Dean Holding 10K 2005 Annual report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

For Annual and Transition Reports Pursuant to Sections 13 or 15(d)

of the Securities Exchange Act of 1934


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For The Fiscal Year Ended December 31, 2005
		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-08262

Dean Holding Company

(Exact name of Registrant as specified in its charter)


Delaware		75-2932967
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2515 McKinney Avenue

Suite 1200

Dallas, Texas 75201

(214) 303-3400

(Address, including zip code, and telephone number, including

area code, of Registrant’s principal executive offices)

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned-issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ 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 þ

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

large accelerated filer o accelerated filer o non-accelerated filer þ

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

Dean Holding Company is a wholly-owned subsidiary of Dean Foods Company.

The registrant meets the conditions specified in General Instruction I(1)(a) and (b) of Form 10-K and, therefore, is filing this form with the reduced disclosure format permitted by General Instruction I(2).

TABLE OF CONTENTS


		Page

PART I
1.	Business		1
	General		1
	Developments since January 1, 2005		3
	Employees		4
	Where You Can Get More Information		4
1A.	Risk Factors		4
1B.	Unresolved Staff Comments		5
2.	Properties		6
3.	Legal Proceedings		7
4.	Submission of Matters to a Vote of Security Holders		7

PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		8
6.	Selected Financial Data		8
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
7A.	Quantitative and Qualitative Disclosures About Market Risk		10
8.	Consolidated Financial Statements		11
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		12
9A.	Controls and Procedures		12
9B.	Other Information		13

PART III
10.	Directors and Executive Officers		13
11.	Executive Compensation		13
12.	Security Ownership of Certain Beneficial Owners and Management		13
13.	Certain Relationships and Related Transactions		13
14.	Principal Accountant Fees and Services		13

PART IV
15.	Exhibits and Financial Statement Schedule		14
Signatures			S-1
Computation of Ratio of Earnings to Fixed Charges
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I


Item 1.	*Business*

Explanatory Note: As permitted by General Instruction I(2)(d) to Form 10-K, in lieu of the information required by Item 1 of Form 10-K, we are providing only the information required by General Instruction I(2)(d). For more information, this report should be read in conjunction with the 2005 Annual Report on Form 10-K of our parent, Dean Foods Company, as filed with the Securities and Exchange Commission on March 10, 2006.

General

We are a wholly-owned subsidiary of Dean Foods Company, a leading food and beverage company. Our operations are part of the Dairy Group segment of Dean Foods Company.

We manufacture, market and distribute a wide variety of branded and private label dairy case products to retailers, distributors, foodservice outlets, schools and governmental entities across the United States.

Our sales totaled approximately $3.70 billion in 2005. The following charts graphically depict our 2005 sales by product and by channel, and indicate the percentage of private label versus branded sales.


(1)	Includes, among other things, regular milk, flavored milks, buttermilk, half-and-half, whipping cream, dairy coffee creamers and ice cream mix.

(2)	Includes ice cream and ice cream novelties.

(3)	Includes yogurt, cottage cheese, sour cream and dairy-based dips.

(4)	Includes fruit juice, fruit-flavored drinks and water.

(5)	Includes, among other things, items for resale such as butter, cheese and eggs.

(6)	Such as restaurants, hotels and other foodservice outlets.

Products not sold under customer brands are sold under local and regional proprietary or licensed brands, including the following:


East Region(1)		West Region(1)

Barber’s^®		Alta Dena^®
Dean’s^®		Berkeley Farms^™
LANDO’LAKES^® (licensed brand)		Creamland^™
Maplehurst^®		Dean’s^®
Mayfield^®		Gandy’s^®
McArthur^®		Price’s^™
Meadowbrook^®		Swiss^™
Purity^™
Reiter^®
Swiss Premium^®
TG Lee^®
Verifine^®


(1)	Dean Foods Company’s Dairy Group segment operates in a generally decentralized manner organized by region. Our operations are disbursed among two of Dean Foods Company’s Dairy Group regions.

We sell our products primarily on a local or regional basis through our local and regional sales forces, although some national customer relationships are coordinated by Dean Foods Company’s Dairy Group corporate sales department. Most of our customers, including our largest customer (Wal-Mart including its subsidiaries, such as Sam’s Club, which accounted for approximately 16.0% of our 2005 sales), purchase products from us either by purchase order or pursuant to contracts that are generally terminable at will by the customer.

We currently operate 33 manufacturing facilities in 17 states. For more information about our facilities, see “Item 2. Properties.”

Due to the perishable nature of the our products, we deliver the majority of our products from our facilities directly to our customers’ stores in refrigerated trucks or trailers that we own or lease. This form of delivery is called a “direct store delivery” or “DSD” system. We believe Dean Foods Company’s Dairy Group has one of the most extensive refrigerated DSD systems in the United States.

The primary raw material we use is raw milk. We purchase our raw milk primarily from farmers’ cooperatives, typically pursuant to requirements contracts (with no minimum purchase obligation). Raw milk is generally readily available. The minimum price of raw milk is regulated in most parts of the country by the federal government. Several states also regulate raw milk pricing through their own programs. Other raw materials we use, such as juice concentrates and sweeteners, in addition to packaging supplies, are generally available from numerous suppliers and we are not dependent on any single supplier for these materials. Certain of our raw materials and packaging supplies are purchased under long-term contracts in order to obtain lower costs. The prices of our raw materials increase and decrease based on supply and demand.

We generally increase or decrease the prices of our fluid dairy products on a monthly basis in correlation to fluctuations in the costs of raw materials and packaging supplies. However, in some cases, we are competitively or contractually constrained with respect to the means and/or timing of price increases. This can have a negative impact on our profitability.

The dairy industry is a mature industry that has traditionally been characterized by slow to flat growth, low profit margins, fragmentation and excess capacity. Excess capacity resulted from the development of more efficient manufacturing techniques, the establishment of captive dairy manufacturing operations by some grocery retailers and declining demand for fluid milk products. From 1990 through 2001, the dairy industry has experienced significant consolidation led by Dean Foods Company. Consolidation has resulted in lower

operating costs, less excess capacity and greater efficiency. However, per capita consumption of traditional fluid dairy products has continued to decline. According to the United States Department of Agriculture (“USDA”), per capita consumption of fluid milk and cream decreased by over 15% from 1990 to the end of 2004, although total consumption has remained relatively flat over the same period due to population increases. Therefore, volume growth across the industry generally remains flat to modest, profit margins generally remain low and excess manufacturing capacity continues to exist. In this environment, price competition is particularly intense, as smaller processors struggle to retain enough volume to cover their fixed costs. In response to this dynamic, and due to the significant competitive pressure caused by the ongoing consolidation among food retailers, many processors, including us, are now placing an increased emphasis on product differentiation and cost reduction in an effort to increase consumption, sales and margins.

We have several competitors in each of our major product and geographic markets. Competition between dairy processors for shelf-space with retailers is based primarily on price, service and quality, while competition for consumer sales is based on a variety of factors such as brand recognition, price, taste preference and quality. Dairy products also compete with many other beverages and nutritional products for consumer sales.

For more financial information about our recent operations, see “Part II — Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Developments Since January 1, 2005


	*Discontinued Operations*

On June 27, 2005, Dean Foods Company completed the spin-off (“Spin-off”)of our majority owned subsidiary, TreeHouse Foods, Inc. (“TreeHouse”). Immediately prior to the Spin-off, we transferred to TreeHouse the businesses previously conducted by our Specialty Foods Group segment and Dean Foods Company transferred to TreeHouse certain businesses previously conducted by other segments of Dean Foods Company not consolidated with us. On June 24, 2005, immediately after Dean Foods Company transferred these businesses to TreeHouse, we distributed the common stock of TreeHouse to Dean Foods Company as a dividend. As a result of these transactions, we no longer have a Specialty Foods Group segment and our Dairy Group is our only remaining reportable segment.

Our financial statements have been reclassified to give effect to the business previously conducted by our Specialty Foods Group segment as discontinued operations.


	*Facility Closing and Reorganization Activities*

In 2005, we recorded a charge of $3.2 million as part of our ongoing costs savings initiative, which included the closing of a facility in Albuquerque, New Mexico. We are consolidating production of this facility into our other facilities. We expect to incur additional charges related to these restructuring plans of approximately $2.0 million, primarily in 2006. These charges include the following costs:


	•	Workforce reductions as a result of facility closings, facility reorganizations and consolidation of administrative functions;

	•	Shutdown costs, including those costs necessary to prepare abandoned facilities for closure;

	•	Costs incurred after shutdown such as lease obligations or termination costs, utilities and property taxes; and

	•	Write-downs of property, plant and equipment and other assets, primarily for asset impairments as a result of facilities that are no longer used in operations. The impairments relate primarily to owned buildings, land and equipment at the facilities, which are written down to their estimated fair value and held for sale.

See Note 12 to our Consolidated Financial Statements for more information regarding our facility closing and reorganization activities.

Employees

As of December 31, 2005, we had 10,080 employees, of which approximately 40% participate in collective bargaining agreements.

Where You Can Get More Information

Our fiscal year ends on December 31. We file annual, quarterly and current reports with the Securities and Exchange Commission. In addition, Dean Foods Company, our sole shareholder, also files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission.

You may read and copy any reports, statements or other information that we or Dean Foods Company file with the Securities and Exchange Commission at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, N.W., Washington D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the Securities and Exchange Commission. Please call the Securities and Exchange Commission at1-800-SEC-0330 for further information on the operation of the Public Reference Room.

We file our reports with the Securities and Exchange Commission electronically via the Securities and Exchange Commission’s Electronic Data Gathering, Analysis and Retrieval system (“EDGAR”). The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding companies that file electronically with the Securities and Exchange Commission via EDGAR. The address of this Internet site ishttp://www.sec.gov.

We also make available free of charge through Dean Food Company’s website atwww.deanfoods.comour annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Our Code of Ethics, which is applicable to all employees and directors of Dean Foods Company and its subsidiaries, is available on Dean Foods Company’s corporate website atwww.deanfoods.com. Any waivers that may be granted to our executive officers or directors under the Code of Ethics, and any amendments to our Code of Ethics, will be posted on our corporate website. If you would like hard copies of any of these documents, or any of our filings with the Securities and Exchange Commission, write or call us at:


	Dean Foods Company
	2515 McKinney Avenue, Suite 1200
	Dallas, Texas 75201
	(214) 303-3400
	Attention: Investor Relations


Item 1A.	*Risk Factors*

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Statements that are not historical in nature are forward-looking statements about our future that are not statements of historical fact. Most of these statements are found in this report within “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. In some cases, you can identify these statements by terminology such as “may,” “should,” “could,” “expects,” “seek to,” “anticipates,” “plans,” “believes,” “estimates,” “intends,” “predicts,” “projects,” “potential” or “continue” or the negative of such terms and other comparable terminology. These statements are only predictions, and in evaluating them, you should carefully consider the information above, as well as the risks outlined below. Actual performance or results may differ materially and adversely.


	*Changes in Laws, Regulations and Accounting Standards Could Have an Adverse Effect on Our Financial Results*

We are subject to federal, state, local and foreign governmental laws and regulations, including those promulgated by the United States Food and Drug Administration, the United States Department of Agriculture, the Sarbanes-Oxley Act of 2002 and numerous related regulations promulgated by the Securities and Exchange Commission, the Public Company Accounting Oversight Board and the Financial Accounting Standards Board. Changes in federal, state or local laws, or the interpretations of such laws and regulations may negatively impact our financial results or our ability to market our products.


	*Loss of Rights to Any of Our Licensed Brands Could Adversely Affect Our Sales and Profits*

We sell certain of our products under licensed brand names such asLAND O’LAKESand others. In some cases, we have invested significant capital in product development and marketing and advertising related to these licensed brands. Should our rights to manufacture and sell products under any of these names be terminated for any reason, our financial performance and results of operations could be materially and adversely affected.


	*Decisions Made by Dean Foods Company Could Affect Our Performance*

We are a wholly-owned subsidiary of Dean Foods Company. Our operations are part of the larger Dairy Group segment of Dean Foods Company. Dean Foods Company’s management makes decisions regarding allocation of capital resources, facility closings and reorganizations, customer contracts, purchases of new business and sales of our assets.


	*Dean Foods Company has Substantial Debt and Other Financial Obligations that We Guarantee*

Certain of Dean Foods Company’s subsidiaries, including us, guarantee Dean Foods Company’s indebtedness under its senior credit facility. We have pledged substantially all of our assets (other than our real property and our ownership interests in our subsidiaries) as security for our guaranty. Dean Foods Company’s senior credit facility provides for a $1.5 billion revolving credit facility and a $1.5 billion term loan. We may provide additional guarantees of financial obligations in the future.

Dean Foods Company’s ability to make scheduled payments on its debt and other financial obligations depends on its financial and operating performance. Dean Foods Company’s financial and operating performance is subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond its control. If Dean Foods Company does not comply with the financial and other restrictive covenants under its senior credit facility, it may default under such facility. Upon default, Dean Foods Company’s lenders could accelerate the indebtedness under the facility, foreclose against its collateral or seek other remedies, which would jeopardize our ability to continue our current operations.


Item 1B.	*Unresolved Staff Comments*

None.


Item 2.	*Properties*

Explanatory Note: As permitted by General Instruction I(2)(d) to Form 10-K, in lieu of the information required by Item 2 of Form 10-K, we are providing only the information required by General Instruction I(2)(d).

We currently conduct our manufacturing operations from the following facilities, most of which are owned:


	Number of
Region	Facilities		Locations of Facilities

East		26	• Birmingham, Alabama(2)
			• Miami, Florida
			• Orange City, Florida
			• Orlando, Florida
			• Braselton, Georgia
			• Belvidere, Illinois
			• Chemung, Illinois
			• Huntley, Illinois
			• Rockford, Illinois
			• Rochester, Indiana
			• Louisville, Kentucky
			• Evart, Michigan
			• Thief River Falls, Minnesota
			• Woodbury, Minnesota
			• Bismark, North Dakota
			• Akron, Ohio
			• Springfield, Ohio
			• Belleville, Pennsylvania
			• Erie, Pennsylvania
			• Lebanon, Pennsylvania
			• Sharpsville, Pennsylvania
			• Sioux Falls, South Dakota
			• Athens, Tennessee
			• Nashville, Tennessee
			• Sheboygan, Wisconsin
West		7	• Buena Park, California(2)
			• City of Industry, California
			• Hayward, California
			• Albuquerque, New Mexico
			• El Paso, Texas
			• Lubbock, Texas

Each of the manufacturing facilities also serves as a distribution facility. In addition, we have numerous distribution branches across the country, some of which are owned, but most of which are leased. Our headquarters are located in Dallas, Texas in leased premises.


Item 3.	*Legal Proceedings*

We are not currently party to, nor are our properties the subject of, any material pending legal proceedings. However, we are party from time to time to certain claims, litigation, audits and investigations. We believe that we have established adequate reserves to satisfy any potential liability that is reasonably expected under all claims, litigations, audits and investigations that are pending. The settlement of any pending or threatened matter is not expected to have a material adverse impact on our financial position, results of operations or cash flows.


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

Omitted under the reduced disclosure format pursuant to General Instruction 1(2)(c) of Form 10-K.

PART II


Item 5.	*Market for Registrant’s Common Equity; Related Stockholder Matters and Issuer Purchases of Equity Securities*

Dean Holding Company is a wholly-owned subsidiary of Dean Foods Company and there is no market for the registrant’s common stock.


Item 6.	*Selected Financial Data*

Omitted under the reduced disclosure format permitted by General Instruction I(2)(a) of Form 10-K.


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

Explanatory Note: As permitted by General Instruction I(2)(a) to Form 10-K, in lieu of the information required by Item 7, we are providing only the information required by General Instruction I(2)(a).

Results of Operations

The table set forth below presents certain information concerning our results of operations, including information presented as a percentage of net sales.


			Year Ended December 31

			2005					2004

			Dollars		Percent			Dollars		Percent

			(Dollars in millions)
Net sales			$	3,698.4		100.0	%	$	3,633.1		100.0	%
Cost of sales				2,799.5		75.7			2,782.2		76.6

	Gross profit			898.9		24.3			850.9		23.4
	Operating costs and expenses:
		Selling and distribution		532.7		14.4			510.7		14.1
		General and administrative		117.9		3.2			121.3		3.3
		Amortization of intangibles		1.1		—			1.2		—
		Facility closing and reorganization costs		3.2		0.1			4.5		0.1

Total operating costs and expenses				654.9		17.7			637.7		17.5

Total operating income			$	244.0		6.6	%	$	213.2		5.9	%


	*Year Ended December 31, 2005 Compared to Year Ended December 31, 2004*

Our key performance indicators are sales volumes, gross profit and operating income.

Net Sales — Net sales increased approximately $65.3 million, or 1.8%, in 2005 versus 2004. The change in net sales from 2004 to 2005 was due to the following:


		Dollars		Percent

		(Dollars in millions)
2004 Net sales		$	3,633.1
	Volume		29.7		0.8	%
	Pricing and product mix		35.6		1.0

2005 Net sales		$	3,698.4		1.8	%

The increase in sales was driven primarily by increased pricing and increased volumes. Volume sales of all of our products increased 0.8% in 2005 compared to 2004. Volume sales of fresh milk, which were approximately 74% of our 2005 volumes, were up approximately 1.2% for the year compared to USDA data showing a relatively flat total consumption of milk in the U.S. during the year.

The increase in net sales due to pricing and product mix shown in the above table primarily resulted from increased pricing due to the pass through of increased fuel and packaging costs, partly offset by lower raw milk costs in 2005. In general, we change the prices we charge our customers for fluid dairy products on a monthly basis, as the costs of raw materials and other variable costs fluctuate. Because of competitive pressure, the price increases do not always reflect the entire increase in raw material and other input costs that we may experience. The following table sets forth the average monthly Class I “mover” and average monthly Class II minimum prices for raw skim milk and butterfat for 2005 compared to 2004:


	Year Ended December 31*

	2005			2004			% Change

Class I raw skim milk mover(1)	$	8.54	(2)	$	8.44	(2)		1	%
Class I butterfat mover(1)		1.76	(3)		1.95	(3)		(10	)
Class II raw skim milk minimum(4)		7.74	(2)		6.90	(2)		12
Class II butterfat minimum(4)		1.72	(3)		2.06	(3)		(17	)


	*	The prices noted in this table are not the prices that we actually pay. The minimum prices applicable at any given location for Class I raw skim milk or Class I butterfat are based on the Class I mover plus a location differential. Class II prices noted in the table are federal minimum prices, applicable at all locations. Our actual cost also includes producer premiums, procurement costs and other related charges that vary by location and vendor.


(1)	We process Class I raw skim milk and butterfat into fluid milk products.

(2)	Prices are per hundredweight.

(3)	Prices are per pound.

(4)	We process Class II raw skim milk and butterfat into products such as cottage cheese, creams and creamers, ice cream and sour cream.

Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs; labor costs; plant and equipment costs, including costs to operate and maintain our coolers and freezers; and costs associated with transporting our finished products from our manufacturing facilities to our own distribution facilities. Costs of sales increased slightly to $2.80 billion in 2005 compared to $2.78 billion in 2004 primarily due to increased volumes and an approximately $19 million increase in resin costs, partly offset by lower raw milk costs. Resin prices increased primarily due to significant supply constraints resulting from the Gulf Coast hurricanes. Resin is the primary raw material in our plastic bottles. Our cost of sales ratio decreased to 75.7% in 2005 compared to 76.6% in 2004 primarily due to the impact of higher volumes and efficiencies gained through our facility rationalization activities.

Operating Costs and Expenses — Our operating expenses increased approximately $17.2 million during 2005 compared to 2004 due to higher distribution costs of $20.4 million, $11 million of which was due to increased fuel prices and the remaining increase was driven by increased volumes and higher bad debt expense. Bad debt expense increased approximately $2.9 million in 2005 compared to the prior year due to the write-off of a receivable from a large customer as well as the relatively higher level of bad debt recoveries recognized in 2004. These increases were partly offset by the management fee charged to us by Dean Foods Company, which was approximately $9.2 million lower than in 2004. The management fee is based on budgeted annual expenses for Dean Food Company’s corporate headquarters, which is then allocated among the segments of Dean Foods Company. The 2005 management fee was lower primarily as a result of the Spin-

off of our Specialty Foods Group in June 2005. Our operating expense ratio increased to 17.7% in 2005 from 17.5% in 2004.

Operating Income — Operating income during 2005 was $244.0 million, an increase of $30.8 million from 2004 operating income of $213.2 million. Our operating margin in 2005 was 6.6% compared to 5.9% in 2004.

Other (Income) Expense — Interest expense decreased to $50.8 million in 2005 from $54.9 million in 2004. In June 2005, we repaid our $100 million senior note, which lowered interest expense for 2005 by $3.8 million compared to 2004.

Income Taxes — Income tax expense was recorded at an effective rate of 38.3% in 2005 compared to 38.7% in 2004. Our effective tax rate varies based on the relative earnings of our business units.


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk*

We believe our exposures to market risks are immaterial. Our senior notes are at fixed interest rates. Historically, we have not had any interest rate swap or other hedging agreements. Our exposure to foreign currency is not significant.


Item 8.	*Consolidated Financial Statements*

Our Consolidated Financial Statements are included in this report on the following pages.


		Page

Report of Independent Registered Public Accounting Firm			F-1
Consolidated Balance Sheets as of December 31, 2005 and 2004			F-2
Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003			F-3
Consolidated Statements of Parent’s Net Investment for the years ended December 31, 2005, 2004 and 2003			F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003			F-5
Notes to Consolidated Financial Statements:
	1. Summary of Significant Accounting Policies		F-6
	2. Acquisitions and Discontinued Operations		F-9
	3. Inventories		F-10
	4. Property, Plant and Equipment		F-11
	5. Intangible Assets		F-11
	6. Accounts Payable and Accrued Expenses		F-12
	7. Income Taxes		F-13
	8. Long-Term Debt		F-14
	9. Other Comprehensive Income		F-15
	10. Employee Retirement and Profit Sharing Plans		F-15
	11. Postretirement Benefits Other Than Pensions		F-16
	12. Facility Closing and Reorganization Costs		F-18
	13. Supplemental Cash Flow Information		F-20
	14. Commitments and Contingencies		F-20
	15. Fair Value of Financial Instruments		F-21
	16. Geographic Information and Major Customers		F-22
	17. Quarterly Results of Operations (unaudited)		F-22

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Dean Holding Company

Dallas, Texas

We have audited the accompanying consolidated balance sheets of Dean Holding Company and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of income, stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Dean Holding Company and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, in 2005 the Company changed its method of accounting for conditional asset retirement obligations to conform to Financial Accounting Standards Board Interpretation No. 47.

/s/DELOITTE & TOUCHE LLP

Dallas, Texas

March 8, 2006

F-1

DEAN HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS


			December 31

			2005			2004

			(Dollars in thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	16,056		$	12,490
	Receivables, net of allowance for doubtful accounts of $6,601 and $9,500			283,905			261,184
	Inventories			104,488			101,265
	Deferred income taxes			37,071			48,187
	Prepaid expenses and other current assets			11,157			18,754

		Total current assets		452,677			441,880
Property, plant and equipment				508,963			510,513
Goodwill				1,080,529			1,118,775
Identifiable intangible and other assets				195,704			204,265
Assets of discontinued operations				—			613,240

		Total	$	2,237,873		$	2,888,673


LIABILITIES AND PARENT’S NET INVESTMENT
Current liabilities:
	Accounts payable and accrued expenses		$	292,163		$	288,684
	Income taxes payable			5,492			4,897
	Current portion of long-term debt			28			99,334

		Total current liabilities		297,683			392,915
Long-term debt				757,743			754,683
Deferred income taxes				150,620			183,265
Other long-term liabilities				71,079			136,095
Liabilities of discontinued operations				—			120,900
Commitments and contingencies (Note 14)
	Parent’s net investment			961,322			1,316,319
	Accumulated other comprehensive income (loss)			(574	)		(15,504	)

		Total parent’s net investment		960,748			1,300,815

		Total	$	2,237,873		$	2,888,673

See Notes to Consolidated Financial Statements.

F-2

DEAN HOLDING COMPANY

CONSOLIDATED STATEMENTS OF INCOME


			Year Ended December 31

			2005			2004			2003

			(In thousands)
Net sales			$	3,698,412		$	3,633,107		$	3,192,831
Cost of sales				2,799,517			2,782,222			2,398,601

Gross profit				898,895			850,885			794,230
Operating costs and expenses:
	Selling and distribution			532,638			510,691			460,536
	General and administrative			117,928			121,300			117,605
	Amortization of intangibles			1,121			1,223			1,696
	Facility closing and reorganization costs			3,170			4,445			5,919

		Total operating costs and expenses		654,857			637,659			585,756

Operating income				244,038			213,226			208,474
Other (income) expense:
	Interest expense			50,838			54,851			55,134
	Other income, net			(76	)		(2,100	)		(1,814	)

		Total other expense		50,762			52,751			53,320

Income from continuing operations before income taxes				193,276			160,475			155,154
Income taxes				74,029			62,069			58,218

Income from continuing operations				119,247			98,406			96,936
Income from discontinued operations, net of tax				12,185			32,954			63,950

Income before cumulative effect of accounting change				131,432			131,360			160,886
Cumulative effect of accounting change, net of tax				(686	)		—			—

Net income			$	130,746		$	131,360		$	160,886

See Notes to Consolidated Financial Statements.

F-3

DEAN HOLDING COMPANY

CONSOLIDATED STATEMENTS OF PARENT’S NET INVESTMENT


						Accumulated
						Other			Total
			Parent’s Net			Comprehensive			Parent’s Net			Comprehensive
			Investment			Income (Loss)			Investment			Income

			(In thousands)
Balance, January 1, 2003			$	1,368,128		$	(75	)	$	1,368,053
	Net income			160,886			—			160,886		$	160,886
	Activity with parent			(179,744	)					(179,744	)		—
	Other comprehensive income (Note 9):
	Cumulative translation adjustment			—			(1,552	)		(1,552	)		(1,552	)
		Minimum pension liability adjustment		—			(7,655	)		(7,655	)		(7,655	)

	Comprehensive income											$	151,679

Balance, December 31, 2003				1,349,270			(9,282	)		1,339,988
	Net income			131,360						131,360		$	131,360
	Activity from parent			(164,311	)		—			(164,311	)		—
	Other comprehensive income (Note 9):
	Cumulative translation adjustment			—			696			696			696
		Minimum pension liability adjustment		—			(6,918	)		(6,918	)		(6,918	)

	Comprehensive income											$	125,138

Balance, December 31, 2004				1,316,319			(15,504	)		1,300,815
	Net income			130,746			—			130,746		$	130,746
	Activity with parent			(24,392	)		14,684			(9,708	)		14,684
	Dividend of TreeHouse to Parent			(461,351	)		—			(461,351	)
	Other comprehensive income (Note 9):
	Cumulative translation adjustment			—			246			246			246

	Comprehensive income											$	145,676

Balance, December 31, 2005			$	961,322		$	(574	)	$	960,748

See Notes to Consolidated Financial Statements.

F-4

DEAN HOLDING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS


					Year Ended December 31

					2005			2004			2003

					(In thousands)
Cash flows from operating activities:
	Net income				$	130,746		$	131,360		$	160,886
	Income from discontinued operations					(12,185	)		(32,954	)		(63,950	)
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				73,127			68,058			58,491
		(Gain) loss on disposition of assets				72			(343	)		(13	)
		Cumulative effect of accounting change				686			—			—
		Write-down of impaired assets				167			594			—
		Deferred income taxes				13,906			33,512			49,116
		Other				2,249			982			(4,759	)
		Changes in operating assets and liabilities, net of acquisitions:
			Receivables			(15,905	)		(14,346	)		(21,769	)
			Inventories			(3,373	)		(7,743	)		(6,373	)
			Prepaid expenses and other assets			11,822			(3,117	)		25,978
			Accounts payable and accrued expenses			(23,274	)		(39,548	)		(34,848	)
			Income taxes payable			995			(16,790	)		(21,512	)

				Net cash provided by continuing operations		179,033			119,665			141,247
				Net cash provided by discontinued operations		31,496			89,713			76,968

				Net cash provided by operating activities		210,529			209,378			218,215

Cash flows from investing activities:
	Additions to property, plant and equipment					(61,697	)		(60,570	)		(76,611	)
	Cash out flows for acquisitions and investments					—			(28,890	)		(1,187	)
	Proceeds from the sale of fixed assets					897			4,925			3,335
	Net proceeds from divestitures					—			(96	)		(305	)

				Net cash used in continuing operations		(60,800	)		(84,631	)		(74,768	)
				Net cash used in discontinued operations		(7,631	)		(22,922	)		(30,782	)

				Net cash used in investing activities		(68,431	)		(107,553	)		(105,550	)

Cash flows from financing activities:
	Proceeds from issuance of debt					1,109			63,819			71,979
	Repayment of debt					(101,153	)		(8,035	)		(5,991	)
	Additional investment from parent					—			21,504			—
	Distribution to parent					(49,641	)		(186,522	)		(192,320	)

				Net cash used in continuing operations		(149,685	)		(109,234	)		(126,332	)
				Net cash used in discontinued operations		11,153			(2,958	)		12,267

				Net cash used in financing activities		(138,532	)		(112,192	)		(114,065	)

Increase (decrease) in cash and cash equivalents						3,566			(10,367	)		(1,400	)
Cash and cash equivalents, beginning of period						12,490			22,857			24,257

Cash and cash equivalents, end of period					$	16,056		$	12,490		$	22,857

See Notes to Consolidated Financial Statements.

F-5

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2005, 2004 and 2003


1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Our Business — We are a wholly owned subsidiary of Dean Foods Company, a leading food and beverage company. We are a processor and distributor of milk and various other dairy products in the United States and a part of the larger Dairy Group segment of Dean Foods Company. We sell our products under a variety of local and regional brands and under private labels.

Basis of Presentations — Our Consolidated Financial Statements include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation.

Dean Foods Company provides us with management support in return for a management fee. The management fee is based on budgeted annual expenses for Dean Foods Company’s corporate headquarters, which is then allocated among the segments of Dean Foods Company. Dean Foods Company charged us management fees of $35.6 million, $44.8 million and $37.0 million for the years ended December 31, 2005, 2004 and 2003, respectively. Our cash is available for use by, and is regularly transferred to, Dean Foods Company at its discretion. Cash that has been transferred to Dean Foods Company is included in “Parent’s Net Investment” on our balance sheet.

Previously we had a Specialty Foods Group segment. On June 27, 2005, Dean Foods Company completed the spin-off (“Spin-off”) of our majority-owned subsidiary TreeHouse Foods, Inc. (“TreeHouse”). Immediately prior to the Spin-off, we transferred to TreeHouse the businesses previously conducted by our Specialty Foods Group segment and Dean Foods Company transferred to TreeHouse certain businesses previously conducted by other segments of Dean Foods Company not consolidated with us. On June 24, 2005, immediately after Dean Foods Company transferred these businesses to TreeHouse, we distributed the common stock of TreeHouse to Dean Foods Company as a dividend. As a result of these transactions, we no longer have a Specialty Foods Group segment and our Dairy Group is our only remaining reportable segment. In our Consolidated Financial Statements for the years ended 2004 and 2003, the businesses transferred to TreeHouse have been reclassified as discontinued operations.

Use of Estimates — The preparation of our Consolidated Financial Statements in conformity with generally accepted accounting principles (“GAAP”) requires us to use our judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from these estimates under different assumptions or conditions.

Cash Equivalents — We consider temporary cash investments with an original maturity of three months or less to be cash equivalents.

Inventories — Inventories are stated at the lower of cost or market. Our products are valued using thefirst-in, first-out (“FIFO”) method. The costs of finished goods inventories include raw materials, direct labor and indirect production and overhead costs.

Property, Plant and Equipment — Property, plant and equipment are stated at acquisition cost, plus capitalized interest on borrowings during the actual construction period of major capital projects. Also included in property, plant and equipment are certain direct costs related to the implementation of computer software for internal use. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets, as follows:


Asset		Useful Life

Buildings and improvements		7 to 40 years
Machinery and equipment		3 to 20 years

F-6

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We perform impairment tests when circumstances indicate that the carrying value may not be recoverable. Capitalized leases are amortized over the shorter of their lease term or their estimated useful lives. Expenditures for repairs and maintenance, which do not improve or extend the life of the assets, are expensed as incurred.

Intangible and Other Assets — Identifiable intangible assets are amortized over their estimated useful lives as follows:


Asset		Useful Life

Customer relationships		Straight-line method over 5 to 15 years
Customer supply contracts		Straight-line method over the terms of the agreements
Noncompetition agreements		Straight-line method over the terms of the agreements

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, goodwill and other intangible assets determined to have indefinite lives are no longer amortized. Instead, we now conduct impairment tests on our goodwill, trademarks and other intangible assets with indefinite lives annually and when circumstances indicate that the carrying value may not be recoverable. We use present value techniques to determine whether an impairment exists.

Foreign Currency Translation — The financial statements of our foreign subsidiary are translated to U.S. dollars in accordance with the provisions of SFAS No. 52, “Foreign Currency Translation.” The functional currency of our foreign subsidiary is the local currency of the country. Accordingly, assets and liabilities of the foreign subsidiary are translated to U.S. dollars at year-end exchange rates. Income and expense items are translated at the average rates prevailing during the year. Changes in exchange rates that affect cash flows and the related receivables or payables are recognized as transaction gains and losses in the determination of net income. The cumulative translation adjustment in stockholder’s equity reflects the unrealized adjustments resulting from translating the financial statements of our foreign subsidiary.

Sales Recognition and Accounts Receivable — Sales are recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, the product has been shipped to the customer and there is a reasonable assurance of collection of the sale proceeds. In accordance with Emerging Issues Task Force (“EITF”) 01-09, “Accounting for Consideration Given by a Vendor or to a Customer,” sales are reduced by certain sales incentives, some of which are recorded by estimating expense based on our historical experience. We provide credit terms to customers generally ranging up to 30 days, perform ongoing credit evaluation of our customers and maintain allowances for potential credit losses based on historical experience. Estimated product returns, which have not been material, are deducted from sales at the time of shipment.

Income Taxes — We (including all of our wholly owned U.S. operating subsidiaries) are included in Dean Foods Company’s consolidated tax return. Our income taxes are determined as if we were filing a separate tax return. Our foreign subsidiary is required to file separate income tax returns in its local jurisdictions. Certain distributions from this subsidiary are subject to U.S. income taxes; however, available tax credits of the subsidiary may reduce or eliminate these U.S. income tax liabilities. Our foreign earnings are expected to be reinvested indefinitely. At December 31, 2005, no provision had been made for U.S. federal or state income tax on approximately $3.9 million of accumulated foreign earnings.

Deferred income taxes are provided for temporary differences between amounts recorded in the Consolidated Financial Statements and tax bases of assets and liabilities using current tax rates. Deferred tax assets, including the benefit of net operating loss carry-forwards, are evaluated based on the guidelines for realization and are reduced by a valuation allowance if deemed necessary.

Advertising Expense — Advertising expense is comprised of media, agency, coupon, trade shows and other promotional expenses. Advertising expenses are charged to income during the period incurred, except for expenses related to the development of a major commercial or media campaign which are charged to income during the period in which the advertisement or campaign is first presented by the media. Advertising

F-7

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

expenses charged to income totaled $20.4 million in 2005, $21.1 million in 2004 and $24.1 million in 2003. Additionally, prepaid advertising costs were $230,000 at December 31, 2005. There were no prepaid advertising costs at December 31, 2004.

Shipping and Handling Fees — Our shipping and handling costs are included in both cost of sales and selling and distribution expense, depending on the nature of such costs. Shipping and handling costs included in costs of sales reflect inventory warehouse costs, product loading and handling costs and costs associated with transporting finished products from our manufacturing facilities to our own distribution warehouses. Shipping and handling costs included in selling and distribution expense consist primarily of route delivery costs for both company-owned delivery routes and independent distributor routes, to the extent that such independent distributors are paid a delivery fee, and the cost of shipping products to customers through third party carriers. Shipping and handling costs that were recorded as a component of selling and distribution expense were approximately $433.5 million, $413.1 million and $362.4 million during 2005, 2004 and 2003, respectively.

Insurance Accruals — We retain selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses. Many of these potential losses are covered under conventional insurance programs with third party carriers with high deductible limits. In other areas, we are self-insured with stop-loss coverages. Accrued liabilities for incurred but not reported losses related to these retained risks are calculated based upon loss development factors which contemplate a number of factors including claims history and expected trends. These loss development factors are developed by us in consultation with external insurance brokers and actuaries. Some of our self-insured programs are administered by Dean Foods Company.

Facility Closing and Reorganization Costs — We are part of Dean Foods Company’s on-going overall facility closing and reorganization strategy. We record facility closing and reorganization charges when we have identified a facility for closure or other reorganization opportunity, developed a plan and notified the affected employees.

Comprehensive Income — We consider all changes in equity from transactions and other events and circumstances, except those resulting from investments by and distributions to our Parent, to be comprehensive income.

Recently Adopted Accounting Pronouncements — The Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. (“FIN”) 47, “Accounting for Conditional Asset Retirement Obligations” in March 2005. This Interpretation clarifies the term “conditional asset retirement obligation” as used in FASB Statement of Financial Accounting Standards (“SFAS”) No. 143 “Accounting for Asset Retirement Obligations”, and also clarifies when an entity should have sufficient information to reasonably estimate the fair value of an asset retirement obligation. We adopted this Standard in the fourth quarter of 2005. We recognized an expense of $690,000, net of tax, as a cumulative change in accounting principal as a result of adopting the Standard. See Note 4 for additional information.

Recently Issued Accounting Pronouncements — Certain of our employees participate in equity-based compensation programs sponsored by Dean Foods. The FASB issued SFAS No. 123(R), “Share-Based Payment” in December 2004. It will require the cost of employee compensation paid with equity instruments to be measured based on grant-date fair values. That cost will be recognized over the vesting period. SFAS No. 123(R) will become effective for us in the first quarter of 2006. It is our intent to adopt the provisions of SFAS No. 123(R) retroactively. We do not believe the adoption of this standard will have a material impact on our Consolidated Financial Statements.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — an Amendment of ARB No. 43, Chapter 4.” SFAS No. 151, which is effective for inventory costs incurred during years beginning after June 15, 2005, clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs,

F-8

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and wasted material, requiring that those items be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads be based on the normal capacity of the production facilities. The adoption of this standard will not have a material impact on our Consolidated Financial Statements.

In December 2004, FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29.” SFAS No. 153 is effective for nonmonetary exchanges occurring in fiscal years beginning after June 15, 2005. SFAS No. 153 eliminates the rule in APB No. 29 which excluded from fair value measurement exchanges of similar productive assets. Instead SFAS No. 153 excludes from fair value measurement exchanges of nonmonetary assets that do not have commercial substance. We do not believe the adoption of this standard will have a material impact on our Consolidated Financial Statements.

Reclassifications — Certain reclassifications have been made to conform the prior years’ Consolidated Financial Statements to the current year classifications.


2.	ACQUISITIONS AND DISCONTINUED OPERATIONS


	General

All of our acquisitions were accounted for using the purchase method of accounting as of their respective acquisition dates and, accordingly, only the results of operations of the acquired companies subsequent to their respective acquisition dates are included in our Consolidated Financial Statements. At the acquisition date, the purchase price was allocated to assets acquired, including identifiable intangibles, and liabilities assumed based on their fair market values.


	2005 Acquisitions

During 2005, we completed a small acquisition for a purchase price of $1.1 million.


	2004 Acquisitions

Ross Swiss Dairies — On January 26, 2004, our Dairy Group acquired Ross Swiss Dairies, a dairy distributor based in Los Angeles, California, which had net sales of approximately $120 million in 2003. As a result of this acquisition, we increased the distribution capability of our Dairy Group in southern California, allowing us to better serve our customers. Ross Swiss Dairies has historically purchased a significant portion of its products from other processors. The fluid dairy products distributed by Ross Swiss Dairies are now manufactured in our southern California facilities. We paid approximately $21.8 million, including transaction costs, for the purchase of Ross Swiss Dairies and funded the purchase price with borrowings under Dean Foods Company’s receivables-backed facility.

Other — During 2004, we completed a small acquisition for a purchase price of $2.4 million.


	2003 Acquisitions

During 2003, we completed several small acquisitions for an aggregate purchase price of $1.2 million.


	Discontinued Operations

On January 25, 2005, Dean Foods Company formed TreeHouse. At that time, TreeHouse sold shares of common stock to certain members of a newly retained management team, who purchased approximately 1.67% of the outstanding common stock of TreeHouse, for an aggregate purchase price of $10 million. The proceeds from this transaction were distributed to us as a dividend and are reflected within “Parent’s Net Investment” in our Consolidated Balance Sheet.

F-9

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On June 27, 2005, Dean Foods Company completed the Spin-off of our majority owned subsidiary TreeHouse. Immediately prior to the Spin-off, we transferred to TreeHouse the businesses previously conducted by our Specialty Foods Group segment, and Dean Foods Company transferred to TreeHouse certain businesses previously conducted by other segments of Dean Foods Company not consolidated with us. On June 24, 2005, immediately after Dean Foods Company transferred these businesses to TreeHouse, we distributed the common stock of TreeHouse to Dean Foods Company as a dividend. As a result of these transactions, we no longer have a Specialty Foods Group segment and our Dairy Group is our only remaining reportable segment.

Net sales and income before taxes generated by our Specialty Foods Group segment were as follows:


	Year Ended December 31

	2005		2004		2003

	(In thousands)
Net sales	$	332,299	$	676,768	$	684,207
Income before taxes		24,692		52,026		100,072

Major classes of assets and liabilities of our transferred business included in our balance sheet at December 31, 2004 (in thousands) are as follows:


Current assets	$	158,964
Goodwill		306,473
Other non-current assets		147,803
Current liabilities		56,252
Non-current liabilities		64,648

Prior to the Spin-off, we transferred the obligation for pension and other postretirement benefit plans of transferred employees and retirees to TreeHouse, net of estimated related plan assets. During the fourth quarter of 2005, we finalized the preliminary computations and transferred a portion of the plan assets related to such obligations. The remaining transfer of plan assets will be made in the first quarter of 2006.


3.	INVENTORIES


		December 31

		2005		2004

		(In thousands)
Raw materials and supplies		$	34,530	$	33,175
Finished goods			69,958		68,090

	Total	$	104,488	$	101,265

F-10

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


4.	PROPERTY, PLANT AND EQUIPMENT


		December 31

		2005			2004

		(In thousands)
Land		$	47,873		$	46,572
Buildings and improvements			212,806			216,029
Machinery and equipment			477,468			410,043

			738,147			672,644
Less accumulated depreciation			(229,184	)		(162,131	)

	Total	$	508,963		$	510,513

For 2005, we capitalized $360,000 in interest related to borrowings during the actual construction period of major capital projects, which is included as part of the cost of the related asset. We did not capitalize interest in 2004.

In the fourth quarter of 2005, we adopted FIN No. 47, “Accounting for Conditional Asset Retirement Obligations”. As a result of the adoption we increased the carrying value of our assets by $170,000, net of accumulated depreciation, and recognized asset retirement obligations of $1.3 million at December 31, 2005. We recognized $1.1 million ($690,000 net of tax) as a cumulative change in accounting principal in 2005 for depreciation expense on the increase in property, plant and equipment related to the anticipated removal cost of underground fuel storage tanks.


5.	INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the years ended December 31, 2005 and 2004 (in thousands) are as follows:


Balance at December 31, 2003	$	1,109,921
Purchase accounting adjustments		(15,295	)
Acquisitions		24,149

Balance at December 31, 2004		1,118,775
Purchase accounting adjustments		(39,509	)
Acquisitions		1,263

Balance at December 31, 2005	$	1,080,529

Purchase accounting adjustments generally represent adjustments of the preliminary allocation of the purchase price to the fair values of assets and liabilities purchased in recent acquisitions. Included in 2005 purchase accounting adjustments is $35.6 million related to the revision of tax attributes of assets from our acquisition by Dean Foods Company. Deferred tax liabilities were reduced by a similar amount. The adjustments have no impact on the Consolidated Statements of Income.

F-11

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The gross carrying amount and accumulated amortization of our intangible assets other than goodwill as of December 31, 2005 and 2004 are as follows:


		December 31

		2005							2004

		Gross					Net		Gross					Net
		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
		Amount		Amortization			Amount		Amount		Amortization			Amount

		(In thousands)
Intangible assets with indefinite lives:
	Trademarks	$	179,310	$	—		$	179,310	$	179,310	$	—		$	179,310
Intangible assets with finite lives:
	Customer-related		19,929		(8,015	)		11,914		18,089		(5,929	)		12,160

	Total other intangibles	$	199,239	$	(8,015	)	$	191,224	$	197,399	$	(5,929	)	$	191,470

Amortization expense on intangible assets for the years ended December 31, 2005, 2004 and 2003 was $2.1 million, $1.9 million and $2.4 million, respectively. Estimated aggregate intangible asset amortization expense is $2.2 million for each of the next five years.

Our goodwill and intangible assets have resulted primarily from acquisitions and our acquisition by Dean Foods Company. Upon acquisition, the purchase price is first allocated to identifiable assets and liabilities, including trademarks and customer-related intangible assets, with any remaining purchase price recorded as goodwill. Goodwill and trademarks with indefinite lives are not amortized.

A trademark is recorded with an indefinite life if it has sufficient market share and a history of strong sales and cash flow performance that we expect to continue for the foreseeable future. If these perpetual trademark criteria are not met, the trademarks are amortized over their expected useful lives.

In accordance with SFAS No. 142, we conduct impairment tests of goodwill and intangible assets with indefinite lives annually in the fourth quarter or when circumstances arise that indicate a possible impairment might exist. If the fair value of an evaluated asset is less than its book value, the asset is written down to fair value based on its discounted future cash flows. Our 2005, 2004 and 2003 annual impairment tests of both goodwill and intangibles with indefinite lives indicated no impairments.

Amortizable intangible assets are only evaluated for impairment upon a significant change in the operating environment. If an evaluation of the undiscounted cash flows indicates impairment, the asset is written down to its estimated fair value, which is based on discounted future cash flows.


6.	ACCOUNTS PAYABLE AND ACCRUED EXPENSES


		December 31

		2005		2004

		(In thousands)
Accounts payable		$	165,403	$	165,103
Payroll and benefits			49,746		53,973
Health insurance, workers’ compensation and other insurance costs			25,850		13,602
Other accrued liabilities			51,164		56,006

	Total	$	292,163	$	288,684

F-12

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


7.	INCOME TAXES

The following table presents the 2005, 2004 and 2003 provisions for income taxes.


			Year Ended December 31

			2005(1)		2004(2)		2003(3)

			(In thousands)
Current taxes payable:
	Federal		$	51,979	$	20,416	$	(3,737	)
	State			8,931		5,055		3,937
	Foreign and other			58		649		408
Deferred income taxes				13,061		35,949		57,610

		Total	$	74,029	$	62,069	$	58,218


(1)	Excludes $12.1 million income tax expense related to discontinued operations and $400,000 income tax benefit related to cumulative effect of accounting change.

(2)	Excludes $19.1 million income tax expense related to discontinued operations.

(3)	Excludes $36.1 million income tax expense related to discontinued operations.

The following is a reconciliation of income taxes computed at the U.S. federal statutory tax rate to the income taxes reported in the consolidated statements of income:


		Year Ended December 31

		2005		2004		2003

		(In thousands)
Tax expense at statutory rates		$	67,647	$	56,016	$	53,687
State income taxes			5,836		5,222		4,915
Change in valuation allowance			100		381		263
Other			446		450		(647	)

	Total	$	74,029	$	62,069	$	58,218

The tax effects of temporary differences giving rise to deferred income tax assets and liabilities were:


			December 31

			2005			2004

			(In thousands)
Deferred income tax assets:
	Net operating loss carryforwards		$	4,491		$	4,287
	Asset valuation reserves			3,046			4,117
	Accrued liabilities			45,342			56,048
	State and foreign credits			2,652			2,964
	Other			(60	)		133

				55,471			67,549
Deferred income tax liabilities:
	Depreciation and amortization			(165,557	)		(199,264	)
	Valuation allowances			(3,463	)		(3,363	)

		Net deferred income tax liability	$	(113,549	)	$	(135,078	)

F-13

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

These net deferred income tax assets (liabilities) are classified in our consolidated balance sheets as follows:


		December 31

		2005			2004

		(In thousands)
Current assets		$	37,071		$	48,187
Non-current liabilities			(150,620	)		(183,265	)

	Total	$	(113,549	)	$	(135,078	)

At December 31, 2005, we had approximately $700,000 of federal tax credits available for carryforwards to future years. These credits are subject to certain limitations and will expire beginning in 2012.

A valuation allowance of $3.5 million has been established because we believe it is more likely than not that all of the deferred tax assets relating to state net operating loss and credit carryforwards, foreign tax credit carryforwards and capital loss carryforwards will not be realized prior to the date they are scheduled to expire.


8.	LONG-TERM DEBT


		December 31

		2005						2004

		Amount			Interest			Amount			Interest
		Outstanding			Rate			Outstanding			Rate

		(Dollars in thousands)
$250 million senior notes maturing in 2007		$	250,198			8.150	%	$	250,304			8.150	%
$200 million senior notes maturing in 2009			190,192			6.625			187,982			6.625
$150 million senior notes maturing in 2017			128,103			6.900			127,102			6.900
$100 million senior notes maturing in 2005			—						99,308			6.750
Receivables-backed facility			189,168			4.600			189,185			2.830
Other			110						136

	Total		757,771						854,017
Less current portion			(28	)					(99,334	)

	Total long-term portion	$	757,743					$	754,683

The scheduled maturities of long-term debt, at December 31, 2005, were as follows (in thousands):


2006		$	28
2007			250,030
2008			189,177
2009			200,010
2010			10
Thereafter			150,023

	Subtotal		789,278
	Less discounts on senior notes		(31,507	)

	Total outstanding debt	$	757,771

Senior Notes — We had $600 million (face value) of senior notes outstanding at December 31, 2005. One note ($100 million face value at 6.75% interest) matured and was repaid in June 2005. The related

F-14

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

indentures do not contain financial covenants but they do contain certain restrictions including a prohibition against us and our subsidiaries granting liens of our real property interests and a prohibition against granting liens on the stock of our subsidiaries. At the date of our acquisition by Dean Foods Company, our long-term debt was re-valued to its current market value. The adjustment to fair value is reflected as a discount on senior notes in our Consolidated Financial Statements.

Receivables-Backed Facility — We participate in Dean Foods Company’s $600 million receivables securitization facility pursuant to which certain of our subsidiaries sell their accounts receivable to a wholly-owned special purpose entity intended to be bankruptcy-remote. This special purpose entity then transfers the receivables to third-party asset-backed commercial paper conduits sponsored by major financial institutions. The assets and liabilities of this special purpose entity are fully reflected on our balance sheet, and the securitization is treated as a borrowing for accounting purposes. The receivables-backed facility bears interest at a variable rate based on the commercial paper yield, as defined in the agreement. Dean Foods Company does not allocate interest related to the receivables-backed facility to us; therefore, no interest costs related to this facility have been reflected on our income statements.

Other — Other subsidiary debt includes various promissory notes for the purchase of property, plant and equipment and capital lease obligations. The various promissory notes payable provide for interest at varying rates and are payable in monthly installments of principal and interest until maturity, when the remaining principal balances are due.

Letters of Credit — At December 31, 2005, $4.5 million of letters of credit were outstanding. The majority of letters of credit were required by various utilities and government entities for performance and insurance guarantees.


9.	OTHER COMPREHENSIVE INCOME

Comprehensive income comprises net income plus all other changes in equity from non-owner sources. The amount of income tax (expense) benefit allocated to each component of other comprehensive income during 2005 and 2004 are included below.


				Tax
	Pre-Tax			Benefit
	Loss			(Expense)			Net Loss

	(In thousands)
Accumulated other comprehensive income December 31, 2003	$	(14,046	)	$	4,764		$	(9,282	)
Cumulative translation adjustment		696			—			696
Minimum pension liability adjustment		(11,166	)		4,248			(6,918	)

Accumulated other comprehensive income December 31, 2004		(24,516	)		9,012			(15,504	)
Cumulative translation adjustment		246			—			246
Transfer to parent		23,708			(9,024	)		14,684

Accumulated other comprehensive income December 31, 2005	$	(562	)	$	(12	)	$	(574	)


10.	EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS

Dean Foods Company sponsors various defined benefit and defined contribution retirement plans, including various employee savings and profit sharing plans. In addition, we contribute to various multi-employer pension plans on behalf of our employees.

F-15

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Substantially all full-time union and non-union employees who have completed one or more years of service and have met other requirements pursuant to the plans are eligible to participate in these plans. During 2005, 2004 and 2003, our retirement and profit sharing plan expenses were as follows:


		Year Ended December 31

		2005		2004		2003

		(In thousands)
Defined benefit plans		$	6,610	$	5,184	$	8,053
Defined contribution plans			7,783		6,707		6,206
Multi-employer pension and certain union plans			11,702		11,687		12,745

	Total	$	26,095	$	23,578	$	27,004

Defined Benefit Plans — The benefits under our defined benefit plans are based on years of service and employee compensation. Our funding policy is to contribute annually the minimum amount required under ERISA regulations.

In 2005, Dean Foods Company transferred substantially all of the pension plans of their wholly-owned subsidiaries, including us, into a single pension plan. Our pension plan assets and liabilities, which were previously accounted for in our Consolidated Financial Statements, are now included within this single pension plan and as a result, we no longer have the pension plan assets and liabilities previously associated with our employees. While we no longer retain the plan assets and liabilities of these plans we still retain the benefit obligations to our employees. Dean Foods Company makes contributions to the single pension plan sufficient to meet at least the minimum funding requirements under ERISA. The contribution is not allocated to its wholly-owned subsidiaries.

Defined Contribution Plans — Certain of our non-union personnel may elect to participate in savings and profit sharing plans sponsored by Dean Foods Company. These plans generally provide for salary reduction contributions to the plans on behalf of the participants between 1% and 20% of a participant’s annual compensation and provide for employer matching and profit sharing contributions as determined by the Dean Foods Company Board of Directors.

Multi-Employer Pension and Certain Union Plans — Certain of our subsidiaries contribute to various multi-employer pension and certain union plans, which are administered primarily by union representatives and cover substantially all full-time and certain part-time union employees who are not covered by our other plans. The Multi-Employer Pension Plan Amendments Act of 1980 amended ERISA to establish funding requirements and obligations for employers participating in multi-employer plans, principally related to employer withdrawal from or termination of such plans. We could, under certain circumstances, be liable for unfunded vested benefits or other expenses of jointly administered union/management plans. At this time, we have not established any significant liabilities because withdrawal from these plans is not probable or reasonably possible.


11.	POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

We provide health care benefits to certain retirees who are covered under specific group contracts. As defined by the specific group contract, qualified covered associates may be eligible to receive major medical insurance with deductible and co-insurance provisions subject to certain lifetime maximums.

F-16

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the funded status of these plans and the amounts recognized in our consolidated balance sheets:


		December 31

		2005			2004

		(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year		$	15,531		$	13,889
	Service cost		952			663
	Interest cost		835			855
	Actuarial loss		4,474			1,879
	Benefits paid		(1,956	)		(1,755	)

Benefit obligation at end of year			19,836			15,531
Fair value of plan assets at end of year			—			—

Funded status			(19,836	)		(15,531	)
	Unrecognized net loss		10,045			5,907

Net amount recognized		$	(9,791	)	$	(9,624	)

A summary of our key actuarial assumptions used to determine the benefit obligation as of December 31, 2005 and 2004 follows:


		December 31

		2005			2004

Health care inflation:
	Initial rate		12.00	%		10.00	%
	Ultimate rate		5.00	%		5.00	%
	Year of ultimate rate achievement		2010			2009
Discount rate			5.75	%		5.75	%

The weighted-average discount rate used to determine net periodic benefit cost is 5.75%, 6.00% to 6.50% and 6.75% for 2005, 2004 and 2003, respectively.


		December 31

		2005		2004		2003

		(In thousands)
Components of net periodic benefit cost:
	Service and interest cost	$	1,787	$	1,518	$	1,478
Amortizations:
	Unrecognized net loss		257		228		73

	Net periodic benefit cost	$	2,044	$	1,746	$	1,551

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percent change in assumed health care cost trend rates would have the following effects:


	1-Percentage-		1-Percentage-
	Point Increase		Point Decrease

	(In thousands)
Effect on total of service and interest cost components	$	140	$	(125	)
Effect on postretirement obligation		1,299		(1,177	)

F-17

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We expect to contribute $1.9 million to the postretirement health care plans for 2006. Estimated postretirement health care plan benefit payments for the next ten years is as follows:


2006	$	1.9 million
2007		2.0 million
2008		2.1 million
2009		2.3 million
2010		2.4 million
Next five years		13.6 million


12.	FACILITY CLOSING AND REORGANIZATION COSTS

Facility Closing and Reorganization Costs — We recorded net facility and reorganization costs of $3.2 million and $4.4 million during 2005 and 2004, respectively.

The charges recorded during 2005 are primarily related to the following:


	•	The closing of a manufacturing facility in Albuquerque, New Mexico;

	•	Consolidation of certain administrative functions; and

	•	Previously announced plans, including closing a manufacturing facility in South Gate, California.

The charges recorded during 2004 are primarily related to manufacturing facilities in San Leandro and South Gate, California.

These charges were accounted for in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which became effective for us in January 2003. We expect to incur additional charges related to these restructuring plans of approximately $2.0 million, primarily related to shutdown and other costs. The majority of these additional charges are expected to be completed by December 2006.

The principal components of our reorganization and cost reduction efforts include the following:


	•	Workforce reductions as a result of facility closings, facility reorganizations and consolidation of administrative functions;

	•	Shutdown costs, including those costs that are necessary to prepare abandoned facilities for closure;

	•	Costs incurred after shutdown such as lease obligations or termination costs, utilities and property taxes;

	•	Write-downs of property, plant and equipment and other assets, primarily for asset impairments as a result of facilities that are no longer used in operations. The impairments relate primarily to owned buildings, land and equipment at the facilities, which are written down to their estimated fair value and held for sale. The effect of suspending depreciation on the buildings and equipment related to the closed facilities was not significant. The carrying value of closed facilities and related equipment at December 31, 2005 was approximately $629,000. We are marketing these properties for sale.

We consider several factors when evaluating a potential facility closure, including, among other things, the impact of such a closure on our customers, the impact on production, distribution and overhead costs, the investment required to complete any such closure, and the impact on future investment decisions. Some facility closures are pursued to improve our operating cost structure, while others enable us to avoid unnecessary capital expenditures, allowing us to more prudently invest our capital expenditure dollars in our production facilities and better serve our customers.

F-18

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Activity with respect to facility closing and reorganization costs for 2005 and 2004 is summarized below:


		Accrued								Accrued							Accrued
		Charges at								Charges at							Charges at
		December 31,								December 31,							December 31,
		2003		Charges			Payments			2004		Charges		Payments			2005

		(In thousands)
Cash charges:
	Workforce reduction costs	$	3,547	$	(420	)	$	(2,861	)	$	266	$	1,424	$	(1,241	)	$	449
	Shutdown costs		—		2,302			(2,302	)		—		472		(472	)		—
	Lease obligations after shutdown		—		409			(334	)		75		301		(318	)		58
	Other				1,560			(1,560	)		—		806		(806	)		—

	Subtotal	$	3,547	$	3,851		$	(7,057	)	$	341	$	3,003	$	(2,837	)	$	507

Non cash charges:
	Write down of assets				594								167

Total charges				$	4,445							$	3,170

Transaction Closing Costs — As part of our acquisition by Dean Foods Company, we accrued costs in 2002 pursuant to plans to exit certain activities and operations of businesses in order to rationalize production and reduce costs and inefficiencies. In connection with our acquisition by Dean Foods Company, a facility in Escondido, California was closed. We also eliminated our administrative offices, closed distribution depots in Parker Ford, Pennsylvania and Camp Hill, Pennsylvania, and relocated production between facilities as part of our overall integration and efficiency efforts.

The principal components of the plans include the following:


	•	Workforce reductions as a result of facility closings, facility reorganizations and consolidation of administrative functions and offices;

	•	Shutdown costs, including those costs that are necessary to clean and prepare abandoned facilities for closure; and

	•	Costs incurred after shutdown such as lease obligations or termination costs, utilities and property taxes after shutdown of the facility.

Activity with respect to these liabilities for 2005 and 2004 is summarized below:


	Accrued					Accrued								Accrued
	Charges at					Charges at								Charges at
	December 31,					December 31,								December 31,
	2003		Payments			2004		Payments			Adjustments			2005

Workforce reduction costs	$	1,707	$	(268	)	$	1,439	$	(134	)	$	(1,305	)	$	—
Shutdown costs		883		(232	)		651		(21	)		(630	)		—

Total	$	2,590	$	(500	)	$	2,090	$	(155	)	$	(1,935	)	$	—

F-19

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


13.	SUPPLEMENTAL CASH FLOW INFORMATION


	Year Ended December 31

	2005		2004		2003

	(In thousands)
Cash paid for interest and financing charges, net of capitalized interest	$	51,119	$	51,371	$	51,447
Cash paid for taxes		4,844		24,841		3,695
Non cash transaction:
Dividend of TreeHouse to parent		461,351		—		—


14.	COMMITMENTS AND CONTINGENCIES

Contingent Obligations Related to Divested Operations — We have divested several businesses in recent years. In each case, we have retained certain known contingent obligations related to those businesses and/or assumed an obligation to indemnify the purchasers of the businesses for certain unknown contingent liabilities, including environmental liabilities. We believe we have established adequate reserves for any potential liability related to our divested businesses. Moreover, we do not expect any liability that we may have for these retained liabilities, or any indemnification liability, to be material.

Guaranty of Dean Foods Company’s Obligations Under Its Senior Credit Facility — Certain of Dean Foods Company’s subsidiaries, including us, are required to guarantee Dean Foods Company’s indebtedness under its senior credit facility. We have pledged substantially all of our assets (other than our real property and our ownership interests in our subsidiaries) as security for our guaranty. Dean Foods Company’s senior credit facility provides for a $1.5 billion revolving credit facility and a $1.5 billion term loan. At December 31, 2005, there were outstanding term loan borrowings of $1.5 billion under the senior credit facility, and $758.6 million outstanding under the revolving line of credit. Letters of credit in the aggregate amount of $112.1 million were issued but undrawn. At December 31, 2005, approximately $629.3 million was available for future borrowings under Dean Foods Company’s revolving credit facility.

Principal payments are required on Dean Foods Company’s term loan as follows:


	•	$56.25 million quarterly beginning on December 31, 2006 through September 30, 2008;

	•	$262.5 million quarterly on December 31, 2008 through June 30, 2009; and

	•	A final payment of $262.5 million on the maturity date of August 13, 2009.

No principal payments are due on the $1.5 billion revolving credit facility until maturity on August 13, 2009.

Dean Foods Company’s credit agreement also requires mandatory principal prepayments upon the occurrence of certain asset dispositions or recovery events.

The senior credit facility contains various financial and other restrictive covenants and requires that Dean Foods Company maintain certain financial ratios, including a leverage and interest coverage ratio. Dean Foods Company is currently in compliance with all covenants contained in its credit agreement.

The credit facility is secured by liens on substantially all of Dean Foods Company’s domestic assets (including ours and those of our subsidiaries, but excluding the capital stock of our subsidiaries and the real property owned by us and our subsidiaries).

The credit agreement contains standard default triggers, including without limitation: failure to maintain compliance with the financial and other covenants contained in the credit agreement, default on certain of Dean Foods Company’s other debt, a change in control and certain other material adverse changes in its

F-20

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

business. The credit agreement does not contain any default triggers based on Dean Foods Company’s credit rating.

Insurance — We retain selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses. Many of these potential losses are covered under conventional insurance programs with third party carriers with high deductible limits. In other areas, we are self-insured with stop-loss coverages. These deductibles range from $350,000 for medical claims to $2 million for casualty claims. We believe we have established adequate reserves to cover these claims.

Leases — We lease certain property, plant and equipment used in our operations under both capital and operating lease agreements. Such leases, which are primarily for machinery, equipment and vehicles, have lease terms ranging from 1 to 20 years. Certain of the operating lease agreements require the payment of additional rentals for maintenance, along with additional rentals based on miles driven or units produced. Certain leases require us to guarantee a minimum value of the leased asset at the end of the lease. Our maximum exposure under those guarantees is not a material amount. Rent expense, including additional rent, was $43.2 million, $34.7 million and $32.7 million for 2005, 2004 and 2003, respectively.

Future minimum payments at December 31, 2005, under non-cancelable operating leases with terms in excess of one year are summarized below:


	Operating
	Leases

	(In thousands)
2006	$	41,636
2007		36,707
2008		33,450
2009		30,180
2010		24,778
Thereafter		52,905

Total minimum lease payments	$	219,656

Litigation, Investigations and Audits — We are not currently party to, nor are our properties the subject of, any material pending legal proceedings. However, we are party from time to time to certain claims, litigation, audits and investigations. We believe that we have established adequate reserves to satisfy any potential liability that is reasonably expected under all claims, litigations, audits and investigations that are pending. The settlement of any pending or threatened matter is not currently expected to have a material adverse impact on our financial position, results of operations or cash flows.


15.	FAIR VALUE OF FINANCIAL INSTRUMENTS

Pursuant to SFAS No. 107, “Disclosure About Fair Value of Financial Instruments,” we are required to disclose an estimate of the fair value of our financial instruments as of December 31, 2004 and 2003. SFAS No. 107 defines the fair value of financial instruments as the amount at which the instrument could be exchanged in a current transaction between willing parties.

Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value. In addition, because the interest rates on most of our other debt are variable, their fair value approximates their carrying value.

We have senior notes with an aggregate face value of $600 million and $700 million at December 31, 2005 and 2004, respectively, with fixed interest rates ranging from 6.625% to 8.15%. The notes had a fair market value of $615.6 million and $737.2 million at December 31, 2005 and 2004, respectively.

F-21

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


16.	GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

Substantially all of our business is within the United States.

Major Customers — We had one customer that represented greater than 10% of our 2005 sales. Approximately 16% of our consolidated 2005 sales were to that same customer.


17.	QUARTERLY RESULTS OF OPERATIONS (unaudited)

The following is a summary of the unaudited quarterly results of operations for 2005 and 2004.


		Quarter

		First		Second		Third		Fourth

		(In thousands)
2005
	Net sales	$	906,141	$	917,426	$	940,276	$	934,569
	Gross profit		215,485		226,306		228,890		228,214
	Income from continuing Operations		23,762		33,454		31,551		30,480
	Net income(1)		34,274		36,388		30,971		29,113
2004
	Net sales	$	827,683	$	951,650	$	940,932	$	912,842
	Gross profit		206,828		213,020		211,811		219,226
	Income from continuing Operations		21,396		26,539		23,744		26,727
	Net income(2)		33,424		38,883		23,066		35,987


(1)	The results of the first, second, third and fourth quarters include facility closing and reorganization costs, net of tax, of $938,000, $371,000, $253,000 and $397,000, respectively.

(2)	The results for the first, third and fourth quarters include facility closing and reorganization costs, net of tax, of $1.7 million, $632,000, and $400,000 million, respectively.

F-22


Item 9.	*Changes in and Disagreements With Accountants on Accounting and Financial Disclosure*

During our two most recent fiscal years, no independent accountant who was engaged as the principal accountant to audit our financial statements, nor any independent accountant who was engaged to audit a significant subsidiary and on whom our principal accountant expressed reliance in its report, has resigned or been dismissed.


Item 9A.	*Controls and Procedures*

Controls Evaluation and Related CEO and CFO Certifications

We conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (“Disclosure Controls”) as of December 31, 2005. 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).

Attached as exhibits to this annual report are certifications of the CEO and the CFO, which are required in accordance with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Definition of Disclosure Controls

Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed with the Securities and Exchange Commission (the “SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls also are designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our Disclosure Controls include components of our internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with US generally accepted accounting principles.

Limitations on the Effectiveness of Controls

We do not expect that our Disclosure Controls or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be 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 control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls 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, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. 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

Our evaluations of our Disclosure Controls include reviews of the control objectives and design, our implementation of the controls and the effect of the controls on the information generated for use in our SEC filings. In the course of our controls evaluations, we seek to identify data errors, controls problems or acts of

fraud and confirm that appropriate corrective actions, including process improvements, are undertaken. Many of the components of our Disclosure Controls are evaluated on an ongoing basis by our Audit Services department. The overall goals of these various evaluation activities are to monitor our Disclosure Controls, and to modify them as necessary. Our intent is to maintain the Disclosure Controls as dynamic systems that change as conditions warrant.

Conclusions

Based upon our most recent controls evaluation, our CEO and CFO have concluded that as of December 31, 2005, our Disclosure Controls were effective at the reasonable assurance level. In the fourth quarter of 2005, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.	*Other Information*

None.

PART III


Item 10.	*Directors and Executive Officers*

On March 27, 2006 Steven J. Kemps was appointed the sole director of Dean Holding Company.


Item 11.	*Executive Compensation*

Omitted as permitted by General Instruction I(2)(c) to Form 10-K.


Item 12.	*Security Ownership of Certain Beneficial Owners and Management*

Omitted as permitted by General Instruction I(2)(c) to Form 10-K.


Item 13.	*Certain Relationships and Related Transactions*

Omitted as permitted by General Instruction I(2)(c) to Form 10-K.


Item 14.	*Principal Accountant Fees and Services*

Fees for services performed by our independent auditors are included in the fees billed to Dean Foods Company. Incorporated herein by reference to Dean Foods Company’s Proxy Statement (to be filed) for its May 19, 2006 Annual Meeting of Stockholders.

PART IV


Item 15.	*Exhibits and Financial Statement Schedules*

Financial Statements

The following Consolidated Financial Statements are filed as part of this report or are incorporated herein as indicated:


	Page

Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets as of December 31, 2005 and 2004		F-2
Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003		F-3
Consolidated Statements of Parents’ Net Investment for the years ended December 31, 2005, 2004 and 2003		F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003		F-5
Notes to Consolidated Financial Statements		F-6

Financial Statement Schedule

Report of Independent Registered Public Accounting Firm

Schedule II — Valuation and Qualifying Accounts

Exhibits

See Index to Exhibit.

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 thereunto duly authorized.


	By:	/s/Ronald L. McCrummen



	Ronald L. McCrummen
	Senior Vice President and
	Chief Accounting Officer

Dated March 28, 2006

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.


Name	Title	Date


/s/Gregg L. Engles Gregg L. Engles	Chief Executive Officer	March 28, 2006

/s/Barry A. Fromberg Barry A. Fromberg	Chief Financial Officer	March 28, 2006

/s/Ronald L. McCrummen Ronald L. McCrummen	Chief Accounting Officer	March 28, 2006

/s/Steven J. Kemps Steven J. Kemps	Sole Director	March 28, 2006

S-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Dean Holding Company

Dallas, Texas

We have audited the consolidated financial statements of Dean Holding Company and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, and have issued our report thereon dated March 8, 2006 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the change in 2005 in the method of accounting for conditional asset retirement obligations to conform to Statement of Financial Accounting Standard Interpretation No. 47); such report is included elsewhere in this Form 10-K. Our audits also included the financial statement schedules of the Company listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

Dallas, Texas

March 8, 2006

SCHEDULE II

DEAN HOLDING COMPANY

VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2005, 2004 and 2003

Allowance for doubtful accounts deducted from accounts receivable:


	Balance		Charged to
	Beginning of		Costs and						Balance
Year	Period		Expense		Other		Deductions		End of Period

	(In thousands)
December 31, 2003	$	8,128	$	5,058	$	—	$	2,169	$	11,017
December 31, 2004		11,017		605		1,660		3,782		9,500
December 31, 2005		9,500		3,509		—		6,408		6,601

INDEX TO EXHIBITS

Explanatory Note: References in this Index to “Legacy Dean” are references to the registrant, Dean Holding Company.


Exhibit
Number				Description

	3	.1	—	Certificate of Incorporation (incorporated by reference from our 2002 Annual Report on Form 10-K, File No. 1-08262).
	3	.2	—	Certificate of Amendment to Certificate of Incorporation (incorporated by reference from our 2002 Annual Report on Form 10-K, File No. 1-08262).
	3	.3	—	Amended and Restated Bylaws (incorporated by reference from our 2002 Annual Report on Form 10-K, File No. 1-08262).
	4	.1	—	Specimen of Common Stock Certificate (incorporated by reference from our 2002 Annual Report on Form 10-K, File No. 1-08262).
	4	.2	—	Form of Senior Indenture related to our 6.625% ($200 million) and 8.15% ($250 million) senior notes (incorporated by reference from Legacy Dean Registration Statement on Form S-3 filed on January 23, 1998, File No. 333-44851).
	4	.3	—	Form of senior debt securities (incorporated by reference from Legacy Dean Registration Statement on Form S-3 filed on January 23, 1998, File No. 333-44851).
	4	.4	—	Form of Senior Indenture related to our 6.75% ($100 million) and 6.9% ($150 million) senior notes (incorporated by reference from Legacy Dean Registration Statement on Form S-3 filed January 19, 1995, File No. 33-57353).
	4	.5	—	Form of senior debt securities related to our 6.75% ($100 million) and 6.9% ($150 million) senior notes (incorporated by reference from Legacy Dean Registration Statement on Form S-3 filed January 19, 1995, File No. 33-57353).
	10	.2	—	Form of Joinder Agreement dated December 21, 2001 executed by us and certain of our subsidiaries in favor of certain lenders to our parent company (incorporated by reference from our 2002 Annual Report on Form 10-K, File No. 1-08262).
	10	.3	—	Form of Security Agreement dated December 21, 2001 executed by us and certain of our subsidiaries in favor of certain lenders to our parent company (incorporated by reference from our 2002 Annual Report on Form 10-K, File No. 1-08262).
	12		—	Computation of Ratio of Earnings to Fixed Charges (filed herewith).
	31	.1	—	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	31	.2	—	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	32	.1	—	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	32	.2	—	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	7th grade Avg

Dean Holding Inactive 10-K2005 FY Annual report

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