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

FORM 10-Q

(Mark One)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2008ORo

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 is a large accelerated filer, an accelerated filer, or 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 November 4, 2008 was 22,114,116.



---





REDDY ICE HOLDINGS, INC. AND SUBSIDIARY  QUARTERLY REPORT ON FORM 10-Q  FOR THE PERIOD ENDED SEPTEMBER 30, 2008

TABLE OF CONTENTS

PagePART IFINANCIAL INFORMATIONItem 1.

Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007 (unaudited)


2Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2008 and 2007
(unaudited)


3Condensed Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 2008 (unaudited)


4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007 (unaudited)


5Notes to the Condensed Consolidated Financial Statements


6Item 2.

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


24Item 3.

Quantitative and Qualitative Disclosures about Market Risk


41Item 4.

Controls and Procedures


42PART IIOTHER INFORMATIONItem 1.

Legal Proceedings


43Item 1A.

Risk Factors


46Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


48Item 3.

Defaults Upon Senior Securities


48Item 4.

Submission of Matters to a Vote of Security Holders


48Item 5.

Other Information


48Item 6.

Exhibits


48SIGNATURES


49INDEX TO EXHIBITS


50


1

---





PART IFINANCIAL INFORMATION

Item 1.    Financial Statements

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

September 30,
2008

December 31,
2007(in thousands,
except share amounts)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
33,904

$
17,183Accounts receivable, net


45,316


27,268Inventories, parts and supplies


12,148


10,709Prepaid expenses and other current assets


3,659


3,434Deferred tax assets


2,481


2,382Total current assets


97,508


60,976RESTRICTED CASH AND CASH EQUIVALENTS





17,262PROPERTY AND EQUIPMENT, net


216,678


220,673GOODWILL


79,491


226,591OTHER INTANGIBLES, net


78,284


81,744OTHER ASSETS


391


314TOTAL

$
472,352

$
607,560LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES:Current portion of long-term obligations

$


$
20Revolving credit facility





Accounts payable


19,695


16,371Accrued expenses


19,473


18,294Dividends payable





9,240Total current liabilities


39,168


43,925LONG-TERM OBLIGATIONS


389,249


378,238DEFERRED TAXES AND OTHER LIABILITIES, net


30,536


45,415COMMITMENTS AND CONTINGENCIES (Note 13)





STOCKHOLDERS' EQUITY:Common stock: $0.01 par value; 75,000,000 shares authorized; 22,114,116 and 21,999,995 shares issued and outstanding at September 30, 2008 and
December 31, 2007, respectively


221


220Additional paid-in capital


223,146


220,679Accumulated deficit


(209,188
)

(80,052
)Accumulated other comprehensive loss


(780
)

(865
)Total stockholders' equity


13,399


139,982TOTAL

$
472,352

$
607,560


See
notes to condensed consolidated financial statements.

2

---





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

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007(in thousands, except per share amounts)Revenues

$
125,646

$
125,701

$
271,368

$
274,750Cost of sales (excluding depreciation)


72,659


72,015


172,444


169,696Depreciation expense related to cost of sales


5,223


5,029


15,670


14,798Gross profit


47,764


48,657


83,254


90,256Operating expenses


12,213


11,047


35,104


32,324Depreciation and amortization expense


1,653


1,559


4,950


4,532Loss on dispositions of assets


62


71


302


329Impairment of assets (Note 2)


149,905





149,905


Cost of antitrust investigations and related litigation (Note 13)


6,125





11,927


Transaction costs related to merger agreement (Note 1)





1,982


949


1,982Gain on property insurance settlement








(1,036
)

Income (loss) from operations


(122,194
)

33,998


(118,847
)

51,089Interest expense


(7,879
)

(8,111
)

(23,709
)

(23,692
)Interest income


149


175


613


509Gain on termination of merger agreement (Note 1)








17,000


Income (loss) from continuing operations before income taxes


(129,924
)

26,062


(124,943
)

27,906Income tax benefit (expense)


16,934


(10,468
)

14,300


(11,830
)Income (loss) from continuing operations


(112,990
)

15,594


(110,643
)

16,076Income from discontinued operations, net of tax (Note 4)





980





911Net income (loss)

$
(112,990
)
$
16,574

$
(110,643
)
$
16,987Basic net income (loss) per share:Income (loss) from continuing operations

$
(5.13
)
$
0.72

$
(5.03
)
$
0.74Income from discontinued operations





0.04





0.04Net income (loss)

$
(5.13
)
$
0.76

$
(5.03
)
$
0.78Weighted average common shares outstanding


22,035


21,840


22,012


21,748Diluted net income (loss) per share:Income (loss) from continuing operations

$
(5.13
)
$
0.71

$
(5.03
)
$
0.73Income from discontinued operations





0.04





0.04Net income (loss)

$
(5.13
)
$
0.75

$
(5.03
)
$
0.77Weighted average common shares outstanding


22,035


22,088


22,012


22,031Cash dividends declared per share

$


$
0.42

$
0.84

$
1.24


See
notes to condensed consolidated financial statements.

3

---





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

Common StockAccumulated
Other
Comprehensive
LossNumber
of Shares

Par
Value

Additional
Paid-In
Capital

Accumulated
Deficit

Total(in thousands)Balance at January 1, 2008


22,000

$
220

$
220,679

$
(80,052
)
$
(865
)
$
139,982Compensation expense related to stock-based awards








2,667








2,667Cash dividends declared











(18,493
)




(18,493
)Issuance of restricted stock


50














Vesting of restricted stock units


83


1


(1
)







Repurchase and retirement of common stock


(19
)




(199
)







(199
)Comprehensive loss:Net loss











(110,643
)




(110,643
)Change in fair value of derivative liability














85


85Total comprehensive loss

















(110,558
)Balance at September 30, 2008


22,114

$
221

$
223,146

$
(209,188
)
$
(780
)
$
13,399


See
notes to condensed consolidated financial statements.

4

---





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

Nine Months Ended
September 30,2008

2007(in thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)

$
(110,643
)
$
16,987Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


20,620


20,249Amortization of debt issue costs and debt discounts


12,104


11,032Loss on dispositions of assets


302


311Gain on sale of discontinued operations





(1,400
)Impairment of assets


149,905


Gain on property insurance settlement


(1,036
)

Stock-based compensation expense


2,667


3,046Deferred taxes


(14,276
)

11,809Change in assets and liabilities, net of the effects of acquisitions:Accounts receivable, inventory and prepaid expenses


(20,147
)

(18,505
)Accounts payable, accrued expenses and other


4,125


2,805Net cash provided by operating activities


43,621


46,334CASH FLOWS FROM INVESTING ACTIVITIES:Property and equipment additions


(15,449
)

(22,745
)Proceeds from dispositions of property and equipment


1,653


902Cost of acquisitions, net of cash acquired


(3,934
)

(21,804
)Proceeds from property insurance settlement


1,496


Proceeds from the sale of non-ice businesses





19,823Increase (decrease) in restricted cash and cash equivalents, net


17,262


(19,192
)Collection of note receivable


24


33Net cash provided by (used in) investing activities


1,052


(42,983
)CASH FLOWS FROM FINANCING ACTIVITIES:Cash dividends paid


(27,733
)

(26,922
)Repurchase and retirement of common stock


(199
)

Borrowings (repayments) under the credit facility, net





Repayment of long-term obligations


(20
)

(67
)Net cash used in financing activities


(27,952
)

(26,989
)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


16,721


(23,638
)CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


17,183


39,434CASH AND CASH EQUIVALENTS, END OF PERIOD

$
33,904

$
15,796SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash payments for interest

$
12,033

$
12,606Cash receipts of interest income

$
640

$
633Cash paid for income taxes

$
971

$
152Borrowings under the credit facility

$
55,000

$
67,000Repayments on the credit facility

$
(55,000
)
$
(67,000
)Cash dividends declared, not paid

$


$
9,236Increase (decrease) in fair value of derivative

$
85

$
(2,369
)Additions to property and equipment included in accounts payable

$
189

$
235


See notes to condensed consolidated financial statements.

5

---





REDDY ICE HOLDINGS, INC. AND SUBSIDIARY        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)        FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
2008 AND 2007

1. General

The condensed consolidated financial statements of Reddy Ice Holdings, Inc. included herein are unaudited; however, the balance sheet as of December 31, 2007 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, 2007. Operating results for the nine months ended September 30, 2008 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", manufacture and
distribute packaged ice products. The Company is the largest manufacturer of packaged ice products in the United States and serves approximately 82,000 customer locations in 31 states and the District
of Columbia.

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"). The Merger Agreement provided for the acquisition of the Company's outstanding common stock for a cash purchase
price of $31.25 per share. The Company's stockholders approved the transaction at a special stockholder meeting on October 12, 2007.

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
nine months ended September 30, 2008, the Company incurred $0.9 million of other expenses in connection with the transaction and the related stockholder litigation (see Note 13).
No expenses were incurred during the three months ended September 30, 2008.

2. Impairment of Assets

Under Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", the Company is required on at least an annual basis to perform a
goodwill impairment assessment, which requires, among other things, a reconciliation of current equity market capitalization to stockholders' equity. As a result of the decline in the Company's stock
price during the three months ended September 30, 2008, the Company's total stockholders' equity exceeded its equity market capitalization (including the application of a reasonable control
premium) as of September 30,

6

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

2. Impairment of Assets (Continued)

2008
and, as a result, the Company performed a goodwill impairment assessment as of September 30, 2008. The Company's impairment assessment only considered the Company's stock price and did not
include management's long-range forecasts or any other valuation measures. Based on the evaluation of the Company's stock price and trading activity subsequent to September 30, 2008
and the estimated amount by which the current fair value of the Company's fixed assets and intangible assets exceeds their book value, the Company concluded that its goodwill was impaired. As a
result, the Company recorded a $149.7 million non-cash charge (pretax) during the three months ended September 30, 2008 to reduce goodwill to its estimated fair value as of
September 30, 2008.

During
the three months ended September 30, 2008, the Company reviewed a parcel of real estate in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of
Long-Lived Assets". As a result of this review, an impairment charge of $0.2 million was recorded during the three months ended September 30, 2008.

3. 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. Adoption of this standard on January 1, 2008 had no impact on
the Company's results of operations and financial position.

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.

The
following tables present the assets and liabilities as of September 30, 2008 that are measured at fair value on a recurring basis and are categorized using the fair value
hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair 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)AssetsnoneLiabilitiesinterest rate hedge

$
1.4




$
1.4





The
interest rate hedge was valued using the income approach to calculate the present value of the future cash flows expected to be paid under the interest rate hedge.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, including an Amendment of FASB Statement No. 115".
SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective
is to improve financial reporting by

7

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

3. New Accounting Pronouncements (Continued)

providing
entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Adoption of this standard on January 1, 2008 had no impact on the Company's results of
operations and financial position as it elected not to remeasure any of its financial assets or liabilities at fair value.

On
June 14, 2007, the FASB reached consensus on EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards". EITF
No. 06-11 requires that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified
nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in
additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on
share-based payment awards. EITF No. 06-11 is effective for fiscal years beginning on or after December 15, 2007. Adoption of this standard on January 1, 2008 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. The Company is currently evaluating the impact that this standard may have on its results
of operations and financial position.

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. Adoption of this standard on January 1, 2009 is not expected to have any impact on the Company's results of operations and financial
position.

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 applied only to intangible assets acquired after the effective date. The Company is
currently evaluating the impact that this standard may have on its results of operations and financial position.

8

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

3. New Accounting Pronouncements (Continued)

In
June 2008, the FASB issued FSP No. EITF 06-3-1, "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 06-3-1 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 06-3-1. Adoption of this standard is not expected to have any impact on the Company's results of
operations or financial position.

4. Discontinued Operations

The Company sold its bottled water business and substantially all of its cold storage business on August 31, 2007 and September 7, 2007, respectively, for total gross cash
proceeds of $20.3 million. These businesses comprised substantially all of the Company's non-ice business segment. The results of these businesses are presented as "Discontinued
Operations" in the consolidated statements of operations. Further information related to these discontinued operations is as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007(in thousands)Revenues of discontinued operations

$


$
2,242

$


$
6,206Income from operations of discontinued businesses

$


$
252

$


$
142Gain on sale of discontinued operations





1,400





1,400Income from discontinued operations before tax





1,652





1,542Income tax expense





(672
)




(631
)Income from discontinued operations, net of tax

$


$
980

$


$
911


The
Company's Senior Credit Facilities required that the net proceeds from the sale of the discontinued operations be used either to repay the outstanding term loan or to make
acquisitions and/or capital expenditures within twelve months of the receipt of such proceeds (see Note 8). Accordingly, the remaining, unutilized net proceeds from the sales were reported as
"Restricted Cash and Cash Equivalents" in the consolidated balance sheet. Prior to the twelve month anniversary of the receipt of such proceeds, all such proceeds were utilized to make acquisitions
and/or capital expenditures.

5. Acquisitions

During the nine months ended September 30, 2008, the Company purchased seven ice companies. Including direct acquisition costs, the total acquisition consideration was
$4.0 million. The total purchase price was allocated to the acquired assets and assumed liabilities based upon estimates of their respective fair values as of the respective closing dates using
valuations and other studies. The

9

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

5. Acquisitions (Continued)

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

Total assets acquired

$
1.2Total liabilities assumed


(0.5
)Net assets acquired

$
0.7


The
excess of $3.3 million of the aggregate purchase price over the net assets acquired was allocated to goodwill ($1.9 million) and other intangible assets
($1.4 million). Other intangible assets are comprised of customer lists, which are being amortized on a straight line basis over useful lives of 10 to 30 years.

During
2007, the Company purchased twenty ice companies for total acquisition consideration of $26.8 million. The results of operations of the 2007 and 2008 acquisitions are
included in the Company's
consolidated results of operations from the date of each acquisition, which ranged from January 2, 2007 to December 28, 2007 and 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 and nine months ended September 30, 2008 as if the
2008 acquisitions had all occurred on January 1, 2008 and (ii) for the three and nine months ended September 30, 2007 as if the 2008 and 2007 acquisitions had all occurred on
January 1, 2007:

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007(in thousands, except per share amounts)Pro forma revenues

$
125,734

$
128,130

$
271,858

$
282,234Pro forma net income (loss)


(112,976
)

16,925


(110,637
)

17,562Pro forma basic net income (loss) per share

$
(5.13
)
$
0.77

$
(5.03
)
$
0.81Pro forma diluted net income (loss) per share

$
(5.13
)
$
0.77

$
(5.03
)
$
0.80


6. Inventories, Parts and Supplies

Inventories consist of raw materials and finished goods. 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, parts and

10

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

6. Inventories, Parts and Supplies (Continued)

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

September 30,
2008

December 31,
2007(in thousands)Raw materials

$
6,785

$
5,308Finished goods


2,141


2,484Parts and supplies


3,222


2,917Total

$
12,148

$
10,709


7. Accrued Expenses

September 30,
2008

December 31,
2007(in thousands)Accrued compensation and employee benefits, including payroll taxes and workers' compensation insurance

$
4,588

$
5,405Accrued interest


3,040


3,779Accrued utilities


2,451


1,681Accrued property, sales and other taxes and unrecognized tax benefits


5,737


3,131Other accrued insurance


1,862


1,717Other


1,795


2,581Total

$
19,473

$
18,294


8. Revolving Credit Facility and Long-Term Obligations

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 accrues beginning 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:



11

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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



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.

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 $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
September 30, 2008, the Company had $53.5 million of availability under the Revolving Credit Facility, which was net of outstanding standby letters of credit of
$6.5 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 September 30, 2008, the weighted average interest
rate of borrowings outstanding under the Credit Facility was 4.5%. 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%.

12

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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

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 (see Note 4), (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 September 30, 2008, Reddy Corp. was in compliance with these covenants. Reddy Holdings guarantees the Credit Facilities and such guarantee is secured 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 on the Discount Notes, in an amount not greater than Reddy Corp's Cumulative Distributable Cash (as 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. 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.

Interest Rate Hedging Agreement.Effective September 12, 2005, the Company entered into an interest rate hedging agreement (the "Hedge") to fix the interest
rate on a portion of its Term Loan. The Hedge has a term of three years and ten months and an initial notional balance of $220 million. The notional balance decreases by $20 million on
October 12 of each of the next three years, beginning on October 12, 2006. As of September 30, 2008, the notional balance was $180 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. If the Company had been required to
settle the Hedge as of September 30, 2008, it would have paid $1.4 million. In accordance with hedge accounting rules, the fair value of the Hedge is included in the caption "Deferred
Taxes and Other Liabilities, net" in the consolidated balance sheet. Changes in the fair value of the Hedge are recorded as "Other Comprehensive Loss" in the consolidated statement of stockholders'
equity. The Company is exposed to risk of loss in the event of non-performance by the counterparty to the Hedge. 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.

13

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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

At September 30, 2008 and December 31, 2007, long-term obligations consisted of the following:

September 30,
2008

December 31,
2007(in thousands)Credit facilityTerm Loan

$
240,000

$
240,000101/2% Senior Discount Notes


150,500


150,500Less: Unamortized debt discount on 101/2% Senior Discount Notes


(1,251
)

(12,262
)Other





20Total long-term obligations


389,249


378,258Less: Current maturities





20Long-term obligations, net

$
389,249

$
378,238


9. Capital Stock

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

Since
August 1, 2005, the board of directors of Reddy Holdings has declared the following dividends on the Company's common stock:

Declaration Date

Record Date

Dividend
Payable Date

Dividend
Per share

Total
DividendAugust 11, 2005

September 30, 2005

October 17, 2005

$0.20788

$4.5 millionDecember 15, 2005

December 30, 2005

January 17, 2006

$0.38250

$8.3 millionMarch 15, 2006

March 31, 2006

April 17, 2006

$0.38250

$8.3 millionJune 15, 2006

June 30, 2006

July 17, 2006

$0.40000

$8.7 millionSeptember 15, 2006

September 29, 2006

October 16, 2006

$0.40000

$8.8 millionDecember 15, 2006

December 29, 2006

January 16, 2007

$0.40000

$8.8 millionMarch 15, 2007

March 30, 2007

April 16, 2007

$0.40000

$8.8 millionJune 15, 2007

June 29, 2007

July 16, 2007

$0.42000

$9.3 millionSeptember 15, 2007

September 28, 2007

October 15, 2007

$0.42000

$9.2 millionDecember 15, 2007

December 31, 2007

January 15, 2008

$0.42000

$9.2 millionMarch 15, 2008

March 31, 2008

April 15, 2008

$0.42000

$9.2 millionJune 15, 2008

June 30, 2008

July 15, 2008

$0.42000

$9.3 million


No
dividends have been declared subsequent to June 15, 2008. On September 15, 2008, the Company announced that it had suspended the payment of quarterly cash dividends
indefinitely.

14

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

9. Capital Stock (Continued)

Preferred Stock.Reddy Holdings is authorized to issue up to 25,000,000 shares of $0.01 par value preferred stock, all of which is currently undesignated and
unissued.

10. Employee Benefit Plans

2005 Equity Incentive Plan.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 "2005 Equity Incentive Plan"). Under the 2005 Equity Incentive Plan, up to 750,000 shares of
common stock may be issued to employees, directors and certain third parties in connection with various incentive awards, including stock options, restricted shares and restricted share units. On
October 18, 2005, Reddy Holdings filed a Registration Statement on Form S-8 with the SEC to cover the reoffer and resale of up to 750,000 shares of Reddy Holdings' common
stock that Reddy Holdings may issue in the future to participants in the 2005 Equity Incentive Plan. On May 17, 2007, the Company's stockholders approved amendments to the 2005 Equity Incentive
Plan that, among other things, increased the maximum number of shares of common stock available for issuance to 1,250,000. On May 6, 2008, Reddy Holdings filed a Registration Statement on
Form S-8 with the SEC to cover the reoffer and resale of the additional 500,000 shares of Reddy Holdings' common stock that Reddy Holdings may issue in the future to participants in
the 2005 Equity Incentive Plan as a result of the amendments approved on May 17, 2007.

On
November 3, 2005, 9,300 unrestricted common shares were granted to certain employees under the 2005 Equity Incentive Plan. During 2007, 2006 and 2005, the Company granted
14,625, 30,025 and 692,000 restricted share units ("RSUs"), respectively, to certain employees and independent directors. During the nine months ended September 30, 2008, certain employees and
independent directors were granted 131,450 RSUs and 50,000 shares of restricted stock. Each RSU provides for the grant of one share of unrestricted common stock on the date that the vesting terms of
each RSU is satisfied. 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.

Generally,
with respect to RSUs granted in 2005, fifty percent of each award of RSUs (the "Time-vested RSUs") will vest in four equal annual installments beginning on
August 12, 2006 and continuing on August 12 of each of the following three years, 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 four equal annual installments beginning on August 12, 2006 and continuing on August 12 of each of the
following three years, 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 awards
made from 2006 to 2008, fifty percent of each award is Time-vested RSUs and fifty percent is Performance-vested RSUs. None of the awards are subject to vesting later than August 12,
2009, with the exception of 90,000 of the RSUs granted in 2008, which are subject to vesting not later than August 12, 2011. Each component vests on the same date and manner as described above,
except the proportion eligible to vest in each year has been adjusted based on the actual grant date. The performance condition for each vesting period is based on the Company's earned distributable
cash per share (as defined in the related restricted share unit agreement) for such vesting period, with the exception of 90,000 of the RSUs granted in 2008. The performance targets for these 90,000
RSUs have not yet been set by the Company's Compensation Committee. Each vesting

15

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

10. Employee Benefit Plans (Continued)

period
will begin on July 1 and end on June 30 of the subsequent year. All RSUs will immediately vest in full, and shares will be distributed, at the time of a Change in Control (as
defined in the 2005 Equity Incentive 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.

Based
on the Company's financial results for the vesting period ended June 30, 2006, the performance condition for the Performance-vested RSUs eligible for vesting on
August 12, 2006 was met. As a result of the performance targets for the remaining three vesting periods being met as of June 30, 2006, the holders of unvested Performance-based RSUs were
entitled to dividend equivalent payments for the period from July 1, 2006 to June 30, 2007. During the nine months ended September 30, 2007, dividend equivalent payments declared
totaled $0.2 million. No dividend equivalent payments were declared during the three months ended September 30, 2007.

Based
on the Company's financial results for the vesting period ended June 30, 2007, the performance condition for the Performance-vested RSUs eligible for vesting on
August 12, 2007 was met. A total of 54,975 Time-vested RSUs and Performance-vested RSUs vested on August 12, 2007. The performance targets for the remaining two vesting
periods were not met as of June 30, 2007. Therefore, the holders of unvested Performance-based RSUs were not entitled to any dividend equivalent payments related to dividends declared during
the period from July 1, 2007 to June 30, 2008.

On
July 23, 2007, the Compensation Committee of the Company's Board of Directors approved an amendment to the vesting provisions of certain RSUs held by those employees and
directors of the Company who were considered "Designated Insiders" for purposes of the Company's insider trading policy. The amendment provided that, subject to the consent of the applicable employee
or director, such individual's RSUs which had been scheduled to vest on August 12, 2007 would not vest until the earliest of (i) the closing of the Merger, (ii) the second
business day following public announcement of the termination of the Merger Agreement and (iii) December 31, 2007. In addition, the Compensation Committee approved the grant of dividend
equivalents with respect to any RSUs for which the applicable individual elected to defer vesting. All of the Designated Insiders, except for two independent directors, provided consents to the
amendment. The vesting date was subsequently amended by the Compensation Committee to occur on December 17, 2007. On that date, a total of 104,625 Time-vested and Performance-vested
RSUs were vested. Dividend equivalent payments totaling $0.1 million were declared during the three and nine month ended September 30, 2007 related to these RSUs.

On
September 7, 2007, the vesting of 1,000 RSUs held by employees of the Company's cold storage business was accelerated in connection with the sale of that business (see
Note 4). Additional compensation expense of $0.02 million was recognized in the three months ended September 30, 2007.

Based
on the Company's financial results for the vesting period ended June 30, 2008, the performance condition for the Performance-vested RSUs eligible for vesting on
August 12, 2008 was not met. A total of 82,860 Time-vested RSUs vested on August 12, 2008. In accordance with the terms

16

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

10. Employee Benefit Plans (Continued)

of
the grants, the unvested Performance-vested RSUs will carryforward and be eligible for vesting on August 12, 2009. Holders of unvested Performance-based RSUs will not be entitled to any
dividend equivalent payments related to dividends declared during the period from July 1, 2008 to June 30, 2009.

Total
compensation expense associated with the 2005 Equity Incentive Plan was $0.9 million and $0.8 million during the three months ended September 30, 2008 and
2007, respectively, and $2.7 million and $2.5 million during the nine months ended September 30, 2008 and 2007, respectively. Such compensation expense was recorded in "Operating
Expenses" in the consolidated statements of operations. As of September 30, 2008, approximately 343,000 shares were reserved for issuance and approximately 402,000 shares were available for
grant under the 2005 Equity Incentive Plan.

2003 Stock Option Plan.During 2003, the board of directors approved the Reddy Ice Holdings, Inc. 2003 Stock Option Plan (the "2003 Stock Option Plan") that
reserved for issuance 1,555,150 shares of common stock, subject to adjustment under certain circumstances. This plan provided for the granting of incentive awards in the form of stock options to
directors, officers and employees of the Company or its subsidiary and affiliates at the discretion of the Compensation Committee of the Board of Directors. On August 12, 2005, all outstanding
options under the 2003 Stock Option Plan were exercised in exchange for restricted shares. The final vesting of such restricted shares occurred on July 1, 2007. On July 23, 2007, the
Board of Directors terminated the 2003 Stock Option Plan. Compensation expense associated with the 2003 Stock Option Plan was $0.0 million and $0.5 million during the three and nine
months ended September 30, 2007, respectively. Such compensation expense was recorded in "Operating Expenses" in the consolidated statements of operations.

11. Earnings (Loss) Per Share

The computation of net income (loss) per share is based on net income (loss) divided by the weighted average number of shares outstanding. For the three and nine months ended
September 30, 2008, there were 0.4 million shares of dilutive securities which were not included in the computation of

17

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

11. Earnings (Loss) Per Share (Continued)

diluted
net loss per share as their effect would be anti-dilutive. All shares outstanding for the three and nine months ended September 30, 2007 were included in the computation of
diluted earnings per share.

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007(in thousands, except per share amounts)Earnings for basic and diluted computation:Income (loss) from continuing operations

$
(112,990
)
$
15,594

$
(110,643
)
$
16,076Income from discontinued operations





980





911Net income (loss)

$
(112,990
)
$
16,574

$
(110,643
)
$
16,987Basic earnings per share:Weighted average common shares outstanding


22,035


21,840


22,012


21,748Income (loss) from continuing operations

$
(5.13
)
$
0.72

$
(5.03
)
$
0.74Income from discontinued operations





0.04





0.04Net income (loss)

$
(5.13
)
$
0.76

$
(5.03
)
$
0.78Diluted earnings per share:Weighted average common shares outstanding


22,035


21,840


22,012


21,748Shares issuable from assumed conversion of restricted stock and restricted stock units





248





283Weighted average common shares outstanding, as adjusted


22,035


22,088


22,012


22,031Income (loss) from continuing operations

$
(5.13
)
$
0.71

$
(5.03
)
$
0.73Income from discontinued operations





0.04





0.04Net income (loss)

$
(5.13
)
$
0.75

$
(5.03
)
$
0.77


12. Income Taxes

The Company's effective tax rate differs from the federal statutory income tax rate of 35% due to state income taxes, the adjustment of deferred taxes related to a prior acquisition and
the effect of permanent differences, primarily the non-deductible portion of the interest expense recognized on the Discount Notes and the non-deductible portion of the
goodwill impairment charge recorded during the three months ended September 30, 2008 (see Note 2).

In
connection with the vesting of restricted stock units and the grant of restricted stock during the nine months ended September 30, 2008, the Company realized an excess tax
deficit of $0.8 million. During the nine months ended September 30, 2007, the Company realized an excess tax benefit of $6.5 million related to the vesting of restricted stock and
restricted stock units. Because the Company is not currently making cash payments for income taxes due to its net operating loss ("NOL") carryforwards, such excess benefit has not been
recognized in the Company's financial statements and is

18

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

12. Income Taxes (Continued)

being
reported as a "suspended NOL carryforward" in the footnotes to the consolidated financial statements in accordance with SFAS No. 123(R).

On
January 1, 2007, the Company adopted FASB Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxesan Interpretation of FASB
Statement No. 109." FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under
FIN 48, the tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities. The
determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant
information.

Upon
adoption, the Company recorded increases to other current liabilities, noncurrent liabilities, and its retained deficit balance at December 31, 2006 of $2.6 million,
$1.1 million and $1.8 million, respectively, a $1.1 million increase in federal deferred tax benefits related to unrecognized tax positions, and a $0.8 million
reclassification of amounts previously reserved at December 31, 2006. The amount of gross unrecognized tax benefits at January 1, 2007 was $3.7 million.

Interest
and penalties related to income tax liabilities are included in income tax expense. The balance of accrued interest and penalties recorded on the balance sheet as part of the
Company's FIN 48 liability at September 30, 2008 and 2007 was approximately $1.4 million and $1.3 million, respectively. The total amount of interest and penalties, net of
federal benefit, recognized in the statement of operations for the three months ended September 30, 2008 and 2007 was $0.02 million and ($0.02) million, respectively, and
$0.07 million and $0.04 million in the nine months ended September 30, 2008 and 2007, respectively.

As
a result of NOL carryforwards, the Company's federal statute of limitations remains open for all years since 1990, with no years currently under examination by the Internal Revenue
Service, and U.S. state jurisdictions are generally open to examination for the tax year 1997 and beyond. 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
$3.5 million total unrecognized tax benefit 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.

13. 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 Supply Agreement expires on March 1, 2013.



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

19

---



REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

13. Commitments and Contingencies (Continued)

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 search
warrant and subpoenas that the Company and its employees received are part of a broader industry inquiry by the DOJ; at least one other packaged ice manufacturer has also received such a 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 Company believes 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.

The
Company is cooperating with the authorities in these investigations and expects to continue to make available documents and other information in response to the subpoena and the
civil investigative demands. At this time the Company is unable to predict the outcome 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
has retained
counsel to assist in its investigation. The investigation is ongoing and the outcome of the investigation is unknown. The Company and its employees are cooperating in the special committee's
investigation.

Following
the announcement that the DOJ's Antitrust Division 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. On
June 5, 2008, the Judicial Panel on Multidistrict Litigation issued an Order that the majority of the civil actions then pending in federal courts be transferred and consolidated for pretrial
proceedings in the United States District Court for the Eastern District of Michigan. Since that time, additional cases have been ordered transferred to that court and the Company anticipates that the
remaining putative class actions pending in federal courts will also be transferred to that court for consolidated pretrial proceedings. Plaintiffs in several 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. The

20

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REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

13. Commitments and Contingencies (Continued)

Company
and the other defendants are attempting to obtain similar extensions from plaintiffs in the remaining actions. Motions and responses have been filed by various plaintiffs requesting a status
conference or, in the alternative, a briefing schedule relating to appointment of interim class counsel and liaison counsel. Those motions are pending. No scheduling order has been 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, at least one putative class action lawsuit has been filed in state court alleging violations of state antitrust
laws and related claims and seeking damages and injunctive relief. On August 27, 2008, a hearing was held on the motion to stay filed by the defendants in the case pending in Kansas state
court. On October 1, 2008, that motion was denied and the Court ordered the defendants to respond to the plaintiff's petition on November 1, 2008. Defendants have also been served with
written discovery requests by the plaintiff. At least one direct action lawsuit has been filed in federal court alleging, among other things, violations of the federal antitrust laws and related
claims and seeking damages.

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



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 ongoing investigation by the special committee of the Company's Board of Directors. The Company intends to cooperate with the informal inquiry.



Beginning on August 8, 2008, three 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 different 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. The Company intends to
vigorously defend these lawsuits.

A
stockholder derivative action was filed on the Company's behalf on October 16, 2008 in the 68th Judicial District Court of Dallas County, Texas, Cause
No. 08-13141 naming as defendants, among others, the members of the Company's board of directors and certain current and former officers. The complaint asserts claims for breach of
fiduciary duty, unjust enrichment, abuse of control, and gross mismanagement and seeks damages, equitable relief, attorney fees and costs. Defendants' response to

21

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REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

13. Commitments and Contingencies (Continued)

the
Petition is due on December 8, 2008. The Company and the other defendants intend to defend themselves vigorously in this lawsuit.



On July 3, 2007, a stockholder derivative complaint was filed on the Company's behalf in the 199th Judicial District
Court of Collin County, Texas, Cause No. 199-02240-07, naming as defendants, among others, the members of the Company's board of directors and GSO. The Company was also
named as a nominal defendant. On August 9, 2007, the complaint was amended by the plaintiff, purporting to state a class action claim on behalf of the Company's stockholders. The amended
complaint alleged, among other things, that the Company's directors breached their fiduciary duties in connection with the proposed merger transaction between the Company and affiliates of GSO by
approving a transaction that would purportedly provide certain of the Company's stockholders and directors with preferential treatment at the expense of its other stockholders and would not maximize
stockholder value. A second amended complaint was filed on September 10, 2007 containing similar allegations and also setting forth various alleged omissions from the disclosures provided by
the Company in its preliminary proxy statement relating to the special meeting of its stockholders to adopt the merger agreement. All defendants have served answers to the second amended complaint.

On
September 27, 2007, the plaintiff filed a motion seeking a temporary restraining order to enjoin the special meeting of the Company's stockholders to adopt the merger
agreement. The Company and the other defendants opposed the motion and vigorously disputed the plaintiff's assertions. A hearing on the motion was scheduled for October 3, 2007. On that date,
the Company and the other parties reached an agreement in principle to settle the action in return for the Company providing certain supplemental disclosures in advance of the special meeting of the
Company's stockholders. The defendants also agreed that, if the settlement was approved by the Court and consummated in accordance with its terms, the Company would pay plaintiff's attorneys' fees and
expenses in an amount awarded by the Court but not to exceed $325,000 in the aggregate. The defendants denied, and continue to deny, all allegations of wrongdoing and agreed to the settlement solely
to avoid the burden and expense of further litigation and to eliminate any possibility of a delay to the special meeting as a result of the litigation. The proposed settlement was expressly subject to
consummation of the merger transaction, among other conditions.

On
January 31, 2008, the Company announced that the merger agreement had been terminated. As a result, the proposed settlement will not be consummated. On March 28, 2008,
the defendants filed a motion seeking dismissal of the action on the ground that all of plaintiff's claims were rendered moot by the termination of the merger agreement. Plaintiff did not respond to
that motion. Instead, on May 19, 2008, plaintiff filed a second amended petition in which it dropped all of its claims in the first action other than a claim for attorneys' fees related to the
proposed settlement. The defendants have previously answered plaintiff's petition and asserted general denials.

Separately,
on July 3, 2008, plaintiff's attorneys filed a fee application seeking a fee of $495,000 for the "benefit" allegedly conferred on the Company's stockholders by the
prosecution of the action and the supplemental disclosures that were disseminated pursuant to the proposed settlement. The Company
and the other defendants intend to defend themselves vigorously against plaintiff's claims and fee application if the action continues.

22

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REDDY ICE HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

13. Commitments and Contingencies (Continued)

On
February 13, 2008, the alleged stockholder that is plaintiff in the litigation described above, filed a second action styled as a putative stockholder derivative action on the
Company's behalf, also in the 199th Judicial District Court of Collin County, Texas. The complaint names the members of the Company's board of directors as defendants. In the complaint, the
plaintiff claims that the directors breached their fiduciary duties and committed waste by "causing the Company" to enter into the Settlement Agreement dated January 31, 2008 with certain
affiliates of GSO relating to the termination of the merger agreement. As a result of the termination of the merger agreement, the Company was paid $21 million by the GSO affiliates. Under the
Settlement Agreement, the Company reimbursed the GSO affiliates $4 million for certain expenses incurred in connection with the proposed merger transaction. The complaint seeks injunctive
relief against the $4 million payment to the GSO affiliates, an order directing the defendants to reimburse the Company to the extent any such payment has been made, and plaintiff's costs and
attorneys' fees in bringing the action.

On
March 28, 2008, the defendants filed a motion to dismiss the petition and the Company and the defendants also served and filed answers to the petition. The directors' motion
argues that plaintiff failed to make a pre-suit demand on the board of directors before instituting the action and failed to allege facts showing that such a demand would have been futile.
The motion also argues that plaintiff has failed to state a claim against the directors under the business judgment rule and that plaintiff's claims for money damages are barred by the exculpatory
provision of Reddy Ice's certificate of incorporation. The plaintiff has not yet responded to the motion and the court has not yet established a date for a hearing on the defendants' motion. The
defendants intend to defend themselves vigorously against plaintiff's claims.



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.

23

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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, 2007, 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. We are the
largest manufacturer of packaged ice products in the United States and serves approximately 82,000 customer locations in 31 states and the District of Columbia.

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"). The Merger Agreement provided for the acquisition of our outstanding common stock for a cash purchase price of $31.25 per share. Our
stockholders approved the transaction at a special stockholder meeting on October 12, 2007.

On
January 31, 2008, we 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. We agreed to pay up to $4 million of fees and expenses 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.

At
September 30, 2008, we owned or operated 60 ice manufacturing facilities, 66 distribution centers, approximately 79,000 merchandisers (cold storage units installed at customer
locations) and approximately 3,000 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:



24

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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.

Recent Developments

Effective September 15, 2008, Paul D. Smith has been appointed as our Executive Vice President and Chief Operating Officer.
Mr. Smith has extensive experience in operations and distribution in both the consumer products and beverage industries with companies such as Procter & Gamble, Pepsico, Inc. and
Cadbury Schweppes PLC. He most recently held the position of Senior Vice President, Sales Operations and Supply Chain of Cadbury Schweppes PLC, from April 2005 until November 2007.
Mr. Smith previously held other positions within Cadbury including Regional Director, Supply Chain for Europe and the Middle East from April 2003 until April 2005.

Effective
September 13, 2008, Ben D. Key, our Executive Vice PresidentSales & Marketing, has been placed on a paid leave of absence and relieved of his duties
at the direction of the special committee of our Board of Directors. The committee found that Mr. Key had likely violated company policies and is associated with matters that are under
investigation. For more information on the committee and its investigation see Item 1 of Part II, "Legal Proceedings."

General

Overview.We are the largest manufacturer and distributor of packaged ice in the United States and currently serve approximately 82,000 customer locations in 31
states and the District of Columbia. Our business consists of:



25

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We
sold our bottled water business and substantially all of our cold storage business on August 31, 2007 and September 7, 2007, respectively, for total gross cash proceeds
of $20.3 million. These businesses comprised substantially all of our non-ice operations.

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 68%, 70% and 70% of our annual revenues occurred during the second and third calendar quarters in each of 2007, 2006 and 2005. 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 also represents fees earned under management agreements for Ice Factories located outside our primary territories that are recognized
as earned under contract terms.

Cost of Sales (Excluding Depreciation).Our cost of sales (excluding depreciation) consists of costs related to the 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 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 7% and 6% of revenues in the nine months ended
September 30, 2008 and 2007, 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 September 30, 2008, we owned or operated 60 ice manufacturing facilities, 66 distribution centers, approximately 79,000 merchandisers (cold
storage units installed at customer locations) and approximately 3,000 Ice Factories. As of the same date, we had an aggregate daily ice manufacturing capacity of approximately 18,000 tons.

26

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Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

Three Months Ended September 30,

Change from
Last Year2008

2007

Dollars

%(in thousands)Revenues

$
125,646

$
125,701

$
(55
)

(0.0
)Cost of sales (excluding depreciation)


72,659


72,015


644


0.9Depreciation expense related to cost of sales


5,223


5,029


194


3.9Gross profit


47,764


48,657


(893
)

(1.8
)Operating expenses


12,213


11,047


1,166


10.6Depreciation and amortization expense


1,653


1,559


94


6.0Loss on dispositions of assets


62


71


(9
)

(12.7
)Impairment of assets


149,905





149,905


Cost of antitrust investigations and related litigation


6,125





6,125


Transaction costs related to merger agreement





1,982


(1,982
)

(100.0
)Income (loss) from operations


(122,194
)

33,998


(156,192
)

(459.4
)Interest expense, net


(7,730
)

(7,936
)

206


2.6Income (loss) from continuing operations before income taxes


(129,924
)

26,062


(155,986
)

(598.5
)Income tax benefit (expense)


16,934


(10,468
)

27,402


261.8Income (loss) from continuing operations

$
(112,990
)
$
15,594

$
(128,584
)

(824.6
)


Revenues:Revenues decreased $0.06 million from the three months ended September 30, 2007 to the three months ended September 30, 2008. This
decrease is primarily due to reduced volume sales related to the effect of various economic trends on our customers and the end users of our products and slightly less favorable weather conditions,
partially offset by higher average sales prices of approximately 2.5% and additional volume sales related to acquisitions completed since July 1, 2007 and hurricane activity in the months of
July and September 2008.

Cost of Sales (Excluding Depreciation):Cost of sales (excluding depreciation) increased $0.6 million from the three months ended September 30, 2007
to the three months ended September 30, 2008. This increase in cost of sales is primarily due to significant increases in the price of fuel and moderate increases in the prices of plastic bags
and electricity related to higher market prices for energy. Partially offsetting these increases was the effects of reduced volume sales on labor and other costs.

Labor
costs, including associated payroll taxes and benefit costs (including health insurance), accounted for approximately 20% and 21% of revenues in the three months ended
September 30, 2008 and 2007, respectively. Cost of plastic bags represented approximately 7% and 6% of revenues in the three months ended September 30, 2008 and 2007, respectively. Fuel
expenses represented approximately 6% and 4% of revenues in the three months ended September 30, 2008 and 2007, respectively. Expenses for independent third party distribution services
represented approximately 5% and 6% of revenues in the three months ended September 30, 2008 and 2007 respectively. Electricity expense represented approximately 6% and 5% of revenues in the
three months ended September 30, 2008 and 2007, respectively.

Depreciation Expense Related to Cost of Sales:Depreciation expense related to cost of sales increased $0.2 million due to new production and distribution
equipment placed in service in 2007 and 2008 as a result of capital expenditures and the acquisition of ice companies, partially offset by dispositions.

27

---



Operating Expenses:Operating expenses increased $1.2 million from the three months ended September 30, 2007 to the three months ended
September 30, 2008. This increase is primarily due to a $0.7 million increase in professional services and a $0.4 million increase in labor and benefits. Professional service
expenses in the three months ended September 30, 2008 included $0.2 million of
costs related to an executive search firm and $0.4 million increase in fees related to consulting and accounting services. The increase in labor costs is related to annual wage increases,
increased headcount due to acquisitions and the hiring of a new chief operating officer in September 2008.

Depreciation and Amortization Expense:Depreciation and amortization increased $0.1 million from the three months ended September 30, 2007 to the
three months ended September 30, 2008. This increase is primarily due to additional amortization expense associated with the intangible assets recorded in connection with the acquisitions
completed in 2007 and the nine months ended September 30, 2008.

Impairment of Assets:Due to the significant decline in the value of our common stock during 2008, an evaluation of the our goodwill and trade name was performed
as of September 30, 2008 in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". Based on a market value approach, an
impairment of $149.7 million was recorded to reduce the carrying value of our goodwill to its fair value.

During
the three months ended September 30, 2008, we reviewed a parcel of real estate as a result of the pending sale of the property in accordance with SFAS No. 144,
"Accounting for Impairment or Disposal of Long-Lived Assets". As a result of this review, an impairment charge of $0.2 million was recorded during the three months ended
September 30, 2008.

Cost of Antitrust Investigations and Related Litigation:During the three months ended September 30, 2008, legal fees and other expenses totaling
$6.1 million were incurred in connection with the antitrust investigations being conducted by the Antitrust Division of the United States Department of Justice and various state attorneys
general and the related litigation.

Transaction Costs Related to Merger Agreement:During the three months ended September 30, 2007, professional service expenses totaling $2.0 million
were incurred in connection with the potential acquisition of the company by affiliates of GSO.

Interest Expense, net:Net interest expense decreased $0.2 million from the three months ended September 30, 2007 to the three months ended
September 30, 2008. This decrease was primarily due lower interest rates on the revolving credit facility and the unhedged portion of our term loan and
higher cash balances earning interest income, partially offset by scheduled increases in the non-cash interest expense associated with our 101/2% senior discount notes.

28

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Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Nine Months Ended September 30,

Change from
Last Year2008

2007

Dollars

%(in thousands)Revenues

$
271,368

$
274,750

$
(3,382
)

(1.2
)Cost of sales (excluding depreciation)


172,444


169,696


2,748


1.6Depreciation expense related to cost of sales


15,670


14,798


872


5.9Gross profit


83,254


90,256


(7,002
)

(7.8
)Operating expenses


35,104


32,324


2,780


8.6Depreciation and amortization expense


4,950


4,532


418


9.2Loss on dispositions of assets


302


329


(27
)

(8.2
)Impairment of assets


149,905





149,905


Cost of antitrust investigations and related litigation


11,927





11,927


Transaction costs related to merger agreement


949


1,982


(1,033
)

(52.1
)Gain on property insurance settlement


(1,036
)




(1,036
)

Income (loss) from operations


(118,847
)

51,089


(169,936
)

(332.6
)Interest expense, net


(23,096
)

(23,183
)

87


0.4Gain on termination of merger agreement


17,000





17,000


Income (loss) from continuing operations before income taxes


(124,943
)

27,906


(152,849
)

(547.7
)Income tax benefit (expense)


14,300


(11,830
)

26,130


220.9Income (loss) from continuing operations

$
(110,643
)
$
16,076

$
(126,719
)

(788.2
)


Revenues:Revenues decreased $3.4 million from the nine months ended September 30, 2007 to the nine months ended September 30, 2008. This
decrease is primarily due to reduced volume sales related to the effect of various economic trends on our customers and the end users of our products and less favorable weather conditions, partially
offset by higher average sales prices of approximately 2.5%, and additional volume sales resulting from acquisitions completed in 2007 and to-date in 2008 and hurricane activity in July
and September 2008.

Cost of Sales (Excluding Depreciation):Cost of sales (excluding depreciation) increased $2.7 million from the nine months ended September 30, 2007
to the nine months ended September 30, 2008. This increase in cost of sales is primarily due to significant increases in the price of fuel, moderate increases in the prices of plastic bags and
electricity related to higher market prices for energy and additional fixed costs associated with acquired operations. Partially offsetting these increases was the effect of reduced volume sales on
labor and other costs.

Labor
costs, including associated payroll taxes and benefit costs (including health insurance), accounted for approximately 23% of revenues in the nine months ended September 30,
2008 and 2007. Cost of plastic bags represented approximately 7% of revenues in the nine months ended September 30, 2008 and 2007. Fuel expenses represented approximately 6% and 4% of revenues
in the nine months ended September 30, 2008 and 2007, respectively. Expenses for independent third party distribution services represented approximately 6% of revenues in the nine months ended
September 30, 2008 and 2007. Electricity expense represented approximately 6% and 5% of revenues in the nine months ended September 30, 2008 and 2007.

Depreciation Expense Related to Cost of Sales:Depreciation expense related to cost of sales increased $0.9 million due to new production and distribution
equipment placed in service in 2007 and 2008 as a result of capital expenditures and the acquisition of ice companies, partially offset by dispositions.

29

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Operating Expenses:Operating expenses increased $2.8 million from the nine months ended September 30, 2007 to the nine months ended
September 30, 2008. This increase is primarily due to a $0.7 million increase in labor and benefits, a $1.3 million increase in professional services, a $0.2 million
increase in insurance costs, a $0.1 million increase in bad debt expense and a $0.1 million increase in ad valorem taxes. The increase in labor costs is related to annual wage increases,
increased headcount due to acquisitions and the hiring of a new chief executive officer in June 2008 and a new chief operating officer in September 2008. The increase in professional service expenses
was the result of $0.2 million of costs related to a potential acquisition that was not completed, $0.4 million in fees to an executive search firm related to the hiring of our new chief
executive and chief operating officers and $0.4 million for other accounting, legal and consulting services.

Depreciation and Amortization Expense:Depreciation and amortization increased $0.4 million from the nine months ended September 30, 2007 to the nine
months ended September 30, 2008. This increase is primarily due to additional amortization expense associated with the intangible assets recorded in connection with the acquisitions completed
in 2007 and the nine months ended September 30, 2008.

Impairment of Assets:Due to the significant decline in the value of our common stock during 2008, an evaluation of our goodwill and trade name was performed as of
September 30, 2008 in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets". Based on a market value approach, an impairment of $149.7 million was recorded to
reduce the carrying value of our goodwill to its fair value.

During
the three months ended September 30, 2008, we reviewed a parcel of real estate as a result of the pending sale of the property in accordance with SFAS No. 144,
"Accounting for Impairment or Disposal of Long-Lived Assets". As a result of this review, an impairment charge of $0.2 million was recorded during the three months ended
September 30, 2008.

Cost of Antitrust Investigations and Related Litigation:During the nine months ended September 30, 2008, legal fees and other expenses totaling
$11.9 million were incurred in connection with the antitrust investigations being conducted by the Antitrust Division of the United States Department of Justice and various state attorneys
general and the related litigation.

Transaction Costs Related to Merger Agreement:During the nine months ended September 30, 2008, professional service expenses totaling $0.9 million
were incurred in connection with the termination of the transaction with GSO and the related stockholder litigation. During the nine months ended September 30, 2007, expenses totaling
$2.0 million were incurred in connection with the potential merger transaction with GSO.

Gain on Property Insurance Settlement:During the nine months ended September 30, 2008, a property insurance claim related to fire damage at one our
manufacturing facilities was settled, which resulted in a gain of $1.0 million.

Interest Expense, net:Net interest expense decreased $0.1 million from the nine months ended September 30, 2007 to the nine months ended
September 30, 2008. This decrease was primarily due to lower interest rates on the revolving credit facility and the unhedged portion of our term loan, offset by scheduled increases in the
non-cash interest expense associated with our 101/2% senior discount notes.

Gain on Termination of Merger Agreement:During the nine months ended September 30, 2008, the merger agreement with affiliates of GSO was terminated, which
resulted in a $21 million termination fee being paid by GSO. Offsetting this fee was $4 million of fees and expenses incurred by GSO and its third-party consultants in connection with
the transaction that we agreed to pay. We received a net payment of $17 million from GSO on February 5, 2008.

30

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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 and borrowings under our credit facilities.

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) dividends on our common stock, if any, (e) capital expenditures related to replacing and modernizing the capital equipment in
our traditional ice plants and acquiring and installing additional Ice Factories and (f) acquisitions. On September 15, 2008, we announced that were suspending the payment of quarterly
cash dividends indefinitely. We may also 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 state attorneys general and related 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 affected 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 nine months ended September 30, 2008, capital expenditures totaled $15.4 million. As we have consolidated acquisitions into the existing company infrastructure,
we have identified non-core and excess assets which can be disposed of. From time to time, we also dispose of other assets which are no longer useful in our operations. As a result of
dispositions of these non-core and excess assets, we realized proceeds of approximately $1.7 million in the nine months ended September 30, 2008. As a result, our net capital
expenditures in the nine months ended September 30, 2008 were $13.7 million.

We
sold our bottled water business and substantially all of our cold storage business on August 31, 2007 and September 7, 2007, respectively, for total gross cash proceeds
of $20.3 million. These businesses
comprised substantially all of our non-ice business. Our credit facilities require that the net proceeds from the sale of the discontinued operations be used either to repay our
outstanding term loan or to make acquisitions and/or capital expenditures within twelve months of the receipt of such proceeds. Accordingly, the remaining, unutilized net proceeds from the sale was
reported as "Restricted Cash and Cash Equivalents" in the consolidated balance sheet. Prior to the twelve month anniversary of the receipt of such proceeds, all such proceeds were utilized to make
acquisitions and/or capital expenditures.

In
the nine months ended September 30, 2008, we completed the acquisitions of seven ice companies for a total cash purchase price of approximately $4.0 million, including
direct acquisition costs of $0.1 million. We will continue to evaluate acquisition opportunities as part of our ongoing acquisition strategy.

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Cash Flows for the Nine Months Ended September 30, 2008 and 2007

Net cash provided by operating activities was $43.6 million and $46.3 million during the nine months ended
September 30, 2008 and 2007, respectively. The decrease in cash provided by operating activities of $2.7 million was primarily the result of a $2.9 million decrease in income from
continuing operations (excluding the after-tax effect of the non-cash goodwill impairment charge).

Net
cash provided by investing activities was $1.1 million in the nine months ended September 30, 2008 versus net cash used in investing activities of $43.0 million
in the nine months ended September 30, 2007. The increase in cash provided by investing activities of $44.1 million is primarily due to (i) a $17.9 million reduction in the
cost of acquisitions of ice companies, (ii) a $8.0 million reduction in net capital expenditures and (iii) the receipt of $1.5 million from our property insurer to settle a
claim for fire damage that one our plants sustained in 2007 and (iv) a $16.6 million increase in cash flows associated with the use in 2008 of the proceeds from the sale of our bottled
water and cold storage businesses sold in 2007. The net proceeds from the sale of those 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. The amount of the net proceeds released from the restricted account during the nine
months ended September 30, 2008 and 2007 was $17.3 million and $0.6 million, respectively.

Financing
activities used net cash of $28.0 million and $27.0 million in the nine months ended September 30, 2008 and 2007, respectively. This increase in cash used
by financing activities of $1.0 million is primarily due to a $0.8 million increase in cash dividends paid to our common stockholders.

Long-term Debt and Other Obligations

Overview.At September 30, 2008, we had approximately $389.2 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 at a rate of 101/2% per annum. The senior discount notes are
unsecured obligations of Reddy Holdings and are:



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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 means the ratio of our EBITDA for the most recent four fiscal quarters to our consolidated
interest expense for such four quarter period. "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 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

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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.

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
September 30, 2008, we had $53.5 million of availability under the revolving credit facility, which was net of an outstanding standby letters of credit of
$6.5 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. At this time, we do not anticipate any significant changes in our standby letters of credit until late in the fourth quarter of 2008, at which time a portion of the
collateral related to earlier policy years is expected to be released.

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 September 30, 2008, the weighted average interest
rate of borrowings outstanding under the credit facilities was 4.5%. 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

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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 September 30, 2008, Reddy Corp. was in compliance with these covenants. Reddy Holdings guarantees Reddy Corp.'s credit facilities and such guarantee is secured
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.

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. 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 the loans under
our credit facilities.

At
September 30, 2008 Reddy Holdings had $15.5 million of cash on hand that was not subject to restrictions under our credit facilities.

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"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:



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The following table presents Adjusted EBITDA for the twelve month period ended September 30, 2008 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.

Twelve Months
Ended September 30,
2008(in thousands)Pro forma adjusted EBITDA

$
73,679Total leverage ratio


3.4:1.0Interest coverage ratio


4.9:1.0


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

Twelve Months
Ended September 30,
2008(in thousands)Net income (loss)

$
(117,287
)Depreciation expense related to cost of sales


20,704Depreciation and amortization expense


6,594Interest expense, net


30,368Income tax benefit


(18,830
)EBITDA


(78,451
)Other non-cash charges:Stock-based compensation expense


3,500Loss on dispositions of assets


1,717Impairment of assets


151,345Gain on sale of discontinued operations


(7
)Gain on property insurance settlement


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


11,927Transaction costs related to merger agreement(a)


1,423Gain on termination of merger agreement(a)


(17,000
)Adjusted EBITDA

$
73,418Disposition adjustments(b)


24Adjusted EBITDA from continuing operations


73,442Acquisition adjustments(c)


236Elimination of lease expense(d)


1Pro forma adjusted EBITDA

$
73,679






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Interest Rate Hedging Agreement

Effective September 12, 2005, we entered into an interest rate hedging agreement (the "Hedge") to fix the interest rate on a
portion of our term loan facility. The Hedge has a term of three years and ten months and an initial notional balance of $220 million. The notional balance decreases by $20 million on
October 12 of each of the following three years, beginning on October 12, 2006. As of September 30, 2008, the notional balance was $180 million. We pay a fixed rate of
4.431% on the notional balance outstanding and receive an amount equal to 3-month LIBOR. Any net payable or receivable amount is settled quarterly. If we had been required to settle the
Hedge as of September 30, 2008, we would have paid $1.4 million. In accordance with hedge accounting rules, the fair value of the Hedge is included in the caption "Deferred Taxes and
Other Liabilities, net" in the consolidated balance sheet. Changes in the fair value of the Hedge are recorded as "Other Comprehensive Loss" in the consolidated statement of stockholders' equity. No
gain or loss was recognized in any period presented in the consolidated statement of operations. We are exposed to risk of loss in the event of non-performance by the counterparty to the
Hedge. We do 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 have used the excess cash generated from our 2007 selling season to fund our operations during the winter
months, as well as capital expenditures, acquisitions and dividends to our common stockholders.

We
estimate that our capital expenditures for 2008 will be approximately $17 million to $19 million, which will primarily be used to maintain and expand our traditional ice
operations. There can be no assurance that our capital expenditures will not exceed this estimate. In the normal course of our business, we dispose of obsolete, worn-out and unneeded
assets. As a result of dispositions of excess assets, we estimate that we will generate proceeds of approximately $2 million to $4 million in 2008 for net capital expenditures of
approximately $13 million to $17 million. The net proceeds from the sale of our bottled water and cold storage businesses in 2007 were restricted pursuant to the terms our credit
facilities for the purposes of repayment of term loans, acquisitions or capital expenditures. Prior to the twelve month anniversary of the receipt of such proceeds, all such proceeds were utilized

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to
make acquisitions and/or capital expenditures in order to maximize Available Cash under our credit facilities.

As
of November 4, 2008, we had approximately $14.6 million of cash on hand at Reddy Holdings, approximately $25.2 million of cash at Reddy Corp. and approximately
$43.5 million of availability under our revolving credit facility, which reflected outstanding standby letters of credit of $6.5 million and a $10 million reduction based on the
likely non-performance by LCP of its commitment under our revolving credit facility. Based on our expected level of operations, we believe that cash flows from operations, together with
available borrowings under our revolving credit facility and cash balances currently on hand, will be adequate to meet our future liquidity needs for at least the next twelve months.

As
noted previously, we record the majority of our sales and profits during the months of May through September and the majority of the cash generated from those operations is received
in July through November. As of November 4, 2008, we have repaid all amounts borrowed under our revolving credit facility in the spring, have paid dividends on our common stock through June
2008, funded capital expenditures and debt service and have built up cash balances. We expect our cash balances to continue to increase through the end of 2008. As noted earlier in the discussion of
our senior discount notes (see "Senior Discount Notes"), interest expense on those notes becomes payable in cash on a semi-annually 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 litigation may require the use of cash on hand at Reddy Holdings
or borrowings under our revolving credit facility. We are evaluating our insurance coverage with regards to these costs and are working to maximize any potential reimbursements.

Through
November 4, 2008, we have completed seven acquisitions with an aggregate acquisition cost of approximately $4.0 million. We are continuing to evaluate acquisition
opportunities as part of our ongoing acquisition strategy. If we were to complete additional acquisitions, additional borrowings under our revolving credit facility may be required.

Recently Adopted Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("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. Adoption of this standard on January 1, 2008 had no impact on our results of operations and financial position.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, including an Amendment of FASB Statement No. 115".
SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective
is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having
to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Adoption of this standard on January 1, 2008 had no
impact on our results of operations and financial position as we elected not to remeasure any of our financial assets or liabilities at fair value.

On
September 14, 2007, the FASB reached consensus on EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards". EITF
No. 06-11 requires that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified
nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in
additional paid-in capital for the realized income tax benefit

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from
dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF No. 06-11 is effective
for fiscal years beginning on or after December 15, 2007. Adoption of this standard on January 1, 2008 had no impact on our results of operations and financial position.

New Accounting Pronouncements

In February 2008, the FASB issued FASB Staff Position ("FSP") No. FAS 157-2, "Effective Date of FASB Statement
No. 157", 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. We elected to defer the adoption of SFAS No. 157 for our
nonfinancial assets and nonfinancial liabilities until January 1, 2009.

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. We are currently evaluating the impact that this standard may have on our results of
operations and financial position.

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. Adoption of this standard on January 1, 2009 is not expected to have any impact on our results of operations and financial position.

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 applied only to intangible assets acquired after the effective date. We are currently
evaluating the impact that this standard may have on our results of operations and financial position.

In
September 2008, the FASB issued FSP No. EITF 06-3-1, "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 06-3-1 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 06-3-1. Adoption of this standard is not expected to have any impact on our results of operations or
financial position.

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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 continue to
experience high inflation in these costs, or inflationary pressures begin to 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 have net income in these same periods, whereas we typically experience net
loss 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 less than one-third of our revenues will occur during the first
and fourth calendar quarters when the weather is generally cooler. This belief is consistent with historical trends. As a result of seasonal revenue declines and the lack of proportional corresponding
expense decreases, we will most likely experience lower profit margins and even losses during the first and fourth calendar quarters. In addition, because our operating results depend significantly on
sales during our peak season, our quarterly results of operations may fluctuate significantly as a result of adverse weather during this peak selling period if the weather is unusually cool or rainy
on a more national or regional basis.

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, we entered into an interest rate hedging agreement (the "Hedge") to fix the interest rate on a portion of the term loan outstanding under the senior
credit facility. See "Liquidity and Capital ResourcesInterest Rate Hedging Agreement".

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As
of September 30, 2008, our credit facilities had an outstanding principal balance of $240.0 million at a weighted average interest rate of 4.5% per annum. At
September 30, 2008, the 30-day LIBOR rate was 7.0%. Including the effect of the Hedge, the weighted average interest rate of balances outstanding under the credit facilities was
5.8%. If LIBOR were to increase by 1% from that level, the annual increase in interest expense, given our principal balances at September 30, 2008 and the effect of the Hedge, would be
approximately $0.6 million.

Item 4.    Controls and Procedures

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) under
the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of September 30, 2008 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 September 30, 2008 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART IIOTHER INFORMATION

Item 1.    Legal Proceedings



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 search warrant and subpoenas we and our employees received are part of a
broader industry inquiry by the DOJ; at least one other packaged ice manufacturer has also received such a 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
September 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. We believe 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.

We
are cooperating with the authorities in these investigations and expect to continue to make available documents and other information in response to the subpoena and the civil
investigative demands. At this time we are unable to predict the outcome of these investigations or any potential effect they may have on us, our employees or our operations.

On
March 6, 2008, our Board of Directors formed a special committee of independent directors to conduct an internal investigation of these matters. The special committee has
retained counsel to assist in its investigation. The investigation is ongoing and the outcome of the investigation is unknown. We and our employees are cooperating in the special committee's
investigation.

Following
the announcement that the DOJ's Antitrust Division 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. On
September 5, 2008, the Judicial Panel on Multidistrict Litigation issued an Order that the majority of the civil actions then pending in federal courts be transferred and consolidated for
pretrial proceedings in the United States District Court for the Eastern District of Michigan. Since that time, additional cases have been ordered transferred to that court and we anticipate that the
remaining putative class actions pending in federal courts will also be transferred to that court for consolidated pretrial proceedings. Plaintiffs in several of the actions have agreed to extend our
deadline to respond to the subject complaints until 45 days after the filing of a consolidated amended complaint in the multidistrict proceedings. We and the other

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defendants
are attempting to obtain similar extensions from plaintiffs in the remaining actions. Motions and responses have been filed by various plaintiffs requesting a status conference or, in the
alternative, a briefing schedule relating to appointment of interim class counsel and liaison counsel. Those motions are pending. 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, at least one putative class action lawsuit has been filed in state court, alleging violations of state antitrust
laws and related claims and seeking damages and injunctive relief. On August 27, 2008, a hearing was held on the motion to stay filed by the defendants in the case pending in Kansas state
court. On October 1, 2008, that motion was denied and the Court ordered the defendants to respond to the plaintiff's petition on November 1, 2008. Defendants have also been served with
written discovery requests by the plaintiff. At least one direct action lawsuit has been filed in federal court alleging, among other things, violations of the federal antitrust laws and related
claims and seeking damages. We intend to vigorously defend the pending lawsuits. At this time, we are unable to predict the outcome of these lawsuits or any potential effect they may have on us or our
operations.



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 ongoing investigation by the special committee of our Board of Directors. We intend to cooperate with the informal inquiry.



Beginning on August 8, 2008, three 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 purports to
assert claims on behalf of various different 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. We intend to vigorously defend these lawsuits.

A
stockholder derivative action was filed on our behalf on October 16, 2008 in the 68th Judicial District Court of Dallas County, Texas, Cause
No. 08-13141 naming as defendants, among others, the members of our board of directors and certain of our current and former officers. The asserts claims for breach of fiduciary
duty, unjust enrichment, abuse of control, and gross mismanagement and seeks damages, equitable relief, attorney fees and costs. Defendants' response to the Petition is due on December 8, 2008.
We and the other defendants intend to defend ourselves vigorously in this lawsuit.



On July 3, 2007, a stockholder derivative complaint was filed on our behalf in the 199th Judicial District Court of
Collin County, Texas, Cause No. 199-02240-07, naming as defendants, among others, the members of our board of directors and GSO. We were also named as a nominal
defendant. On August 9, 2007, the complaint was amended by the plaintiff, purporting to state a class action claim on behalf of our stockholders. The amended complaint alleged, among other
things, that our directors breached their fiduciary duties in connection with the proposed merger transaction between us and affiliates of GSO by approving a transaction that would purportedly provide
certain of our stockholders and directors with preferential treatment at the expense of our other stockholders and would not

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maximize
stockholder value. A second amended complaint was filed on September 10, 2007 containing similar allegations and also setting forth various alleged omissions from the disclosures
provided by us in our preliminary proxy statement relating to the special meeting of our stockholders to adopt the merger agreement. All defendants have served answers to the second amended complaint.

On
September 27, 2007, the plaintiff filed a motion seeking a temporary restraining order to enjoin the special meeting of our stockholders to adopt the merger agreement. We and
the other defendants opposed the motion and vigorously disputed the plaintiff's assertions. A hearing on the motion was scheduled for October 3, 2007. On that date, we and the other parties
reached an agreement in principle to settle the action in return for our providing certain supplemental disclosures in advance of the special meeting of our stockholders. The defendants also agreed
that, if the settlement was approved by the Court and consummated in accordance with its terms, we would pay plaintiff's attorneys' fees and expenses in an amount awarded by the Court but not to
exceed $325,000 in the aggregate. The defendants denied, and continue to deny, all allegations of wrongdoing and agreed to the settlement solely to avoid the burden and expense of further litigation
and to eliminate any possibility of a delay to the special meeting as a result of the litigation. The proposed settlement was expressly subject to consummation of the merger transaction, among other
conditions.

On
January 31, 2008, we announced that the merger agreement had been terminated. As a result, the proposed settlement will not be consummated. On March 28, 2008, the
defendants filed a motion
seeking dismissal of the action on the ground that all of plaintiff's claims were rendered moot by the termination of the merger agreement. Plaintiff did not respond to that motion. Instead, on
May 19, 2008, plaintiff filed a second amended petition in which it dropped all of its claims in the first action other than a claim for attorneys' fees related to the proposed settlement. The
defendants have previously answered plaintiff's petition and asserted general denials.

Separately,
on July 3, 2008, plaintiff's attorneys filed a fee application seeking a fee of $495,000 for the "benefit" allegedly conferred on our stockholders by the prosecution
of the action and the supplemental disclosures that were disseminated pursuant to the proposed settlement. We and the other defendants intend to defend ourselves vigorously against plaintiff's claims
if the action continues.

On
February 13, 2008, the alleged stockholder that is plaintiff in the litigation described above, filed a second action styled as a putative stockholder derivative action on our
behalf, also in the 199th Judicial District Court of Collin County, Texas. The complaint names the members of our board of directors as defendants. In the complaint, the plaintiff claims that
the directors breached their fiduciary duties and committed waste by "causing the Company" to enter into the Settlement Agreement dated January 31, 2008 with certain affiliates of GSO relating
to the termination of the merger agreement. As a result of the termination of the merger agreement, we were paid $21 million by the GSO affiliates. Under the Settlement Agreement, we have
reimbursed the GSO affiliates $4 million for certain expenses incurred in connection with the proposed merger transaction. The complaint seeks injunctive relief against the $4 million
payment to the GSO affiliates, an order directing the defendants to reimburse us to the extent any such payment has been made, and plaintiff's costs and attorneys' fees in bringing the action.

On
March 28, 2008, the defendants filed a motion to dismiss the petition and we and the defendants also served and filed answers to the petition. The directors' motion argues that
plaintiff failed to make a pre-suit demand on the board of directors before instituting the action and failed to allege facts showing that such a demand would have been futile. The motion
also argues that plaintiff has failed to state a claim against the directors under the business judgment rule and that plaintiff's claims for money damages are barred by the exculpatory provision of
Reddy Ice's certificate of incorporation. The plaintiff has not yet responded to the motion and the court has not yet established a date for a hearing on the defendants' motion. The defendants intend
to defend themselves vigorously against plaintiff's claims.

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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. We believe the resolution of such other ordinary course
uncertainties and the incurrence of such costs will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 1A.    Risk Factors

Except as set forth below, there have been no material changes to the factors described in our Annual Report on
Form 10-K for the year ended December 31, 2007.

Our common stock could be delisted from the New York Stock Exchange.

The continued listing standards of the New York Stock Exchange (the "NYSE") require us to maintain, among other things, a market
capitalization or stockholders equity above a specified threshold. As a result of the decline in our stock price and the reduction in our stockholders' equity resulting from the impairment of our
goodwill as of September 30, 2008, we may be notified by the NYSE that we are not in compliance with their continued listing standards. Under applicable NYSE procedures, we would have
45 days from the receipt of the notice to submit a plan to the NYSE to demonstrate our ability to achieve compliance with the continuing listing standards within 18 months. To the extent
we cannot meet the applicable standards during the required period, our stock could become delisted. We cannot assure you that we will be able to maintain our listing with the NYSE, or list on an
alternate stock exchange in the event our common stock is delisted by the NYSE. A delisting of our common stock could materially and adversely affect, among other things, the liquidity and market
price of our common stock; the number of investors willing to hold or acquire our common stock; and our access to capital markets to raise capital in the future.

Even if our board of directors desires to declare and pay dividends, we might not have cash in the future to pay dividends in the intended amounts or at all.

Our ability to pay dividends, and our board of directors' determination to declare any future dividends, will depend on numerous
factors, including the following:



Our
actual cash available to pay dividends may not equal or exceed the amount necessary to pay dividends at any time. Over time, our capital and other cash needs will invariably be
subject to

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uncertainties,
which could affect whether we pay dividends and the level of any dividends we may pay in the future. In addition, to the extent that we would seek to raise additional cash from
additional debt incurrence or equity security issuances, we cannot assure you that such financing will be available on reasonable terms or at all. Each of the factors listed above could negatively
affect our ability to pay any future dividends.

Litigation and investigations pending against us could materially impact our business and results of operations.

We are currently a party to various legal proceedings, claims, disputes, litigation and investigations. In particular, the Antitrust
Division of the United States Department of Justice ("DOJ") is currently conducting an investigation into possible antitrust violations in the packaged ice industry. In addition, various state
attorneys general are conducting a coordinated civil investigation into possible antitrust violations in the packaged ice industry. Numerous putative class actions have also been filed against us,
certain of our current and former directors and officers and other packaged ice producers alleging violations of federal and state antitrust laws and related claims, violations of securities laws and
derivative claims against our directors and officers. A special committee of our board of directors is conducting an internal investigation of these matters. Investigating these matters and responding
to the government investigations and related litigation will involve substantial expense to us, which could have a material adverse impact on our financial position and our results of operations. In
addition, our financial results could be materially and adversely impacted by unfavorable outcomes in any of these or other pending or future litigation or investigations. Our ability to pay dividends
and comply with the covenants in our debt agreements may also be adversely affected by the costs of such investigations and litigation as well as any unfavorable outcomes in these or other pending or
future litigation or investigations. There can be no assurances as to the outcome of any litigation or investigation and the outcome of any such litigation, investigations and other claims are subject
to inherent uncertainties. There exists the possibility of a material adverse impact on our financial position and our results of operations for the period in which the effect of an unfavorable final
outcome becomes probable and reasonably estimable.

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

Our success depends in part on our ability to attract, hire, train and retain qualified managerial, sales and marketing personnel.
Competition for these types of personnel is high. Our success also depends to a significant extent on the continued service and performance of our management team and, in particular, our senior
management. We may be unsuccessful in attracting and retaining the personnel we require to conduct our operations successfully. Although we successfully completed our searches for a new Chief
Executive Officer in June 2008 and a new Chief Operating Officer in September 2008, we cannot assure you that we will be successful in attracting suitable candidates for other positions that are or
may need to be filled. In particular, uncertainty related to the ongoing antitrust investigations and related litigation may make attracting qualified personnel more difficult and may make it more
difficult to retain our existing management team. In addition, we do not carry "key man" life insurance. Our inability to successfully attract and retain qualified personnel or the loss of any member
of our management team could impair our ability to execute our business plan.

Our acquisitions may not be successfully integrated and could cause unexpected financial or operational difficulties; failure to make acquisitions may limit our growth.

From 2005 to November 4, 2008, we completed a total of 39 acquisitions. We anticipate that we will, from time to time,
selectively acquire additional businesses, assets or securities of companies that we believe would provide a strategic fit with our business. Acquisitions are accompanied by risks, such

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as
potential exposure to unknown liabilities of acquired companies and the possible loss of key employees and customers of the acquired business. Further, acquisitions are subject to risks associated
with the difficulty and expense of integrating the operations and personnel of the acquired companies, the potential disruption to our business and the diversion of management time and attention, any
of which could increase the costs of operating our business, negate the expected benefits of the acquisitions or result in the loss of customers.

We
are continuing to evaluate acquisition opportunities as part of our ongoing acquisition strategy. A substantial portion of the historical growth in our business has been as a result
of acquisitions. If the size and number of our future acquisitions decreases from our historical trend, our business may not grow as rapidly, or at all, as compared to historical periods.

Our revenues and sales volumes may be negatively impacted by macroeconomic factors outside of our control.

We believe end users of our products use packaged ice in many applications, including recreational activities, the construction
industry, agriculture and special events. In recent months, various segments of the United States economy, including housing and construction and the credit markets, have deteriorated. Our revenues
and sales volumes may decline as activity by commercial end users of our products declines. Weakness in the national economy combined with other factors including inflation, interest rate
fluctuations, increases in fuel and other energy costs and healthcare costs and the availability of financing, including mortgages and consumer credit, may negatively impact consumer confidence and
result in changes to consumer spending patterns. If consumer activities associated with the use of our products decline, our revenues and sales volumes may decline.

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 50.

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SIGNATURES

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

REDDY ICE HOLDINGS, INC.Date: November 7, 2008

By:

/s/ GILBERT M. CASSAGNEGilbert M. Cassagne
Chief Executive OfficerDate: November 7, 2008

By:

/s/ STEVEN J. JANUSEKSteven J. Janusek
Chief Financial and Accounting Officer


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INDEX TO EXHIBITS

| |       |  |                                                                                                                                   
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------
|
| | 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.      

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