investigation is related to the ongoing investigation of the packaged
ice industry by the Antitrust Division of the DOJ. The Company may in the future receive additional civil investigative demands or similar information requests from other states participating in the
multi-state investigation or conducting their own investigations.

On
November 19, 2008, the Company was notified by the Civil Fraud Division of the DOJ (the "Civil Fraud Division") that the Civil Fraud Division has opened an investigation with
respect to the Company. The Civil Fraud Division's investigation is expected to examine whether the Company may

18

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

12. Commitments and Contingencies (Continued)

have
violated the federal False Claims Act by submitting, or causing to be submitted, false claims to the federal government by entering into allegedly anticompetitive agreements which may have
affected the sale of packaged ice to the government. On or about January 6, 2009, the Company received a request for documents in connection with that investigation. The Civil Fraud Division's
investigation is related to the investigation by the Antitrust Division of the DOJ.

The
Company is cooperating with the authorities in these investigations. It has substantially completed its production of documents to the Antitrust Division of the DOJ and to the
states. It is in the process of producing documents to the Civil Fraud Division of the DOJ. The Company has also made employees available for interviews by the Antitrust Division of the DOJ. The
Company expects to continue to make available documents and other information in response to the investigating agencies' subpoenas, requests and civil investigative demands. At this time the Company
is unable to predict the outcome of these investigations, the possible loss or possible range of loss, if any, associated with the resolution of these investigations or any potential effect they may
have on the Company, its employees or operations.

On
March 6, 2008, the Company's Board of Directors formed a special committee of independent directors to conduct an internal investigation of these matters. The special committee
retained counsel to assist in its investigation. In order to maintain the independence of the special committee's investigation, officers and employees who were employed by the Company at the time the
investigation commenced have not had access to information obtained in the special committee's investigation or the results of the investigation to date. The investigation by the special committee and
its counsel is substantially complete. The special committee's investigation will likely remain open until the conclusion of the investigation by the Antitrust Division of the DOJ because of the
possibility that additional information relevant to the special committee's investigation may become available to the special committee. At this time, the special committee has not reached a
determination whether any violations of the antitrust laws have occurred. The special committee does not believe any of the Company's active employees are a focus of the investigation by the Antitrust
Division of the DOJ. The Company and its employees are cooperating in the special committee's investigation.

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

Following
the announcement that the Antitrust Division of the DOJ had instituted an investigation of the packaged ice industry, a number of lawsuits, including putative class action
lawsuits, have been instituted in various federal courts in multiple jurisdictions alleging violations of the federal antitrust laws and related claims and seeking damages and injunctive relief.
Pursuant to an Order from the Judicial Panel on Multidistrict Litigation, the civil actions pending in federal courts have been transferred and consolidated for pretrial proceedings in the United
States District Court for the Eastern District of Michigan. Plaintiffs in most of the actions have agreed to extend the Company's deadline to respond to the subject complaints until 45 days
after the filing of a consolidated amended complaint in the multidistrict proceedings. Motions and responses were filed by various plaintiffs relating to appointment of interim class counsel and
liaison counsel. A hearing on those motions was held on March 16, 2009; the Court has not yet ruled on those motions. No scheduling order has been

19

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

12. Commitments and Contingencies (Continued)

entered
by the Court and no date has been set for the Company to respond to the claims asserted by the plaintiffs in the multidistrict proceedings.

In
addition to the putative class action lawsuits filed in federal court, a putative class action lawsuit was filed in Kansas state court alleging violations of state antitrust laws and
related claims and seeking damages and injunctive relief. Defendants filed motions to dismiss and those motions to dismiss were granted on February 26, 2009.

One
direct action lawsuit has been filed against the Company in the United States District Court for the Eastern District of Michigan asserting claims based on alleged violations of
federal and state antitrust laws, RICO and tortious interference and seeking damages, civil penalties and injunctive relief. The defendants filed motions to dismiss that case. A hearing on those
motions was held on April 2, 2009; the Court has not yet ruled on those motions.

The
Company intends to vigorously defend the pending lawsuits. At this time, the Company is unable to predict the outcome of these lawsuits, the possible loss or possible range of loss,
if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.

SEC Inquiry

On or about October 21, 2008, the Company received notice that the Securities and Exchange Commission has initiated an informal
inquiry into matters that are the subject of the investigation by the special committee of the Company's Board of Directors. The Company intends to cooperate with the informal inquiry.

Stockholder Litigation

Beginning on August 8, 2008, purported class action complaints have been filed in the United States District Court for the
Eastern District of Michigan asserting claims under the federal securities laws against the Company and certain of its current or former senior officers. The complaints, which are substantially
similar, allege that the defendants misrepresented and failed to disclose the existence of, and the Company's alleged participation in, an alleged antitrust conspiracy in the packaged ice industry.
The complaints purport to assert claims on behalf of various alleged classes of purchasers of the Company's common stock. Two motions for consolidation of the three actions and for appointment of lead
plaintiff and lead plaintiff's counsel were filed on October 7, 2008. Thereafter, one of the two proposed lead plaintiffs withdrew his motion. No lead plaintiff or lead plaintiff's counsel has
yet been named and no scheduling order has been entered.

Two
stockholder derivative actions have been filed on the Company's behalf in state district court in Dallas County, Texas, naming as defendants, among others, the members of the
Company's board of directors and certain current and former officers. Those cases have been consolidated in the 68th Judicial District Court of Dallas County, Texas. The petitions assert claims for
breach of fiduciary duty, unjust enrichment, insider selling, abuse of control, and gross mismanagement and seek damages, equitable relief, attorney fees and costs. The parties have reached an
agreement that the consolidated
case will be stayed until such time as there is a ruling on any motion to dismiss in the shareholder actions pending in the Eastern District of Michigan.

20

---



Table of Contents

REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

12. Commitments and Contingencies (Continued)

The
Company and the other defendants intend to vigorously defend the pending lawsuits. At this time, the Company is unable to predict the outcome of these lawsuits, the possible loss or
possible range of loss, if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.

Other Matters

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

13. Subsequent Events

On April 14, 2009, the compensation committee of the Company's board of directors approved certain amendments to the Plan and approved the grant of 82,850 shares of restricted
stock and 370,350 stock
options under the Plan to certain employees and consultants. An additional 124,275 shares of restricted stock and 555,525 stock options were granted that are contingent upon shareholder approval of an
amendment to the Plan to increase the available number of shares by 1,500,000. The Company's stockholders will vote upon the amendment at the annual stockholder meeting scheduled for May 20,
2009.

21

---





Table of Contents

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
condensed consolidated financial statements and the related notes and other information included elsewhere in this Form 10-Q and our Annual Report on Form 10-K
for the year ended December 31, 2008, previously filed with the Securities and Exchange Commission ("SEC").

Reddy
Ice Holdings, Inc. ("Reddy Holdings"), and its wholly-owned subsidiary, Reddy Ice Corporation ("Reddy Corp."), manufacture and distribute packaged ice products. The company
is the largest manufacturer of packaged ice products in the United States and serves a variety of customers in 31 states and the District of Columbia under the Reddy Ice® brand name.

At
March 31, 2009, we owned or operated 58 ice manufacturing facilities, 67 distribution centers and approximately 3,100 Ice Factories. As of the same date, we had an aggregate
daily ice manufacturing capacity of approximately 18,000 tons.

Uncertainty of Forward Looking Statements and Information

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



22

---



Table of Contents



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

General

Overview.We are the largest manufacturer and distributor of packaged ice in the United States and currently serve a variety of
customers in 31
states and the District of Columbia. Our business consists of:



Seasonality.The packaged ice business is highly seasonal, characterized by peak demand during the warmer months of May through
September, with an
extended peak selling season in the southern United States. Approximately 69%, 68% and 70% of our annual revenues occurred during the second and third calendar quarters in each of 2008, 2007 and 2006.
As a result of seasonal revenue declines and a less than proportional decline in expenses during the first and fourth quarters, we typically experience lower margins resulting in losses during these
periods.

Revenues.Our revenues primarily represent sales of packaged ice and packaged ice bags for use in our Ice Factory equipment. There is
no right of
return with respect to these products or services. A portion of our revenues are also generated by the leasing of Ice Factories to third parties.

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 Expense 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

23

---



Table of Contents

salaries,
insurance, legal and other professional services and costs associated with leasing office space. Labor costs, including associated payroll taxes and benefit costs but excluding
non-cash stock-based compensation expense, included in operating expenses represented approximately 15% and 13% of revenues in the three months ended March 31, 2009 and 2008,
respectively.

Cost of antitrust investigations and related litigation.Costs related to the current antitrust investigations and related litigation
are composed
primarily of legal fees, document collection costs and the fees of other experts and consultants.

Facilities.At March 31, 2009, we owned or operated 58 ice manufacturing facilities, 67 distribution centers and approximately
3,100 Ice
Factories. As of the same date, we had an aggregate daily ice manufacturing capacity of approximately 18,000 tons.

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

Three Months Ended
March 31,

Change from Last
Year2009

2008

Dollars

%(in thousands)Revenues

$
42,246

$
43,035

$
(789
)

(1.8
)Cost of sales (excluding depreciation)


35,480


37,288


(1,808
)

(4.8
)Depreciation expense related to cost of sales


5,128


5,150


(22
)

(0.4
)Gross profit


1,638


597


1,041


174.4Operating expenses


12,177


10,837


1,340


12.4Depreciation and amortization expense


1,709


1,641


68


4.1Gain on dispositions of assets


(4
)

(4
)




Loss on derivative, net


356





356


Cost of antitrust investigations and related litigation


2,882


1,187


1,695


142.8Transaction costs related to merger agreement





811


(811
)

(100.0
)Loss from operations


(15,482
)

(13,875
)

(1,607
)

(11.6
)Interest expense


(7,221
)

(7,896
)

675


8.5Interest income


70


283


(213
)

(75.3
)Gain on termination of merger agreement





17,000


(17,000
)

(100.0
)Loss before income taxes


(22,633
)

(4,488
)

(18,145
)

(404.3
)Income tax benefit


10,666


1,177


9,489


806.2Net loss

$
(11,967
)
$
(3,311
)
$
(8,656
)

(261.4
)


Revenues:Revenues decreased $0.8 million from the three months ended March 31, 2008 to the three months ended March 31,
2009.
This decrease is primarily due to a decline in packaged ice volume sales by a percentage in the high single digits related to the effect of various adverse economic trends on our customers and end
users of our products, partially offset by higher average sales prices.

Cost of Sales (Excluding Depreciation):Cost of sales (excluding depreciation) decreased $1.8 million from the three months ended
March 31, 2008 to the three months ended March 31, 2009. This decrease in cost of sales is primarily due to lower volume sales and declines in the prices of fuel and plastic bags related
to lower market prices.

Labor
costs, including associated payroll taxes and benefit costs (including health insurance), accounted for approximately 36% of revenues in the three months ended March 31,
2009 and 2008, respectively. Cost of plastic bags represented approximately 7% and 8% of revenues in the three months ended March 31, 2009 and 2008, respectively. Fuel expenses represented
approximately 3% and

24

---



Table of Contents

6%
of revenues in the three months ended March 31, 2009 and 2008, respectively. The ratio of plastic bag and fuel expenses to sales decreased as a result of declines in the market prices of
energy.
Expenses for independent third party distribution services decreased from 7% of revenues in the three months ended March 31, 2008 to 6% of revenues in the three months ended March 31,
2009 as a result of a reduction in the proportion of our volume sales delivered by distributors. Electricity expense represented approximately 7% of revenues in the three months ended March 31,
2009 and 2008.

Depreciation Expense Related to Cost of Sales:Depreciation expense related to cost of sales decreased $0.02 million as a result
of
dispositions and assets becoming fully depreciated, partially offset by new production and distribution equipment placed in service in 2009 and 2008.

Operating Expenses:Operating expenses increased $1.3 million from the three months ended March 31, 2008 to the three months
ended
March 31, 2009. This increase is primarily due to a $1.3 million increase in professional services and a $0.6 million increase in labor and benefits, partially offset by a
$0.4 million decrease in non-cash stock-based compensation expense and a $0.1 million decrease in bad debt expense. Professional service expenses increased
$1.3 million primarily due to additional audit fees related to a change in audit firms in late 2008 and consulting fees related to our strategic review of the business. Labor and benefits
increased due to additional headcount at the senior management level and higher health insurance costs.

Depreciation and Amortization Expense:Depreciation and amortization increased $0.1 million from the three months ended
March 31, 2009
to the three months ended March 31, 2008. This increase is primarily due to additional equipment placed in service in 2008 and 2009 as a result of capital expenditures, partially offset by
dispositions.

Loss on diesel hedge:A loss of $0.4 million was incurred during the three months ended March 31, 2009 in connection with a
derivative
used to hedge the cost of diesel used in our delivery operations. The loss was composed of a $0.3 million non-cash change in the fair value of the derivative and $0.1 million
of cash settlements as the floating amount received from the counterparty was less than the fixed price we were obligated to pay.

Costs of antitrust investigations and related litigation:During the three months ended March 31, 2009 and 2008, we incurred
$2.9 million and $1.2 million, respectively, of legal fees and other expenses associated with the antitrust investigation being conducted by the Antitrust Division of the United States
Department of Justice and the related litigation. We became aware of and began incurring expenses related to the investigation in March 2008.

Transaction costs related to merger agreement:On July 2, 2007, we announced that we had entered into an Agreement and Plan of
Merger, dated
as of July 2, 2007 (the "Merger Agreement"), by and among Reddy Holdings and certain affiliates of GSO Capital Partners LP ("GSO"). Our stockholders approved the transaction at a special
stockholder meeting on October 12, 2007. We incurred $0.8 million of professional service expenses related to the proposed transaction and related stockholder litigation during the three
months ended March 31, 2008.

Interest Expense, net:Net interest expense decreased $0.5 million from the three months ended March 31, 2008 to the three
months ended
March 31, 2009. This decrease was primarily due to lower interest rates on the unhedged portion of our term loan, partially offset by scheduled increases in the interest expense associated with
our 101/2% senior discount notes and decreases in interest income primarily related to the decline in market interest rates.

Gain on termination of merger agreement:On January 31, 2008, we reached an agreement with affiliates of GSO to terminate the
Merger
Agreement. A settlement agreement was entered into which released all parties from any claims related to the contemplated acquisition and provided for a $21 million termination fee to be paid
by GSO. We agreed to pay up to $4 million of fees and expenses

25

---



Table of Contents

incurred
by GSO and its third-party consultants in connection with the transaction. We received a net payment of $17 million on February 5, 2008.

Income tax benefit (expense):The effective tax rate increased from 26.2% during the three months ended March 31, 2008 to 47.1%
during the
three months ended March 31, 2009 as a result of an adjustment of deferred taxes related to prior acquisitions recorded in the three months ended March 31, 2008 that resulted in a
reduction in the benefit recognized that period and the effect of changes in the ratio of permanent differences and state taxes to projected annual pre-tax income.

Liquidity and Capital Resources

We intend to fund our ongoing capital and working capital requirements as well as debt service, including our internal growth and
acquisitions, through a combination of cash flows from operations, borrowings under our credit facilities and operating leases.

We
generate cash from the sale of packaged ice through traditional delivery methods, by which we manufacture, package and store ice at a central facility and transport it to our
customers' retail locations when needed, and through Ice Factories, which manufacture, package and store ice in our customers' retail locations. Our primary uses of cash are (a) cost of sales,
(b) operating expenses, (c) debt service, (d) capital expenditures related to replacing and modernizing the capital equipment in our traditional ice plants and acquiring and
installing additional Ice Factories, (e) acquisitions and (f) dividends on our common stock. On September 15, 2008, we announced that we were suspending the payment of quarterly
cash dividends indefinitely. We have been and may continue to be required to use substantial amounts of cash to pay expenses relating to the ongoing investigations by the Antitrust Division of the
United States Department of Justice and various other government agencies and related civil litigation. See Part II, Item 1. Legal Proceedings. Historically, we have financed our capital
and working capital requirements, including our acquisitions, through a combination of cash flows from operations, borrowings under our revolving credit facilities and operating leases.

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 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 investments, capital expenditures or acquisitions. We may also have to consider 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 existing or future debt instruments, including the terms of the credit agreement governing our credit facilities and the indenture governing our senior discount notes,
may restrict us from adopting some of these alternatives.

During
the three months ended March 31, 2009, capital expenditures totaled $4.6 million. As we have consolidated acquisitions into the existing company infrastructure, we
have identified non-core and excess assets which can be disposed of, such as real estate and machinery and equipment. From time to time, we also dispose of other assets which are no longer
useful in our operations. As a result of dispositions of these non-core and excess assets, we realized proceeds of approximately $0.05 million during the three months ended
March 31, 2009. Our net capital expenditures during the three months ended March 31, 2009 were $4.5 million.

In
2008, we completed the acquisition of seven ice companies for a total cash purchase price of approximately $4.0 million, including direct acquisition costs of
$0.1 million. We also purchased one manufacturing facility which had previously been leased for $0.4 million. We will continue to evaluate acquisition opportunities as they become
available. In conjunction with these evaluations, we will

26

---



Table of Contents

consider
our liquidity, availability under our credit facilities, mandatory principal repayments under our debt agreements and availability of other capital resources.

Cash Flows for the Three Months Ended March 31, 2009 and 2008

Net cash used by operating activities was $18.6 million in the three months ended March 31, 2009 versus net cash provided
by operating activities of $5.2 million in the three months ended March 31, 2008. The decrease in cash provided by operating activities of $23.9 million was primarily the result
of a $21.8 million increase in our net loss, after adjusting for non-cash expenses and charges, and a $2.0 million increase in cash used by changes in working capital.

Net
cash used in investing activities was $4.7 million and $0.3 million in the three months ended March 31, 2009 and 2008, respectively. The increase in cash used in
investing activities is primarily due to (i) the release of $6.3 million of Restricted Cash and Cash Equivalents in 2008 as a result of the utilization of the net proceeds from the sale
of our bottled water and cold storage businesses sold in 2007 to fund current capital expenditures and acquisitions and (ii) a $1.3 million decrease in proceeds from dispositions of
property and equipment. The net proceeds from the sale of our bottled water and cold storage businesses in 2007 were $19.4 million. Our senior credit agreement required that the net proceeds
from the sales be used either to repay term borrowings under the credit facility or to make acquisitions and/or capital expenditures within twelve months of the receipt of such proceeds. Until used,
the proceeds were on deposit in a restricted account with the administrative agent under the senior credit facility. Partially offsetting these items was a decrease of $3.1 million in cash
spent for acquisitions.

Financing
activities provided net cash of $1.5 million in the three months ended March 31, 2008 as net borrowings under our revolving credit facility exceeded cash
dividends paid to shareholders. In the three months ended March 31, 2009, there were no financing activities.

Long-term Debt and Other Obligations

Overview.At March 31, 2009, we had $390.5 million of total debt outstanding as follows:



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. Each senior discount note had an initial accreted value of $663.33 per $1,000 principal amount at maturity. The
accreted value of each senior discount note increased from the date of issuance until November 1, 2008 at a rate of 101/2% per annum such that the accreted value equaled the
stated principal amount at maturity on November 1, 2008. Thereafter, cash interest accrues and will be payable semi-annually beginning May 1, 2009 at a rate of
101/2% per annum. The senior discount notes are unsecured obligations of Reddy Holdings and are:



27

---





Table of Contents

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
subsidiary, merge or sell all or substantially all of the assets or enter into various transactions with affiliates. 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 senior discount notes, and will decline annually to zero commencing on
November 1, 2010. If we experience a change of control 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. We registered the senior discount notes with the SEC pursuant to a registration statement that was declared effective on August 26, 2005.

The
indenture governing our senior discount notes restricts the amount of dividends, distributions and other restricted payments we may pay. Under the indenture, we are restricted from
paying dividends on our common stock unless, at the time of such payment:



The
consolidated coverage ratio under the indenture governing our senior discount notes is defined as the ratio of our Adjusted EBITDA for the most recent four fiscal quarters to our
consolidated interest expense for such four quarter period. "Adjusted EBITDA" under the indenture governing our senior discount notes is defined as the sum of our consolidated net income plus our
income tax expense, our interest expense, our depreciation and amortization expense, unrealized non-cash gains or losses or non-cash charges in respect of hedging obligations
required to be taken under generally accepted accounting principles, unrealized foreign currency translation gains or losses and all other non-cash charges, except to the extent
representing an accrual or reserve for a future cash expenditure. "Consolidated net income" under the indenture governing our senior discount notes is defined as net income of Reddy Holdings and its
restricted subsidiary: plus or minus cash dividends received on investments or equity in net losses of persons other than the restricted subsidiary, respectively; provided that the following are not
included in consolidated net income: (i) net income or loss of the subsidiary acquired in pooling of interests transactions for any period prior to the date of their acquisition,
(ii) any net income of the subsidiary restricted in the payment of a dividend (other than certain permitted restrictions, including those under our credit facilities), (iii) gains or
losses from non-ordinary course asset sales, (iv) extraordinary gains or losses, (v) the cumulative effect of changes in accounting principles,
(vi) non-recurring fees and expenses and write offs of deferred financing costs related to the financing transactions in connection with the 2003 merger of Cube Acquisition Corp.
and Packaged Ice, Inc. and, (vii) any fees, charges, costs or expenses relating to our initial public offering and the related transactions and paid in cash, to the extent deducted in
the determination of consolidated net income. "Consolidated interest expense" under the indenture governing our senior discount notes is defined as total interest expense plus, to the extent not
included in total interest expense, (i) interest expense attributable to capital leases, (ii) amortization of debt discount and issuance costs, (iii) capitalized interest,
(iv) non-cash interest expense, (v) fees on letters of credit, (vi) net payments pursuant to hedging obligations, (vii) dividends accrued on certain
disqualified stock (viii) interest incurred in connection with investments in discontinued operations, (ix) interest on

28

---



Table of Contents

guaranteed
indebtedness and (x) cash contributions to employee stock ownership plans to the extent they are used to pay interest or fees on indebtedness incurred by such plans. We are generally
required to calculate our consolidated coverage ratio on a pro forma basis to give effect to incurrences and repayments of indebtedness as well as acquisitions and dispositions.

The
buildup amount equals 50% of our consolidated net income accrued during the period (treated as one accounting period) from July 1, 2003 to the end of the most recent fiscal
quarter for which internal financial statements are available (or, if such consolidated net income is a deficit, minus 100% of such deficit), plus, the net cash proceeds of the issuance of capital
stock, subject to certain exceptions, and any cash capital contribution received by us from our stockholders in each case after August 15, 2003 plus the amount by which our indebtedness is
reduced on our balance sheet as a result of the conversion or exchange of such indebtedness for our capital stock, plus the net reduction in certain restricted investments made by us, less the amount
of certain restricted payments we make from time to time, including, among other things, the payment of cash dividends. As of March 31, 2009, the buildup amount was negative, primarily as a
result of the $149.7 million non-cash goodwill impairment charge recognized in the three months ended December 31, 2008. We are not currently permitted to pay dividends under
this provision.

In
addition, regardless of whether we could make any restricted payments under the buildup amount provision referred to above, we may (1) make dividend payments at any time in an
aggregate amount of up to $15.0 million if no default has occurred and is continuing under the indenture and (2) following our initial public offering, pay dividends on our capital stock
of up to 6.0% per year of the cash proceeds (net of underwriters' fees, discounts, commissions or other expenses paid by us) received by us from all such public equity offerings subject to specified
conditions. Accordingly, we are able to pay approximately $7.0 million annually in dividends under this 6.0% provision. However, the amount of dividend payments permitted under this 6.0%
provision will correspondingly reduce the amount we would otherwise have available to us under the buildup amount for restricted payments, including dividends.

Credit Facilities.On August 12, 2005, Reddy Ice Group, Inc., our wholly-owned subsidiary, entered into new credit
facilities in an
aggregate principal amount of $300 million with a syndicate of banks, financial institutions and other entities as lenders, including Credit Suisse, Cayman Islands Branch, as Administrative
Agent, CIBC World Markets Corp., Bear Stearns Corporate Lending Inc. and Lehman Commercial Paper, Inc. The credit facilities provided for a seven-year term loan in the
amount of $240.0 million and a five-year revolving credit facility in the amount of $60.0 million. Proceeds of the term loan were used to repay our prior senior credit
facility.

On
January 1, 2007, Reddy Group merged with its wholly-owned subsidiary, Reddy Ice Corporation, with Reddy Corp. being the surviving entity. The credit facilities were amended on
that date to allow the merger and to provide for the assumption of the Credit Facilities by Reddy Corp.

At
March 31, 2009, we had $53.0 million of availability under the revolving credit facility, which was net of an outstanding standby letters of credit of
$7.0 million. The standby letters of credit are used primarily to secure certain insurance obligations. Lehman Commercial Paper, Inc. ("LCP") has a $10 million commitment under
the revolving credit facility, all of which is unfunded. LCP filed for bankruptcy in October 2008 and we understand that LCP has failed to fund on other revolving credit facilities subsequent to
filing for bankruptcy. As a result, we believe LCP will likely not perform under the terms of the facility, which would effectively reduce the amount available to us under the revolving credit
facility by $10 million.

Principal
balances outstanding under the revolving credit facility bear interest per annum, at our option, at the sum of the base rate plus 0.75% or LIBOR plus 1.75%. 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%. At March 31, 2009, the weighted average interest rate
of borrowings outstanding

29

---



Table of Contents

under
the credit facilities was 2.3%, excluding the effect of our interest rate hedge. 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 LIBOR loan exceeds 90 days. Reddy Corp. pays a quarterly fee on the average availability under the revolving credit facility
based on an annual rate of 0.5% except as described below.

In
addition, our credit facilities will allow us to incur up to an additional $80.0 million of incremental term loans under our credit facilities, subject to certain conditions.
No lenders have committed to provide the incremental term loans. In the event that we incur incremental term loans that mature on or before the one year anniversary of the final maturity of the
existing term loans and that bear interest with margins higher than the margin applicable to any term loans outstanding under our credit facilities, the margins applicable to the existing term loans
will be increased to equal the margins applicable to the incremental term loans. In the event that we incur incremental term loans that mature after the one-year anniversary of the final
maturity of the existing term loans and that bear interest with margins more than 0.25% higher than the margins applicable to any term loans outstanding under our credit facilities, the margins
applicable to the existing term loans will be increased to equal the margins applicable to the incremental term loans, less 0.25%.

Our
credit facilities do not require any scheduled principal payments prior to the stated maturity dates. Subject to certain conditions, mandatory repayments of the revolving credit
facility and term loan (and if the term loan is no longer outstanding, mandatory commitment reductions of the revolving credit facility) are required to be made with portions of the proceeds from
(1) asset sales, (2) the issuance of debt securities and (3) insurance and condemnation awards, subject to various exceptions. In the event of a change in control, as defined in
the credit facilities, an event of default will occur under the credit facilities.

Our
credit facilities contain financial covenants, which include the maintenance of certain financial ratios, as defined in the credit facilities, and are collateralized by substantially
all of Reddy Corp.'s assets. At March 31, 2009, Reddy Corp. was in compliance with these covenants. Reddy Holdings guarantees Reddy Corp.'s credit facilities and such guarantee is
collateralized by a pledge of the capital stock of Reddy Corp.

Under
the restricted payments covenant in our credit facilities, we generally are restricted from paying dividends to our stockholders from funds received from Reddy Corp., and Reddy
Corp. is prohibited from paying dividends and otherwise transferring assets to Reddy Holdings. Reddy Corp. is permitted
to pay certain limited dividends to Reddy Holdings, the proceeds of which must be used to maintain Reddy Holdings' corporate existence. During 2008, Reddy Corp. transferred $1.0 million to
Reddy Holdings under this provision.

Reddy
Corp. may also pay dividends to Reddy Holdings for certain other specified purposes, including the payment of cash dividends by Reddy Holdings to its stockholders and the payment
of cash interest on our senior discount notes, in an amount not greater than our Cumulative Distributable Cash for the period (taken as one accounting period) from July 1, 2005 to the end of
our most recently-ended fiscal quarter for which a covenant compliance certificate under our credit facilities has been delivered to the lenders. As of March 31, 2009, the amount of Cumulative
Distributable Cash was $89.2 million. Such dividends may only be paid if Reddy Corp.'s leverage ratio for the most recently ended fiscal quarter is less than or equal to 3.75 to 1.0. In
addition, the credit facilities preclude Reddy Corp. from declaring or paying such dividends if a default or event of default under the credit facilities has occurred and is continuing. In particular,
it will be an event of default if Reddy Corp.'s leverage ratio exceeds 4.0 to 1.0 or Reddy Corp.'s interest coverage ratio is less than 3.25 to 1.0. If at the end of any fiscal quarter, Reddy Corp.'s
leverage ratio is greater than 3.75 to 1.0, and therefore Reddy Corp. is not permitted to pay dividends, Reddy Corp. will be required by our credit facilities to apply 50% of Reddy Corp.'s Available
Cash generated during each such quarter to make a mandatory prepayment of

30

---



Table of Contents

the
loans under our credit facilities. If Reddy Corp. is not able to pay dividends to Reddy Holdings, Reddy Holdings may not be able to pay the interest due under our senior discount notes, which
would cause a default under the indenture governing our senior discount notes. A default under our senior discount notes would also result in a default under our credit facilities.

At
March 31, 2009, Reddy Holdings had $7.4 million of cash on hand that was not subject to restrictions under our credit facilities.

"Cumulative
Distributable Cash" is defined under our credit facilities as:



"Available
Cash" for any fiscal quarter is defined under our credit facilities as:



"Adjusted
EBITDA" is defined under our credit facilities to be the sum of:



31

---



Table of Contents



The
following table presents Adjusted EBITDA for the twelve month period ended March 31, 2009 on a pro forma basis after giving effect to the adjustments permitted under the
description of the definition of Adjusted EBITDA set forth above. Adjusted EBITDA is different from EBITDA that is derived solely from GAAP components. Adjusted EBITDA should not be construed as an
alternative to net income (loss), cash flows from operations or net cash from operating or investing activities as defined by GAAP, and it is not necessarily indicative of cash available to fund our
cash needs as determined in accordance with GAAP. In addition, not all companies use identical calculations, and this presentation may not be comparable to similarly titled measures of other
companies. A reconciliation of net income to EBITDA and Adjusted EBITDA follows the table.

The
following table sets forth pro forma Adjusted EBITDA as calculated under our credit facilities and the financial ratio covenants contained in the credit facilities:

Year Ended March 31, 2009(unaudited,
in thousands)Pro forma adjusted EBITDA


$67,682Total leverage ratio


3.55:1.0Interest coverage ratio


4.75:1.0


32

---





Table of Contents

The following table sets forth a reconciliation of net loss to EBITDA and Adjusted EBITDA:

Twelve Months
Ended
March 31, 2009(In thousands)Net loss

$
(129,087
)Depreciation expense related to cost of sales


20,774Depreciation and amortization expense


6,783Interest expense


31,218Interest income


(612
)Income tax benefit


(30,891
)EBITDA


(101,815
)Other non-cash charges:Stock-based compensation expense


1,176Loss on dispositions of assets


1,869Impairment of goodwill and long-lived assets


149,905Decrease in fair value of derivative


254Gain on property insurance settlement


(1,036
)Reddy Holdings items:Cost of antitrust investigations and related litigation(a)


17,219Transaction costs related to merger agreement(a)


24Adjusted EBITDA

$
67,596Acquisition adjustments(b)


54Elimination of lease expense(c)


32Pro forma adjusted EBITDA

$
67,682






Interest Rate Hedging Agreements.Effective September 12, 2005, the Company entered into an interest rate hedging agreement (the
"2005 Hedge")
to lock the interest rate on a portion of its Term Loan. The 2005 Hedge has a term of three years and ten months and expires on July 12, 2009. The 2005 Hedge had an initial notional balance of
$220 million. The notional balance decreased by

33

---



Table of Contents

$20 million
on October 12 of each of the next three years, beginning on October 12, 2006. As of March 31, 2009, the notional balance was $160 million. The Company
pays a fixed rate of 4.431% on the notional balance outstanding and receives an amount equal to 3-month LIBOR. Any net payable or receivable amount is settled quarterly.

Effective
February 17, 2009, the Company entered into a second interest rate hedging agreement (the "2009 Hedge") to lock the interest rate on a portion of its Term Loan. The 2009
Hedge has a term of 10 months and expires on December 17, 2009. The 2009 Hedge had a notional balance of $50 million from the inception date to July 17, 2009, at which time
the notional balance increases to $210 million for the remaining term. As of March 31, 2009, the notional balance was $50 million. The Company pays a fixed rate of 1.165% on the
notional balance outstanding and receives an amount equal to 1-month LIBOR. Any net payable or receivable amount is settled monthly. The Company uses interest rate hedges to minimize the
risk of increases in floating interest rates. The interest rate hedges are not for trading purposes and are accounted for as cash flow hedges.

Diesel Hedging Agreement.On February 2, 2009, the Company entered into a hedge to fix the price per gallon of a portion of the
Company's
diesel fuel requirements (the "Diesel Hedge"). The Diesel Hedge began February 2, 2009 and expires on December 28, 2009. The notional amount of gallons hedged changes on a monthly basis
to match the Company's anticipated utilization. The Company will pay a fixed rate of $1.55 per gallon (wholesale basis) and receive an amount equal to a wholesale index rate. Any net payable or
receivable amount is settled monthly. The Company uses the Diesel Hedge to minimize the risk of rising fuel prices. The hedge is not for trading purposes and is accounted for as an economic hedge and
is not designated as a hedging instrument under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".

Collateral Requirements and Counterparty Risk.The Diesel Hedge and the 2009 Interest Rate Hedge require the Company to provide
collateral in a
minimum amount of $1.6 million. As of March 31, 2009, $3.0 million was held by the counterparty as collateral. The terms of the Credit Facilities limit the amount of cash
collateral that the Company can provide to a maximum of $5.0 million. In the event the cash collateral requirements exceed this amount, the Company will be forced to unwind all or a portion of
the hedges. As provided for in the Credit Facilities, the 2009 Interest Rate Hedge also shares in the collateral securing the Credit Facilities as the counterparty is also a lender under the Credit
Facilities.

The
Company is exposed to risk of loss in the event of non-performance by the counterparty to the interest rate hedges. The Company does not anticipate
non-performance by the counterparty, however recent dislocations in the credit markets have resulted in greater uncertainty regarding counterparty performance.

Liquidity Outlook.Due to the seasonal nature of our business, we record the majority of our revenues and profits during the
months of May through
September. The majority of the cash generated from those operations is received between July and November. We expect to fully utilize the excess cash generated from our 2008 selling season during the
winter and spring of 2009 to fund our operations, debt service, capital expenditures and acquisitions.

We
currently estimate that our capital expenditures for 2009 will be approximately $17 million to $19 million, which will primarily be used to maintain and expand our
traditional ice operations. In the normal course of our business, we dispose of obsolete, worn-out and unneeded assets and have historically applied those funds against capital
expenditures.

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 April 28, 2009, we had approximately $7 million of cash on hand at Reddy Holdings, approximately $5 million
of cash at Reddy Corp. and

34

---



Table of Contents

approximately
$41.5 million of availability under our revolving credit facility, which reflected outstanding standby letters of credit of $8.5 million and a $10 million reduction
based on the expected non-performance by LCP of its commitment under our revolving credit facility. During the next month, we expect availability under our revolving credit facility will
decrease due to borrowings on our revolving credit facility to fund operations, capital expenditures, debt service and acquisitions and anticipated letter of credit requirements. We expect to repay
all amounts borrowed by June 30, 2009. Borrowings under our revolving credit facility are expected to occur in the spring as our cash flows from operations decline to their lowest point during
March and April due to reduced sales in January and February and the need to finance (i) seasonal increases in accounts receivable and inventories as temperatures and sales volumes begin to
increase in April and May and (ii) the semi-annual interest payment due May 1 on our senior discount notes. Furthermore, we expect the outstanding balance of our standby
letters of credit to increase to approximately $10 million to $11 million by the end of 2009 as a result of the need to provide collateral to secure operating lease financing,
outstanding surety bonds and obligations to certain vendors. We expect availability under our revolving credit facility to be no less than $35 million at all times during 2009.

As
noted previously, we record the majority of our sales and any profits during the months of May through September and the majority of the cash generated from those operations is
received in July
through November, by which time, we expect to have repaid all amounts borrowed under our revolving credit facility in the spring, fund current capital expenditures and debt service and build up cash
balances. We expect to be in compliance with our debt covenants over the next twelve months, however, in the event that we are in jeopardy of a dividend suspension period under Reddy Corp.'s credit
facilities, or the margin of compliance with the leverage ratio financial covenant in Reddy Corp.'s credit facilities narrows, we could use a portion of our excess cash or revolving credit facility
availability to pay down principal on the term loan to maintain compliance.

Our
revolving credit facility expires on August 12, 2010. We are managing our cash position and capital requirements over the next 18 months to allow us to operate without
the revolving credit facility after the expiration date. We currently project having sufficient cash on hand at the end of 2010 to allow us to safely operate throughout 2011, by which time we expect
to refinance our indebtedness.

Interest
expense on our senior discount notes (see "Senior Discount Notes"), becomes payable in cash on a semi-annual basis beginning May 1, 2009. The
annual cash obligation for this interest is $15.8 million. Expenses in connection with the antitrust investigations and related civil litigation may require the use of cash on hand at Reddy
Holdings or Reddy Corp. or borrowings under our revolving credit facility. As of April 28, 2009, our cash at Reddy Holdings, net of accrued expenses related the antitrust investigations and
related civil litigation, was approximately $5 million. Based on the current status of the investigation and related civil litigation and projected expenses, we believe Reddy Holdings' cash
balance will be sufficient to fund these expenses for the next twelve months, however this expectation includes assumptions regarding matters beyond our control or knowledge. If Reddy Holdings were to
require additional cash to fund its expenses related to the antitrust investigations, Reddy Corp. has the ability under the credit facility to transfer $1.0 million to Reddy Holdings in each of
2009 and 2010 and Reddy Holdings is permitted to raise at least $10 million in additional debt. We are also evaluating our insurance coverage with regards to the costs of the investigations and
related civil litigation and are working to maximize any potential reimbursements.

Recently Adopted Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, "Fair Value Measurements". SFAS
No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value estimates. In February 2008,
the FASB issued FASB Staff Position ("FSP") No. FAS 157-2 which delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except

35

---



Table of Contents

for
items that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008. We elected to defer the adoption of
SFAS No. 157 for
our nonfinancial assets and nonfinancial liabilities until January 1, 2009. Adoption of this standard on January 1, 2009 had no impact on our results of operations and financial
position.

In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations". SFAS No. 141(R) establishes principles and requirements for how the acquirer in a business
combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. SFAS No. 141(R)
significantly changes the accounting for business combinations in a number of areas, including the treatment of contingent consideration, preacquisition contingencies, transaction costs and
restructuring costs. In addition, under SFAS No. 141(R), changes in an acquired entity's deferred tax assets and uncertain tax positions after the measurement period will impact income tax
expense. SFAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. This standard requires the immediate expensing of acquisition related costs. This standard
is effective for acquisitions completed after December 31, 2008.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities". SFAS No. 161 will require enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations
and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. SFAS No. 161 is effective for fiscal years and
interim periods beginning after November 15, 2008. We adopted SFAS No. 161 on January 1, 2009 and have included the required disclosures under SFAS No. 161.

In
April 2008, the FASB issued FSP No. FAS 142-3, "Determination of the Useful Life of Intangible Assets". This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, "Goodwill and Other Intangible Assets". FSP No.
FAS 142-3 is effective for fiscal years beginning on or after December 15, 2008 and will apply only to intangible assets acquired after the effective date.

In
June 2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities". This FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings
allocation in computing earnings per share ("EPS") under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128, "Earnings per Share". FSP No.
EITF 03-6-1 is effective for fiscal years beginning on or after December 15, 2008. All prior period EPS data presented after adoption is to be adjusted
retrospectively to conform with the provisions of FSP No. EITF 03-6-1. Adoption of this standard on January 1, 2009 had no impact on our results of operations and
financial position.

New Accounting Pronouncements

In January 2009, the FASB released Proposed Staff Position SFAS No. 107-b and Accounting Principles Board ("APB")
Opinion No. 28-a, "Interim Disclosures about Fair Value of Financial Instruments" ("SFAS 107-b" and "APB 28-a"). This proposal amends FASB
Statement No. 107, "Disclosures about Fair Values of Financial Instruments," to require disclosures about fair value of financial instruments in interim financial statements as well as in
annual financial statements. The proposal also amends APB Opinion No. 28, "Interim Financial Reporting," to require those disclosures in all interim financial statements. This proposal is
effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. We plan to adopt SFAS 107-b
and APB 28-a and provide the additional disclosure requirements in the second quarter 2009.

36

---



Table of Contents

Off-Balance Sheet Arrangements

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

General Economic Trends and Seasonality

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

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

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

Item 3.    Quantitative and Qualitative Disclosures About Market Risks

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

We
are exposed to some market risk due to the floating interest rates under our senior credit facilities. Principal balances outstanding under the term loan and the revolving credit
facility bear interest, at our option, at the London Inter-Bank Offered Rate ("LIBOR") plus 1.75% or the prime rate (as announced from time to time by the administrative agent) plus 0.75%.
Effective September 12, 2005 and February 17, 2009, we entered into interest rate hedging agreements to lock the interest rate on a portion of the term loan outstanding under the senior
credit facility. See "Liquidity and Capital ResourcesInterest Rate Hedging Agreements".

37

---



Table of Contents

As
of March 31, 2009, our credit facilities had an outstanding principal balance of $240.0 million at a weighted average interest rate of 2.3% per annum. At
March 31, 2009, the 1-month LIBOR rate was 0.5%. Including the effect of the interest rate hedges, the weighted average interest rate of balances outstanding under the credit
facilities was 5.0%. If LIBOR were to increase by 1% from that level, the annual increase in interest expense, given our principal balances at March 31, 2009 and the effect of the interest rate
hedges, would be approximately $0.3 million.

We
are exposed to risk of loss in the event of non-performance by the counterparty to our hedging arrangements. We do not anticipate non-performance by the
counterparty, however recent dislocations in the credit markets have resulted in greater uncertainty regarding counterparty performance.

Item 4.    Controls and Procedures

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). The Company, under the supervision and with the participation of its
management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report). Based on that evaluation, the Chief Executive Officer and the
Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2009 to ensure that information relating to us and our consolidated subsidiary
required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussions regarding
required disclosure. It should be noted, however, that the design of any system of controls is limited in its ability to detect errors, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of how remote. There has been no change in our internal control over financial reporting during the quarter ended
March 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

38

---



Table of Contents

PART IIOTHER INFORMATION

Item 1.    Legal Proceedings

Antitrust Matters

In March 2008, we and certain of our employees, including members of our management, received subpoenas issued by a federal grand jury
in the Eastern District of Michigan seeking documents and information in connection with an investigation by the Antitrust Division of the United States Department of Justice ("DOJ") into possible
antitrust violations in the packaged ice industry. In addition, on March 5, 2008, federal officials executed a search warrant at our corporate office in Dallas, Texas. On August 28,
2008, we received a second subpoena for documents from the federal grand jury sitting in the Eastern District of Michigan. The DOJ has also issued subpoenas to Company employees to appear in person
before the federal grand jury in the Eastern District of Michigan. The search warrant and subpoenas that we and our employees received are part of a broader industry inquiry by the Antitrust Division
of the DOJ; at least one other packaged ice manufacturer has also received a grand jury subpoena, and The Home City Ice Company has entered a guilty plea regarding a conspiracy to allocate customers
and territories in southeastern Michigan and the Detroit, Michigan metropolitan area.

On
March 25, 2008, we were served by the Office of the Attorney General of the State of Florida with an antitrust civil investigative demand (the "Florida CID") requesting the
production of documents and information relating to an investigation of agreements in restraint of trade and/or price-fixing with respect to the pricing or market allocation of packaged ice. On
June 11, 2008, we received a civil investigative demand from the Office of the Attorney General of the State of Arizona (the "Arizona
CID"). All of the documents and information requested by the Arizona CID are included in the Florida CID and the Arizona CID states that it will be satisfied by the production of information which has
been and will be provided to Florida in response to the Florida CID. We have been advised that the Florida CID and the Arizona CID were issued as part of a multi-state antitrust investigation of the
packaged ice industry and that the Attorneys General of 19 states and the District of Columbia are participating in the multi-state investigation. The states' investigation is related to the ongoing
investigation of the packaged ice industry by the Antitrust Division of the DOJ. We may in the future receive additional civil investigative demands or similar information requests from other states
participating in the multi-state investigation or conducting their own investigations.

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

We
are cooperating with the authorities in these investigations. We have substantially completed our production of documents to the Antitrust Division of the DOJ and to the states. We
are in the process of producing documents to the Civil Fraud Division of the DOJ. We have also made employees available for interviews by the Antitrust Division of the DOJ. We expect to continue to
make available documents and other information in response to the investigating agencies' subpoenas, requests, and civil investigative demands. At this time, we are unable to predict the outcome of
these investigations, the possible loss or possible range of loss, if any, associated with the resolution of these investigations or any potential effect they may have on us, our employees or our
operations.

39

---



Table of Contents

On
March 6, 2008, the Company's Board of Directors formed a special committee of independent directors to conduct an internal investigation of these matters. The special committee
retained counsel to assist in its investigation. In order to maintain the independence of the special committee's investigation, our officers and employees who were employed by us at the time the
investigation commenced have not had access to information obtained in the special committee's investigation or the results of the investigation to date. The investigation by the special committee and
its counsel is substantially complete. The special committee's investigation will likely remain open until the conclusion of the investigation by the Antitrust Division of the DOJ because of the
possibility that additional information relevant to the special committee's investigation may become available to the special committee. At this time, the special committee has not reached a
determination whether any violations of the antitrust laws have occurred. The special committee does not believe any of the Company's active employees are a focus of the investigation by the Antitrust
Division of the DOJ. The Company and its employees are cooperating in the special committee's investigation.

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

Following
the announcement that the Antitrust Division of the DOJ had instituted an investigation of the packaged ice industry, a number of lawsuits, including putative class action
lawsuits, have been instituted in various federal courts in multiple jurisdictions alleging violations of the federal antitrust laws and related claims and seeking damages and injunctive relief.
Pursuant to an Order from the Judicial Panel on Multidistrict Litigation, the civil actions pending in federal courts have been transferred and consolidated for pretrial proceedings in the United
States District Court for the Eastern District of Michigan. Plaintiffs in most of the actions have agreed to extend the Company's deadline to respond to the subject complaints until 45 days
after the filing of a consolidated amended complaint in the multidistrict proceedings. Motions and responses were filed by various plaintiffs relating to appointment of interim class counsel and
liaison counsel. A hearing on those motions was held on March 16, 2009; the Court has not yet ruled on those motions. No scheduling order has been entered by the Court and no date has been set
for us to respond to the claims asserted by the plaintiffs in the multidistrict proceedings.

In
addition to the putative class action lawsuits filed in federal court, a putative class action lawsuit was filed in Kansas state court alleging violations of state antitrust laws and
related claims and seeking damages and injunctive relief. The defendants filed motions to dismiss and those motions to dismiss were granted on February 26, 2009.

One
direct action lawsuit has been filed against us in the United States District Court for the Eastern District of Michigan asserting claims based on alleged violations of federal and
state antitrust laws, RICO and tortious interference and seeking damages, civil penalties and injunctive relief. The defendants filed motions to dismiss that case. A hearing on those motions was held
on April 2, 2009; the Court has not yet ruled on those motions.

We
intend to vigorously defend the pending lawsuits. At this time, we are unable to predict the outcome of these lawsuits, the possible loss or possible range of loss, if any, associated
with the resolution of these lawsuits or any potential effect they may have on us or our operations.

SEC Inquiry

On or about October 21, 2008, we received notice that the Securities and Exchange Commission has initiated an informal inquiry
into matters that are the subject of the
investigation by the special committee of the Company's Board of Directors. We are cooperating with the informal inquiry.

40

---



Table of Contents

Stockholder Litigation

Beginning on August 8, 2008, purported class action complaints have been filed in the United States District Court for the
Eastern District of Michigan asserting claims under the federal securities laws against us and certain of our current or former senior officers. The complaints, which are substantially similar, allege
that the defendants misrepresented and failed to disclose the existence of, and our alleged participation in, an alleged antitrust conspiracy in the packaged ice industry. The complaints purport to
assert claims on behalf of various alleged classes of purchasers of our common stock. Two motions for consolidation of the three actions and for appointment of lead plaintiff and lead plaintiff's
counsel were filed on October 7, 2008. Thereafter, one of the two proposed lead plaintiffs withdrew his motion. No lead plaintiff or lead plaintiff's counsel has yet been named and no
scheduling order has been entered.

Two
stockholder derivative actions have been filed on our behalf in state district court in Dallas County, Texas, naming as defendants, among others, the members of our board of
directors and certain current and former officers. Those cases have been consolidated in the 68th Judicial District Court of Dallas County, Texas. The petitions assert claims for breach of
fiduciary duty, unjust enrichment, insider selling, abuse of control, and gross mismanagement and seek damages, equitable relief, attorney fees and costs. The parties have reached an agreement that
the consolidated case will be stayed until such time as there is a ruling on any motion to dismiss in the shareholder actions pending in the Eastern District of Michigan.

We
and the other defendants intend to vigorously defend the pending lawsuits. At this time, we are unable to predict the outcome of these lawsuits, the possible loss or possible range of
loss, if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.



We are also involved in various other 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 difficult to determine the ultimate costs that we may incur. The Company believes the resolution of such other ordinary course
uncertainties and the incurrence of such costs will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 1A.    Risk Factors

There have been no material changes to the factors described in our Annual Report on Form 10-K for the year ended
December 31, 2008.

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

None.

Item 5.    Other Information

None.

Item 6.    Exhibits

See Index to Exhibits on page 43.

41

---





Table of Contents

SIGNATURES

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

REDDY ICE HOLDINGS, INC.Date: April 30, 2009

By:

/s/ GILBERT M. CASSAGNE Gilbert M. Cassagne
Chief Executive OfficerDate: April 30, 2009

By:

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


42

---





Table of Contents

INDEX TO EXHIBITS

Exhibit No.

Description10.1

Form of Non-Qualified Stock Option Agreement under the Company's 2005 Long Term Incentive and Share Award Plan (for Mr. Cassagne, Mr. Janusek and Mr. Smith).10.2

Form of Non-Qualified Stock Option Agreement under the Company's 2005 Long Term Incentive and Share Award Plan (for certain other Executive Officers).10.3

Form of Non-Qualified Stock Option Agreement under the Company's 2005 Long Term Incentive and Share Award Plan (for certain other employees).10.4

Form of Restricted Stock Agreement under the Company's 2005 Long Term Incentive and Share Award Plan (for Mr. Cassagne, Mr. Janusek and Mr. Smith).10.5

Form of Restricted Stock Agreement under the Company's 2005 Long Term Incentive and Share Award Plan (for certain other Executive Officers).10.6

Form of Restricted Stock Agreement under the Company's 2005 Long Term Incentive and Share Award Plan (for certain other employees).10.7

Form of Severance Agreement (for Mr. Cassagne, Mr. Janusek and Mr. Smith).10.8

Form of Severance Agreement (for certain other Executive Officers).31.1

Rules 13a-14(a) and 15d-14(a) Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2

Rules 13a-14(a) and 15d-14(a) Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Section 1350 Certification of Chief Executive Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Section 1350 Certification of Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


---

43

---