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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission file number 333-29357

PACKAGED ICE, INC.

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

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

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

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

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).o

The aggregate market value of the voting stock held by non-affiliates of the Registrant is approximately $17.4 million as of June 28, 2002, the last business day of the registrant’s most recently completed second fiscal quarter. The total number of shares of common stock, par value $0.01 per share, outstanding as of March 11, 2003 was 20,157,304.

Documents Incorporated By Reference

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

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PACKAGED ICE, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2002

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PART I

ITEM 1. Business

General

     Packaged Ice, Inc. is the largest manufacturer and distributor of packaged ice in the United States and currently serves approximately 73,000 customer locations in 31 states and the District of Columbia. We have grown significantly since our incorporation in 1990, primarily through the implementation of a consolidation strategy within the highly fragmented packaged ice industry. Since April 1997, we have acquired 84 traditional ice companies, principally in the southern half of the United States. We are currently focused on increasing profitability and strengthening our balance sheet through operating improvements and leverage reduction. Revenue enhancements, expense control and selective acquisitions are an important part of this strategy.

     We operate in two business segments: ice products and non-ice products and operations. Ice products accounted for approximately 92%, 91%, and 92% of revenues in 2002, 2001 and 2000, respectively, and consist of the following two activities:

	•		the manufacture and delivery of traditional ice from a central point of production to the point of sale; and
	•		the installation of Ice Factories, our proprietary machines that produce, package, store and merchandise ice at the point of sale through an automated, self-contained system.

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

     At December 31, 2002, we owned or leased 50 ice manufacturing plants, 49 distribution centers, seven refrigerated warehouses and one bottled water plant. Including an installed base of 2,982 Ice Factories, we had a combined, rated ice manufacturing capacity of approximately 14,425 tons of ice per day.

     For a discussion of financial results by segment, including segment revenues from external customers, a measure of profit or loss and total assets, see “Notes to Consolidated Financial Statements,” Note 12.

Business Strategy

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

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The Ice Industry and Traditional Ice Manufacturing

     The packaged ice industry is highly fragmented and is led by Packaged Ice and several regional, multi-facility competitors. In addition, the industry includes numerous local and regional companies of varying size and competitive resources. We believe that most ice manufacturers have annual revenues less than $1 million. Traditional ice manufacturers produce and package ice at centrally located facilities and normally distribute within a limited radius of approximately 100 miles from the point of production. Due to high product transportation and storage costs, the ice business has historically been a regional service business. As a result of geographic constraints, success in the ice business depends upon an efficient manufacturing and distribution system with high-density customer distribution routes in a region, high customer concentration within a market area and the ability to ensure prompt and reliable delivery during peak seasonal months. We believe that our consolidation of traditional ice manufacturers within a geographic region provides efficiencies in manufacturing and distribution largely due to higher density of customer sites and the flexibility to shift production among our manufacturing plants within a region. These efficiencies provide us with an advantage over our competitors.

     We believe that a significant amount of packaged ice is produced locally at retail locations by self-manufacturers. These retailers typically bag ice manually from standard ice machines used in connection with fountain dispensing and beverage displays and utilize in-house labor. During peak consumption periods, these retailers purchase backup ice from traditional ice manufacturers. The more locations a retailer has, the less likely a retailer is to be a self-manufacturer. Self-manufacturers have increased liability risks as compared to retailers who purchase ice from traditional ice companies. We provide retailers many advantages over self-manufacturers including significant liability insurance, ice merchandisers (small cold storage boxes) and industry approved sanitation procedures.

     Certain regional grocery chains or divisions of national grocery chains also self-manufacture ice at central manufacturing plants for densely concentrated selling regions. Generally, there are not any external sales from these manufacturing plants. Over the past several years, we have been successful in either purchasing or assuming control of many of these plants. This success is due to the trend that as the grocery industry continues to consolidate, purchasing is done more through national contracts, the fact that the grocery industry is more sophisticated in its capital allocation considerations and the availability of the Ice Factory.

     We believe that packaged ice products are purchased as needed by consumers and that such purchases are relatively insensitive to price due principally to the low cost of the product and the absence of substitute products. The majority of ice purchased is used as a refrigerant and is generally not consumed. The industry is highly seasonal, characterized by peak demand occurring during the warmer months of May through September, with an extended selling season occurring in the southern United States. Organic growth in the packaged ice industry is widely believed to track population growth, although on a year-to-year basis, weather has a more significant impact on demand. We believe that our geographic diversification helps mitigate the potential adverse impact of abnormal weather patterns in any particular market. National weather patterns resulting in prolonged cold and rainy weather would adversely impact our results of operations.

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The Ice Factory

     THE ICE FACTORY® is an automated system that is capable of producing and packaging 240 bags of ice per day. Our average system, excluding the systems under management agreements, produced approximately 18,000 bags in 2002. It is most frequently used in high volume supermarkets and other commercial locations, such as construction staging areas and large manufacturing plants. The placement of the Ice Factory at customer locations is based upon a thorough review of each site, which primarily focuses on historical ice sales at the site. Also included in the site review is an analysis of the surrounding trade area, the level of overall retail activity, the level of direct competition and the proximity of the site to other Ice Factories. Upon completion of this review, a determination is made as to the viability of the location and whether single or multiple machines are required at the time of initial installation. We own or lease the machines from third parties and charge our customers for empty bags purchased and delivered. We generally pay for all installation and maintenance costs, while the retailer provides and pays for the cost of utilities. Slightly over 9% of our 2002 packaged ice volume (on a seven-pound equivalent basis and excluding management agreements) was sold through Ice Factories.

     In late 2001, we began entering into management agreements with certain other traditional ice manufacturers. Under these agreements, the manufacturer agrees to operate and maintain the Ice Factories in good working order as well as provide certain billing and collection services to the Ice Factory customers. We retain all the ownership expenses associated with the Ice Factories including property taxes, lease payments and depreciation. Through March 11, 2003, we have entered into four such agreements in California, Oregon, Washington and Idaho representing approximately 800 Ice Factories (out of our total of 2,982). We view these agreements as an opportunity to further utilize the Ice Factory technology and build relationships with traditional ice manufacturers in new markets. We will evaluate opportunities for additional agreements as they arise.

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

	•		a flexible delivery system designed to supply high volume locations and capable of cost-effectively servicing a market in excess of 100 miles from traditional ice manufacturing facilities;
	•		the ability to distribute ice production between our traditional ice facilities and our Ice Factories as well as satisfy seasonal peak demand at stores with Ice Factories; and
	•		reduced production costs (the customer pays for electricity and water), storage costs and distribution costs.

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

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Distribution

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

     Traditional Distribution. We produce and bag ice at centrally located manufacturing facilities and subsequently store the ice or sell it through several distribution channels. These distribution channels include selling ice to warehouse customers who then in turn deliver ice to their retail locations through their own distribution network, delivering pallet quantities to retail locations at their back door or through direct store delivery where our delivery personnel stack ice directly in the ice merchandiser units. We also sell ice to wholesale distributors, who resell the ice to retail and other customers. Distributors also deliver ice on our behalf to certain of our customers. To store ice inventory, we own or rent appropriate freezer space. During the peak summer months, we may lease additional trucks and purchase additional ice from other producers to maintain high service levels and customer goodwill.

     We currently serve approximately 70,000 customer locations, principally through the use of our company owned ice merchandisers that are installed at most customer locations. Our growth has allowed us to develop an efficient production and distribution network by providing us with customer density, additional production capacity and dedicated distribution centers. The increased customer density has improved routing efficiencies and reduced our transportation costs, which represent our largest cost component. In addition, the acquisition of additional production capacity in selected markets has allowed us to avoid “out of ice” situations and related lost sales during peak periods. Further, by acquiring dedicated distribution centers and associated storage facilities, we have reduced our storage costs.

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

     We believe that providing frequent, regular and reliable service and support to our customers is one of the most important elements in operating our Ice Factory network. We have a routine route servicing system, which utilizes trained service representatives to perform the regularly scheduled service procedures and maintain toll-free telephone support for responding to customer calls regarding repairs and maintenance.

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Ice Products

     We market our ice products to satisfy a broad range of customers, primarily under the Reddy Ice™ brand name. We produce our ice in cube, half-moon, cylindrical, crushed and block forms to satisfy customer demands. Our primary ice product is packaged in small bags (primarily seven pounds), which we sell principally to convenience stores and supermarkets. We also sell significant amounts of medium bags (16 to 20 pounds) and 10 pound block bags to the same convenience stores and supermarkets. We sell ice in assorted bag sizes ranging from 16 to 50 pounds to restaurants, bars, stadiums, vendors and caterers. In addition, we sell block ice in 10, 25 and 300 pound sizes to commercial, agricultural and industrial customers.

     We began testing a new premium product, Glacé Gourmet Ice Cubes™ (“Glacé”), in late 2002 in certain Texas retail locations. We use special packaging for Glacé and sell it in four-pound bags. This product targets consumers of home refrigerator ice. We continue to search for ways to enhance our existing products and product sizes and create new products.

Customers

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

     We have a diversified customer base, with our largest customer accounting for less than 8% of sales in 2002 and less than 6% in both 2001 and 2000. In addition, we have a geographically diversified customer base, with customer locations in 31 states, primarily in the southern half of the United States and the District of Columbia. Some of our larger national accounts include convenience and petroleum store chains Conoco-Phillips/Circle K, 7-Eleven, ChevronTexaco, Shell and ExxonMobil and grocery store chains Albertson’s, Kroger, Safeway and Wal-Mart/Sam’s Club. Major regional customers include convenience and petroleum store chains Diamond Shamrock, The Pantry and RaceTrac, and grocery store chains Publix, Winn-Dixie, Food Lion and HEB. The percentage of our volume sold to national and regional convenience and grocery store chains has grown over the last several years as consolidation within those industries has continued.

     We believe the geographic breadth of our customer base helps protect us from the effects of adverse weather in a particular region, such as reduced sales due to abnormally cool or rainy conditions, although national weather patterns may have a material adverse effect on our business.

Competition

     Competition in the packaged ice industry is based primarily on price, service and quality. To compete successfully, an ice manufacturer must be able to substantially increase production and distribution capacity on a seasonal basis while maintaining cost efficiency. We believe that our high quality traditional production facilities, financial resources, high regional market share, associated route density and proprietary Ice Factory capability provide us with numerous competitive advantages, including a combination of competitive pricing, a high level of customer

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service and high quality products. We also believe our geographic diversification and the advantages of the Ice Factory for high volume retailers have helped us develop relationships with certain national supermarket chains and will continue to assist us in our penetration of this market.

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

Acquisitions

     Beginning in 1997, we underwent a consolidation strategy within the highly fragmented packaged ice industry. Through December 31, 2002, we completed 84 acquisitions, primarily between April 1997 and August 1999. Significant acquisitions have included the purchase of Reddy Ice Corporation (“Reddy”) from Suiza Foods Corporation in April 1998 and the purchase of Cassco Ice & Cold Storage, Inc. (“Cassco”) in July 1998. Reddy, prior to the acquisition, had been active in the consolidation of the packaged ice industry, having made 28 acquisitions from January 1997 to April 1998. Cassco was a leading regional producer and distributor of packaged ice products and was an owner/operator of refrigerated warehouses in the Mid-Atlantic region. Due to the decline in our common stock value after our initial public offering in January 1999 and our substantial overall leverage, we did not complete any significant acquisitions in 2000, 2001 or 2002.

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

	•		Market Leaders. Market Leader acquisitions are focused on acquiring companies with a leading market share position in an identified market area. These acquisitions represented an initial entry into a geographic area, or, alternatively, were made subsequent to the placement of Ice Factories with key customer accounts in a region.
	•		Tuck-ins. Tuck-in acquisitions are smaller acquisitions intended to add incremental production and/or distribution capabilities in an established market.

     Although our pace of acquisitions has slowed in recent years, we believe continued selective acquisitions will play an important part in our strategy to strengthen our position as the leading ice company in the United States and allow us to serve our customers better.

Dispositions

     During 2001, as part of our strategy to reduce our debt leverage and make better use our assets, we began a program to evaluate and dispose of excess and non-core assets. During 2001,

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we sold several excess assets, non-core assets and our traditional ice business in California for cash proceeds of approximately $11 million. The excess and non-core assets sold included certain pieces of real estate and equipment, two small refrigerated warehouses and the majority of our ice production equipment sale and leasing business. We continued that program in 2002, realizing $3.4 million in additional proceeds primarily relating to excess real estate. We plan to continue to market certain excess and non-core assets in 2003 and see this as an important part of our strategy to reduce our leverage over the next several years.

Non-Ice Products and Operations

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

Employees and Labor Relations

     At December 31, 2002, we employed 1,565 employees, of which five were represented by a union or were subject to a collective bargaining agreement. As of March 11, 2003, one employee was represented by a union or subject to a collective bargaining agreement. Each year, during the second and third quarters, our labor force increases to over 3,000 employees due to seasonal increases in ice demand. We meet the majority of these seasonal hiring needs through the use of temporary employment agencies. We generally have not experienced any difficulty in meeting these seasonal employment needs. We have never experienced a work stoppage due to labor difficulties and we believe our relationship with our employees is good. Labor is our most significant expense item and represented approximately 39% of our cost of sales and operating expenses in 2002, excluding the associated payroll taxes and benefit expenses.

Raw Materials

     We have not experienced any material supply problems in the past with respect to our business segments.

     Electricity is a significant component of our manufacturing costs and was approximately 9% of cost of sales in 2002. In 1999, we had fixed our electricity cost at 95% of our 1998 rates through a supply and management agreement with a third party. That third party filed for protection under Chapter 11 of the United States Bankruptcy Code on December 2, 2001. Although that supply and management agreement was breached and subsequently terminated, we did not experience any supply problems related to our electricity needs. We took steps to minimize our electricity costs going forward, although we experienced $1.7 million in additional costs related to our electricity use in 2002 as a result of being subject to market rates. Significant increases in electrical rates in areas where we manufacture product could have a negative impact on our results of operations.

     We use large quantities of plastic bags. Bag usage for 2003 is expected to approximate 420 million seven-pound equivalent bags. There are numerous plastic bag manufacturers throughout the United States with the capability of providing for our plastic bag needs. We currently purchase bags from several companies to ensure price competition, although one company dominates the industry. Historically, market prices for plastic bags have fluctuated in response to a number of factors, including changes in polyethylene prices. A significant, abrupt

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change in the price of plastic bags could have a material adverse effect on our operating margins as we may not have the ability to pass on our increased costs to our customers.

     We also use large quantities of fuel in our distribution process. Numerous vendors throughout the United States provide the fuel for our vehicles. We expect fuel expense in 2003 to approximate 3% of our cost of sales. Market prices for fuel have fluctuated widely in the past due primarily to differing events throughout the world. Significant increases in fuel prices could have a material adverse effect on our business as we may not be able to pass this expense through to our customers.

Information Systems

     Internal information systems are critical to our ability to operate efficiently. We are able to monitor individual manufacturing plants and Ice Factory performance on a daily basis through automated and other reporting systems. This information enables us to track detailed cost and profitability information, identify opportunities to redistribute traditional manufacturing capacity among markets, assess the cost-effectiveness of an Ice Factory at a particular location and analyze market sales trends. In addition, we have all of our accounting and financial reporting functions integrated into a single accounting platform that is installed in all reporting locations and connected in real time to our central facility in Dallas, Texas. This system facilitates centralized cash management, timely financial reporting, consistent reporting formats and improved inventory tracking. In 2002, we implemented a new sales and marketing information system utilizing information from our primary accounting platform.

Intellectual Property

     We regard the Ice Factory as proprietary and rely primarily on a combination of patents, nondisclosure and confidentiality agreements and other copyright protection methods to secure and protect our intellectual property rights. We hold or have exclusive rights to several patents relating to the Ice Factory, including the bagging device and the overall assembly of the unit. We have patents in many of the major countries of North and South America, Europe and Asia. The patents relating to the Ice Factory expire at various dates from 2008 through 2013. In addition, we have developed or acquired a number of trademarks (both registered and common law) and trade names for use in our ice business, and we hold licenses for the use of additional trademarks from third parties. The use of our trademarks has created goodwill and results in product differentiation. However, we do not believe that the loss of any of our trademarks would have a material adverse effect on our operations.

Government Regulation

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

     Our packaged ice products are subject to federal and state regulation as a food pursuant to the Federal Food, Drug and Cosmetic Act, regulations promulgated thereunder by the Food and Drug Administration and analogous state statutes. These statutes and regulations impose comprehensive food manufacturing practices governing the sanitary conditions of the facilities

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

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

Environmental Matters

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

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

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

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

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     Certain of our current and former facilities are located in industrial areas and have been in operation for many years. It is possible that current or historic activities on these properties will present environmental issues in the future, the precise nature of which we cannot predict. We could, therefore, become liable for site contamination and remediation at properties which we currently or formerly owned. Such environmental issues have not had a material adverse effect on our financial condition or operating results in the past. We do not have any knowledge of claims that could be expected to have a material adverse effect on our financial condition, although there are certain claims made against us from time to time, including claims relating to an ammonia release described in ITEM 3. There can be no assurance that we will not incur significant costs in the future in connection with our historical handling or disposal of such substances and wastes, including costs related to the ammonia release claims.

     We have enacted programs to reduce the level of exposure from current and past operations by the continued upgrading of training, management and engineering controls. In addition, we have continued our program of requiring thorough environmental due diligence reviews of all new facilities, as well as a continuing annual environmental review of our existing operations to ensure continued environmentally sound, safe operations. Compliance with the various federal, state and local environmental laws and regulations has not had a significant effect on our capital expenditures, results of operations or competitive position.

General Economic Trends and Seasonality

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

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

Available Information

     You can find more information about us at our Internet website located at www.reddyice.com. Our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports are available free of charge on our website as soon as reasonably practicable after we electronically file such material with the Securities & Exchange Commission.

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ITEM 2. Properties

     We maintain our principal executive offices in Dallas, Texas, where we lease approximately 10,162 square feet of space. The lease in Dallas expires on December 31, 2004. At December 31, 2002, we owned or leased 50 manufacturing plants, 49 distribution centers, seven refrigerated warehouses and one bottled water plant. Including an installed base of 2,982 Ice Factories, we had a combined, rated ice manufacturing capacity of approximately 14,425 tons per day. We believe that our current physical properties, along with our planned capital expenditures, are adequate for us to execute our current business strategy.

     Certain manufacturing and distribution facilities may be permanently closed in conjunction with our continuing consolidation plans, while others may be closed on a seasonal basis depending upon production requirements. As of March 11, 2003, we have 6 idle properties that are being marketed for disposition. These properties are excluded from the table below.

     The following is a list of our active facilities and total rated traditional ice manufacturing capacity as of March 11, 2003:

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ITEM 3. Legal Proceedings

     We are involved in various claims, lawsuits and proceedings arising in the ordinary course of business. While there are uncertainties inherent in the ultimate outcome of such matters and it is difficult to determine the ultimate costs that we may incur, we believe the resolution of such uncertainties and the incurrence of such costs will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

     We are a party to a lawsuit in connection with an ammonia release at our Baton Rouge, Louisiana manufacturing facility in June 2001. The case, which is a consolidation of seven lawsuits, is titled Wallace Acey, Jr. et al vs. Reddy Ice Corporation. This lawsuit was filed August 30, 2001 in the 19th Judicial District Court, Parish of East Baton Rouge, Louisiana and has been assigned docket number 487373 Division N. There are multiple plaintiffs who have primarily alleged injuries consisting of inconvenience, watery eyes and offensive odors. The plaintiffs have not made a specific request for relief in the lawsuit. We maintain insurance to cover such events and our insurance carrier is contesting the suit and plans to vigorously defend against any claims. This lawsuit is still in a preliminary stage and the ultimate outcome is impossible to determine at this time. An unfavorable result in excess of the available insurance coverage could have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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

     During the quarter ended December 31, 2002, no matters were submitted to a vote of security holders.

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PART II

ITEM 5. Market for Registrant’s Common Equity and Related Stockholder Matters

     Our common stock trades on the American Stock Exchange under the symbol “ICY”. The following table sets forth the high and low sale prices of our common stock for the periods indicated:

     On March 11, 2003, the closing sales price of our common stock, as reported by the American Stock Exchange, was $1.46 per share. As of March 11, 2003, we had approximately 142 shareholders of record. We estimate that there were approximately 1,800 beneficial holders of our common stock as of March 11, 2003.

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

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

During 2000 and 2001, we issued shares of common stock in connection with the cashless exercise of warrants with an exercise price of $0.01. All of these warrants were issued in 1997 in connection with a $75 million issuance of our 12% senior notes, which are no longer outstanding. Upon exercise of the warrants, the shares were issued on the dates and in the amounts as follows: 12,765 shares on July 19, 2000, 5,674 shares on September 26, 2000 and 230,347 shares on July 16, 2001.

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

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	During 2000, we issued 66,936 shares of common stock to employees under our 2000 Employee Stock Purchase Plan at prices ranging between $2.34 and $3.51 per share.
	On August 31, 2001, we issued 100,000 shares of common stock in connection with the exercise of employee stock options at a price of $1.60 per share.
	During 2001, we issued 415,906 shares of common stock to employees under our 2000 Employee Stock Purchase Plan at prices ranging between $1.17 and $1.49 per share.
	On January 9, 2002, we issued 16,967 shares of common stock to employees under our 2000 Employee Stock Purchase Plan at a price of $0.91 per share.

ITEM 6. Selected Financial Data

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

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

General

     We view the manufacture and distribution of ice through traditional ice manufacturing and the Ice Factory as our predominant business segment. Our other business segment, non-ice products and operations, consists of refrigerated warehousing and the manufacturing and sale of bottled water.

Uncertainty of Forward Looking Statements and Information

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

	•		general economic trends and seasonality;
	•		substantial leverage and ability to service debt;
	•		availability of credit facilities and restrictive covenants under the credit facilities;
	•		risks associated with acquisitions and failure to integrate acquired businesses;
	•		availability of capital sources;
	•		competitive practices in the industry in which we compete;
	•		fluctuations in operating costs;
	•		technological changes and innovations;
	•		changes in labor conditions;
	•		capital expenditure requirements;
	•		legislative or regulatory requirements; and
	•		weather.

     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.

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Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

     Revenues. Revenues decreased $8.5 million, from $244.2 million for the twelve months ended December 31, 2001 to $235.7 million for the twelve months ended December 31, 2002. Revenues decreased $6.4 million in our ice segment as a result of the sale of our traditional ice business in California, offset by 1) slight volume increases due to better weather conditions in most of our markets and the recovery from the effects of the terrorist attacks in New York City and Washington, D.C. on September 11, 2001 and 2) increases in average selling prices in our non-California markets. Revenues in our non-ice operations decreased $2.2 million for the twelve months ended December 31, 2002 as compared with the same period in 2001, primarily due to the sale in 2001 of two cold storage operations and our ice production equipment sale and leasing business. The decrease due to the sales of these operations was partially offset by a $1.2 million increase in sales at our Virginia cold storage warehouses related to the signing of a significant new customer contract in 2002, partially offset by a loss of sales to our poultry customers caused by an outbreak of avian flu in Virginia.

     Cost of Sales. Cost of sales decreased $11.5 million, from $156.4 million for the twelve months ended December 31, 2001 to $144.9 million for the twelve months ended December 31, 2002. This decrease primarily resulted from the sale of our traditional ice operations in California and labor and other cost reductions in our remaining operations that were implemented in the last half of 2001. Offsetting these reductions were increases in electricity and insurance costs.

     Gross Profit. Gross profit increased $3.0 million, from $87.8 million for the twelve months ended December 31, 2001 to $90.8 million for the twelve months ended December 31, 2002. As a percentage of revenues, gross profit increased from 36.0% for the twelve months ended December 31, 2001 to 38.5% for the twelve months ended December 31 2002. These increases were the result of increased operating efficiencies in our ice operations, higher average selling prices and the sale of our traditional ice business in California, which generated lower gross profit margins than our other markets, offset by reduced margins at our Virginia cold storage warehouses due to reduced amounts of customer products moved through our warehouses by our poultry customers.

     Operating Expenses. Operating expenses decreased $3.7 million, from $37.4 million for the twelve months ended December 31, 2001 to $33.7 million for the twelve months ended December 31, 2002. As a percentage of revenues, operating expenses decreased from 15.3 % for the twelve months ended December 31, 2001 to 14.3% for the twelve months ended December 31, 2002. These decreases resulted from a reduction in labor and benefits due to a consolidation of administrative functions and headcount reductions during the second and third quarters of 2001, the sale of our traditional ice business in California in December 2001 and the sale of certain non-ice operations in the last half of 2001, offset by an increase in incentive compensation expense relating to improved performance.

     Depreciation and Amortization. Depreciation and amortization decreased $9.1 million, from $33.8 million for the twelve months ended December 31, 2001 to $24.7 million for the twelve months ended December 31, 2002. As a percentage of revenues, depreciation and amortization decreased from 13.8% for the twelve months ended December 31, 2001 to 10.5% for the twelve months ended December 31, 2002. This decrease was primarily due to (1) the disposition of significant fixed assets over the last eighteen months and (2) the adoption of Stamement of Financial Accounting Standards ("SFAS") No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002. SFAS No. 142 changed the accounting for goodwill and certain intangible assets with an indefinite life from an

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amortization method to an impairment-only approach. Amortization of goodwill and certain other intangible assets, including goodwill recorded in past business combinations, ceased upon adoption of this statement. Amortization expense related to these items was $6.0 million in 2001. Offsetting this decrease in expense is additional depreciation expense related to property additions since December 31, 2001.

     Gain (Loss) on Disposition of Assets. During the year ended December 31, 2002, we sold certain non-core assets, including several pieces of excess real estate, for a net loss of $2.4 million. In addition, we resolved all outstanding issues related to the sale of our traditional ice business in California and as a result recorded an additional charge of $1.9 million.

     Impairment of Assets. We reclassified excess real estate as “Assets Held for Sale” and recorded a non-cash charge of $3.3 million to write down their carrying value to their estimated fair value. In accordance with SFAS No. 142, we evaluated our goodwill as of December 31, 2002 and recorded a non-cash impairment charge of $4.1 million related to our bottled water and cold storage operations.

     Gain on the Extinguishment of Debt. During the twelve months ended December 31, 2002, we purchased and retired 9 3/4% Senior Notes with an aggregate principal amount of $15.0 million, which resulted in a gain on extinguishment of debt of $2.5 million.

     Interest Expense. Interest expense decreased $1.8 million, from $36.7 million for the twelve months ended December 31, 2001 to $34.9 million for the twelve months ended December 31, 2002. As a percentage of revenues, interest expense decreased from 15.0% for the twelve month periods ending December 31, 2001 to 14.8% for the twelve months ended December 31, 2002. The dollar decrease in interest expense was due to a $3.6 million non-cash charge to expense in December 2001 related to our interest rate collar agreement, lower average borrowings under our credit facility and lower outstanding balances of our 9 3/4% Senior Notes, offset by higher payments under our interest rate collar agreement and a higher average interest rate on the term loan included in our amended credit facility.

     Cumulative Effect of Change in Accounting Principle. On January 1, 2002 we adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” Adoption of this statement resulted in a charge to net income of $73.2 million (net of $0 tax). The allocation of the charge to our ice and non-ice segments was $70.1 million and $3.1 million, respectively.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     Revenues. Revenues increased $0.2 million, from $244.0 million for the year ended December 31, 2000 to $244.2 million for the year ended December 31, 2001. This increase in revenues consisted of a $1.0 million decrease in revenues from ice operations and a $1.2 million increase in revenues from non-ice operations. The decrease in ice operation revenue was primarily due to abnormally cool and rainy weather in the first quarter of 2001 and during September of 2001 in our Texas and Oklahoma markets as compared to the same periods in 2000, the effects of the terrorist attacks in New York City and Washington, D.C. on September 11, 2001, offset by new customer locations and price increases. The increase in non-ice products and operations was due to increased bottled water unit sales, offset by a reduction in ice equipment leasing revenue related to the sale of that business in June 2001.

     Cost of Sales. Cost of sales increased $6.5 million, from $149.9 million for the year ended December 31, 2000 to $156.4 million for the year ended December 31, 2001. The cost of

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

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

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

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

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

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

Liquidity and Capital Resources

     We generate cash from the sale of packaged ice through traditional delivery methods, by which we manufacture, package, and store ice at a central facility and transport it to our customers’ retail locations when needed, and through Ice Factories, which manufacture, package and store ice in our customers’ retail locations. Our primary uses of cash are (a) cost of sales, (b) operating expenses, (c) debt service and (d) capital expenditures related to replacing and

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modernizing the capital equipment in our traditional ice plants and acquiring and installing additional Ice Factories.

     We estimate our capital expenditures for 2003 will range between $12.0 and $13.0 million, which will primarily be used to maintain and expand our traditional ice operations. There can be no assurance that capital expenditures will not exceed this estimate. In addition, we initiated a leasing program for some of our Ice Factory installations in late 1999 and continued to utilize that strategy during 2000 and early 2001. Beginning in the second quarter of 2001, we stopped using operating leases for our Ice Factory installations. Our annual lease obligation is approximately $4 million and is contained within cost of sales. These operating leases expire during 2004 and 2005 and we will potentially purchase these assets at that time. Certain of these leases have early purchase options in 2003 that we may exercise under certain circumstances. The purchase cost of these assets under lease have not been included in our 2003 capital expenditure plan due to the uncertainty of the purchase.

     During 2001, we began a program to redeploy certain Ice Factories that generated margins below our targeted returns to higher margin locations and continued that program in 2002. During 2002, we placed 26 new Ice Factories, net of removals, and do not expect substantial net additions in 2003. Any capital expenditures associated with new Ice Factories are contained within our 2003 capital expenditure plan.

     As we have consolidated acquisitions into the existing company infrastructure, we have identified non-core and excess assets. Beginning in 2001, we began aggressively marketing these assets for sale resulting in proceeds of $11.0 million that year. A portion of those proceeds was from the sale of our traditional ice business in California. In 2002, we continued to market non-core and excess assets and as a result, we realized proceeds of approximately $3.4 million. We are continuing to market certain excess and non-core assets that we have determined to be disposable and anticipate proceeds of at least $1.5 million in 2003.

     We estimate a loss in the first quarter of 2003 and negative cash flows from operations due to the highly seasonal nature of our business. We have reported, and may in the future report, negative cash flows during the first quarter when the weather is generally cooler. We believe, however, that our overall treasury management of cash on hand and available borrowings under our credit facility will be adequate to meet debt service requirements, fund ongoing capital requirements, and satisfy working capital and general corporate needs. At December 31, 2002, we had a working capital deficit of approximately $6.1 million and had approximately $22.3 million of availability under our revolving credit facility.

     At December 31, 2002, we had approximately $305.2 million of total debt outstanding as follows:

	•		$255.0 million of 9 3/4% senior notes due 2005;
	•		$50.0 million outstanding under our credit facility; and
	•		$0.2 million of other debt, net of debt discount.

     On December 27, 2001, we refinanced our bank credit facility with a new lender. The total commitment under the facility is $88 million, consisting of a $38 million line of credit and a $50 million term loan. At December 31, 2002, we had $22.3 million of availability under the line of credit and cash on hand of $6.5 million.

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     Principal balances outstanding under the line of credit bear interest per annum, at our option, at the London Inter-Bank Offered Rate (“LIBOR”) plus 3.5% or the prime rate (as announced from time to time by JPMorgan Chase Bank) plus 1.5%. There was no balance on the line of credit at December 31, 2002. The outstanding balance at December 31, 2001 was classified as a current liability because of our intention to use the line of credit to fund our working capital. No principal payments are required until the final maturity date of October 31, 2004. Principal balances outstanding under the term loan bear interest per annum, at our option, at LIBOR plus 4% or the prime rate plus 2%, with a minimum of 9.5%. At December 31, 2002, the weighted average interest rate of borrowings outstanding under the credit facility was 9.5%. Interest is payable monthly. We pay a monthly fee on the average availability under the credit facility based on an annual rate of 0.5%, a $20,000 per quarter loan servicing fee and a $360,000 annual fee on the anniversary date of the credit facility.

     For fiscal years beginning on or after January 1, 2002, there is a mandatory principal payment on the term loan equal to 65% of our Excess Cash Flow (as defined in the credit facility). This principal payment is due within 10 days of delivery of the annual audited financial statements to the lenders, which may occur no later than 90 days after a fiscal year end. In accordance with the credit facility, the principal payment can be waived if certain conditions are met and we pay the Amortization Waiver Fee (as defined in the credit facility). We anticipate obtaining a waiver for the 2002 principal payment and paying the related Amortization Waiver Fee of approximately $368,000 in March 2003. The Amortization Waiver Fee was accrued as of December 31, 2002. Any balances outstanding under the term loan are due October 31, 2004.

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

     The borrowing base under the line of credit is comprised of eligible accounts receivable and eligible equipment and in addition, from January 28 to July 15 of each calendar year, a $10 million seasonal overadvance. Outstanding standby letters of credit reduce the amount available under the line of credit. We anticipate having adequate collateral during the first and second quarters of 2003 to maintain a minimum availability of $5 million under the line of credit. During the second half of 2003, we expect to have additional availability resulting from higher cash flows from operations and lower capital expenditures during the second and third quarters of the year. We are evaluating several options regarding the deployment of the excess cash flow that we expect to accumulate during these periods. These options include the purchase of our 9 3/4% senior notes on the open market and additional capital expenditures, including the purchase of Ice Factory operating leases.

     At December 31, 2002 and March 11, 2003, we had $7.1 million and $7.4 million of standby letters of credit outstanding, respectively, primarily to secure certain insurance obligations. We may be required to increase our letters of credit during 2003 due to new insurance policies and electricity supply contracts. Letters of credit in the amount of $0.7 million have various final expiration dates from 2008 through 2012. The remaining letters of credit in the amount of $6.7 million have no final expiration dates.

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     The table below summarizes the future payments due under our significant contractual obligations as of December 31, 2002:

     During 1999 and continuing into 2000, the pace of our acquisition activities slowed significantly and has subsequently ceased except for one small tuck-in acquisition completed in 2001. The decreased acquisition activity is generally due to the decline in the price of our common stock from the time of our initial public offering in January 1999, which has made it difficult for us to use our stock as consideration for acquisitions. In 1999, in connection with possible future acquisitions, we filed an “acquisition shelf” registration statement to register the sale of up to five million shares of common stock, of which 3,953,780 shares remain unissued as of December 31, 2002.

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

     Due to the obligations represented by the approaching maturities of our credit facility, which becomes due in October 2004, and our 9 3/4% senior notes and our mandatorily redeemable preferred stock, both of which are due in 2005, management and our board of directors have begun to analyze and consider various financial and strategic alternatives. We are in the process of exploring our options and believe there are a number of attractive alternatives to be explored over the course of 2003. In January 2003, we engaged Credit Suisse First Boston to assist us in evaluating the various alternatives.

Significant Accounting Policies

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

     Long-Lived Assets. Property and equipment is carried at cost and is being depreciated on a straight-line basis over estimated lives of 2.5 to 40 years. Maintenance and repairs are charged to expense as incurred, while capital improvements that extend the useful lives of the underlying assets are capitalized. We accounted for all of our historical acquisitions using the purchase

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method of accounting and as a result recorded significant amounts of goodwill. Other intangible assets include the following that are amortized over their useful lives:

     Impairment of Long-Lived Assets. In accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The determination of recoverability of long-lived assets and certain other identifiable intangible assets is based on an estimate of undiscounted future cash flows resulting from the use of the asset or its disposition. Measurement of an impairment loss for long-lived assets and other intangible assets that management expects to hold and use are based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or net realizable value. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill is evaluated using a market valuation approach based on valuations of comparable businesses.

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

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

New Accounting Pronouncements

     On January 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 changed the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, ceased upon adoption of this statement. Adoption of this statement resulted in a charge to net income of $73.2 million (net of $0 tax). The allocation of the charge to our ice and non-ice segments was $70.1 million and $3.1 million, respectively. Prospectively, we will annually evaluate the carrying amount of goodwill associated with our operating segments using a market valuation approach to identify any potential impairment of goodwill. As a result of this annual evaluation, an additional impairment charge of $4.1 million was recognized at December 31, 2002 in our non-ice segment.

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     On January 1, 2002, we adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting requirements for the impairment and disposal of long-lived assets. In accordance with this statement, we have presented certain assets to be disposed of as “assets held for sale” as of December 31, 2002.

     In April 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145, among other things, amends SFAS No. 4 and SFAS No. 64 to require that gains and losses from the extinguishment of debt generally be classified within continuing operations. The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002 and early application is encouraged. We adopted SFAS No. 145 upon issuance and as a result, have reflected gains on the extinguishment of debt within continuing operations.

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 replaces Emerging Issues Task Force (EITF) Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.” This standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement is effective for exit or disposal activities that are initiated after December 31, 2002. Adoption of this statement on January 1, 2003 did not have a significant effect on our consolidated financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123 to provide alternate methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the effects of stock-based compensation on reported results. The provisions of SFAS No. 148 are effective for years ending after December 15, 2002 and interim periods beginning after December 15, 2002. We adopted SFAS No. 148 upon issuance and the adoption did not have any impact on our results of operations or financial position in 2002. However, we have modified the disclosures in the December 31, 2002 financial statements to be in compliance with this statement.

Risk Factors

     Our substantial debt obligations may prevent us from funding planned activities, may require us to seek additional debt or equity financing, sell selected assets or diminish our ability to react to changes in our industry.

     We have financed many of our acquisitions through the incurrence of debt, and consequently, we have substantial debt service requirements. At December 31, 2002, our total indebtedness was $305.2 million. Our high level of debt could have important consequences to us, including the following:

•		A substantial portion of our cash flow must be dedicated to paying interest on our debt. This reduces the level of cash flow available to fund working capital, capital expenditures and acquisitions.
•		The indenture that governs the 9 3/4% senior notes and the credit agreement for our credit facility require us to meet certain financial tests. Additionally, there are other restrictions that

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		limit our ability to pay dividends, borrow additional funds or to dispose of assets. These covenants and restrictions may affect our flexibility in planning for and reacting to changes in our business.
•		Our high level of debt diminishes our ability to react to changes in general economic, industry and competitive conditions.

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

•		seek additional debt or equity financing, or renegotiate our existing debt arrangements on terms which may be less favorable than our current arrangements;
•		sell selected assets; or
•		reduce or delay planned capital expenditures.

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

     In addition, we will be required to repay or refinance our credit facility, 9 3/4% senior notes and potentially our mandatorily redeemable preferred stock between October 31, 2004 and April 15, 2005. In addition, if we do not repay or refinance our credit facility by March 2004, the balances outstanding under our credit facility and potentially the balances outstanding under the 9 3/4% senior notes will be classified as current liabilities as of December 31, 2003. No assurances can be given that we will be able to accomplish these repayments or refinancings on acceptable terms and conditions.

     Our failure to successfully compete could adversely affect our prospects and financial results.

     Our businesses are highly competitive. We have many competitors in each of our product, service and geographic markets. Competition in our businesses is based primarily on price and service. If we fail to successfully compete against our competitors, our business will be adversely affected. Winning new customers is important to our future growth, as the overall demand for ice is widely believed to track population growth. There are low barriers to entry in the ice industry and we could be adversely affected by any expansion of capacity by our existing competitors or by new entrants in our markets. We could also be adversely affected if our larger grocery or convenience store customers decide to manufacture their own ice.

     The seasonal nature of the ice business results in lower profits, and even losses, in the first and fourth quarters of the year.

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

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     The results of our operations may be adversely affected by weather.

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

     The market value of our common stock could be further adversely affected if we continue to report operating losses.

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

•		interest expenses primarily associated with our historically high levels of debt;
•		substantial depreciation of property and equipment;
•		substantial amortization of goodwill and other intangible assets primarily associated with our acquisitions and market expansion and an impairment charge of $73.2 million that was recognized in connection with the adoption of SFAS No. 142 on January 1, 2002;
•		other asset impairment charges.

     As of December 31, 2002, we had an accumulated deficit of $149.7 million and total shareholders’ deficit of $37.1 million. We cannot guarantee that we will be profitable in the future.

     Increases in the prices of electricity, certain raw materials, insurance and other required expenses could have an adverse effect on our results of operations.

     We use substantial amounts of electricity in connection with our manufacturing process. In 1999, we entered into a supply and management agreement with a third party to fix our electric costs at rates that were generally lower than market rates. On December 2, 2001, the third party filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code, thereby breaching its agreement with us. Since that time, we have been paying market rates for electricity that are higher than those under the supply agreement. The impact of this event was $1.7 million in extra electricity charges in 2002. Further increases in market rates could potentially have an adverse impact on our operations.

     Our business is sensitive to increases in the cost of fuel to operate the refrigerated trucks we use to deliver ice and to increases in the cost of polyethylene, which in turn increases the cost of our bags. Additionally, our business is also sensitive to increase in insurance costs, which includes general liability, workers compensation, health and vehicle insurance. We have already experienced increases in fuel costs, bag costs and insurance and expect additional increases in 2003. If the prices for these items and other required expenses should increase significantly, we

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will experience increased costs that we may not be able to pass along to our customers. There can be no assurance that significant changes in the prices of plastic bags, water, fuel, insurance or other commodities would not have a material adverse effect on our business, results of operations and cash flow.

     We may be exposed to significant environmental liabilities.

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

     We may not have the ability to repurchase the 9 3/4% senior notes in the event of a change of control.

     As of March 11, 2003, the majority of our debt consisted of $255 million of 9 3/4% senior notes. If there is a change of control of Packaged Ice, such as a merger or sale by us of all or substantially all of our assets, the holders of the 9 3/4% senior notes have the right to require us to purchase the outstanding 9 3/4% senior notes at 101% of the principal amount of the notes plus any accrued and unpaid interest. We may not have the ability to raise the funds necessary to finance the repurchase of the 9 3/4% senior notes if the holders require such a repurchase. This could result in a default under other debt agreements, including our credit facility.

     Changes in government laws and regulations and could have an adverse effect on our results of operations.

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

     Accidents involving our products and equipment could expose us to claims for damages.

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

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

     Our limited patent protection may not prevent competitors from using our proprietary bagging device or developing a similar machine, which could reduce our competitive advantage.

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

     We now have a competitor in the Ice Factory market, which could take some of our customers’ business.

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

     Acquisitions may result in the recording of goodwill and other intangibles assets, and may have a negative impact on our results of operations.

     If we begin acquiring other businesses again as part of our strategy, such acquisitions could result in the recording of goodwill and other intangibles assets. Goodwill and other intangible assets represented 43.2% of our total assets and exceeded shareholders’ deficit by $187.4 million as of December 31, 2002. Accounting principles generally accepted in the United States of America require that acquisitions initiated after June 30, 2001 be accounted for under the purchase method of accounting. Any resulting goodwill will remain on the balance sheet and not be amortized. Furthermore, the amortization of goodwill created by acquisitions prior to June 30, 2001 ceased on December 31, 2001. We are required to test these assets on an annual basis or whenever there is reason to suspect that their values have been diminished or impaired and write-downs may be necessary, which would increase our losses. The adoption of this accounting principle on January 1, 2002 resulted in an initial impairment charge of $73.2 million. The required annual test resulted in an additional impairment charge of $4.1 million in the fourth quarter of 2002.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risks

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

     On November 28, 2000, we entered into an interest rate collar agreement (the “Collar Agreement”). The Collar Agreement has a notional amount of $50 million and a term of 4 years. If the Index Rate (30-day LIBOR, as defined in the Collar Agreement) exceeds 7.75%, we will receive the difference between the Index Rate and 7.75%. If the Index Rate falls below 5.75%, we will pay the difference plus 1%. If we had been required to settle the Collar Agreement as of December 31, 2002, we would have had to pay $4.9 million.

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     We are exposed to some market risk due to the floating interest rates under our credit facility. Principal balances outstanding under the line of credit bear interest, at our option, at the London Inter-Bank Offered Rate (“LIBOR”) plus 3.5% or the prime rate (as announced from time to time by JP Morgan Chase Bank) plus 1.5%. The term loan bears interest, at our option, at LIBOR plus 4% or the prime rate plus 2%, with a minimum of 9.5%.

     As of December 31, 2002, the credit facility had an outstanding principal balance of $50.0 million at a weighted average interest rate of 9.5% per annum. Due to our interest rate collar agreement and the fact that the term loan has a minimum interest rate of 9.5%, the effect of a change in interest rates on our interest expense depends on the level of LIBOR rates. At December 31, 2002, the 30-day LIBOR rate was 1.38%.

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

ITEM 8. Financial Statements and Supplementary Data

     The financial statements and supplementary data required hereunder are included in this report as set forth in Item 15(a) hereof and are incorporated herein by reference.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

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PART III

     The information required by Item 10, “Director and Executive Officers of the Registrant”, Item 11, “Executive Compensation”, Item 12, “Security Ownership of Certain Beneficial Owners” and Item 13, “Certain Relationships and Related Transactions,” of Part III is incorporated by reference to the information set forth in our definitive proxy statement for the 2003 Annual Meeting of the Shareholders, which is expected to be filed within 120 days of our fiscal year end.

ITEM 14. Controls and Procedures

     Quarterly evaluation of the company’s Disclosure Controls and Internal Controls. Within the 90 days prior to the date of this Annual Report on Form 10-K, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”), and our internal controls and procedures for financial reporting (“Internal Controls”). This evaluation (the “Controls Evaluation”) was done under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Rules adopted by the Securities & Exchange Commission (“SEC”) require that in this section of the Annual Report we present the conclusions of the CEO and the CFO about the effectiveness of our Disclosure Controls and Internal Controls based on and as of the date of the Controls Evaluation.

     CEO and CFO Certifications. Appearing immediately following the Signatures section of this Annual Report there are two separate forms of “Certifications” of the CEO and the CFO. The first form of Certification is required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certification”). This section of the Annual Report which you are currently reading is the information concerning the Controls Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

     Disclosure Controls and Internal Controls. Disclosure Controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”), such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Internal Controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles.

     Limitations on the Effectiveness of Controls. The company’s management, including the CEO and CFO, does not expect that our Disclosure Controls or our Internal Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all controls issues and instances of fraud, if any, within the company have been detected. These

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inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

     Scope of the Controls Evaluation. The CEO/CFO evaluation of our Disclosure Controls and our Internal Controls included a review of the controls’ objectives and design, the controls’ implementation by the company and the effect of the controls on the information generated for use in this Annual Report. In the course of the Controls Evaluation, we sought to identify data errors, controls problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken. This type of evaluation will be done on a quarterly basis so that the conclusions concerning controls effectiveness can be reported in our Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. The overall goals of these various evaluations activities are to monitor our Disclosure Controls and our Internal Controls and to make modifications as necessary. Among other matters, we sought in our evaluation to determine whether there were any “significant deficiencies” or “material weaknesses” in the company’s Internal Controls, or whether the company had identified any acts of fraud involving personnel who have a significant role in the company’s Internal Controls. This information was important both for the Controls Evaluation generally and because items 5 and 6 in the Section 302 Certifications of the CEO and CFO require that the CEO and CFO disclose that information to our Board of Directors’ Audit Committee and to our independent auditors and to report on related matters in this section of the Annual Report. In the professional auditing literature, “significant deficiencies” are referred to as “reportable conditions”; these are control issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in the financial statements. A “material weakness” is defined in the auditing literature as a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and not be detected within a timely period by employees in the normal course of performing their assigned functions. We also sought to deal with other controls matters in the Controls evaluation, and in each case if a problem was identified, we considered what revision, improvement and/or correction to make in accordance with our on-going procedures.

     In accordance with SEC requirements, the CEO and CFO note that, since the date of the Controls Evaluation to the date of this Annual Report, there have been no significant changes in Internal Controls or in other factors that could significantly affect Internal Controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

     Conclusions. Based upon the Controls Evaluation, our CEO and CFO have concluded that, subject to the limitations noted above, our Disclosure Controls are effective to ensure that material information relating to Packaged Ice, Inc. and its consolidated subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared, and that our Internal Controls are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles.

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ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)		The following documents are filed as part of this Annual Report or are incorporated by reference:
1.		Financial Statements
		As to financial statements and supplementary information, reference is made to “INDEPENDENT AUDITORS’ REPORT” on Page F-1 of this Annual Report.
2.		Financial Statement Schedules
		None. All financial statement schedules are omitted because the information is not required, is not material or is otherwise included in the consolidated financial statements or notes thereto included elsewhere in this Annual Report.
3.		Exhibits

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(b)

Reports on Form 8-K.

     Packaged Ice, Inc. filed a report on Form 8-K with the Securities & Exchange Commission on January 21, 2003, which announced the appointment of Credit Suisse First Boston of New York to assist the Company in evaluating financial and strategic alternatives.

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SIGNATURES

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

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

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CERTIFICATION UNDER THE EXCHANGE ACT RULES

I, William P. Brick, certify that:

1.		I have reviewed this annual report on Form 10-K of Packaged Ice, Inc.;
2.		Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.		Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
	c)		presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 19, 2003

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CERTIFICATION UNDER THE EXCHANGE ACT RULES

I, Steven J. Janusek, certify that:

1.		I have reviewed this annual report on Form 10-K of Packaged Ice, Inc.;
2.		Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.		Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
	c)		presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 19, 2003

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INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Packaged Ice, Inc.:

     We have audited the accompanying consolidated balance sheets of Packaged Ice, Inc. and its subsidiaries (the “Company”) as of December 31, 2002 and 2001, and the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

     In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

     As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for its interest rate swap agreement effective January 1, 2001, to conform with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, and on January 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets to conform with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

/s/ Deloitte & Touche LLP
Houston, Texas
February 26, 2003

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PACKAGED ICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS