10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

x Quarterly report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

For the Quarterly Period Ended September 30, 2003

or

o Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from                to

Commission File Number 001-12755

Dean Foods Company

(Exact name of the registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 75-2559681
(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 the registrant’s principal executive offices)

     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 x   No o

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

     As of November 10, 2003 the number of shares outstanding of each class of common stock was:

Common Stock, par value $.01  156,026,363

TABLE OF CONTENTS

Part I — Financial Information
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
Part II — Other Information
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EX-10 Fourth Amendment to Credit Agreement
EX-31.1 Certification of CEO - Section 302
EX-31.2 Certification of CFO - Section 302
EX-32.1 Certification of CEO - Section 906
EX-32.2 Certification of CFO - Section 906

Table of Contents

		Page
Part I — Financial Information
	Item 1 — Financial Statements		3
	Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
	Item 3 — Quantitative and Qualitative Disclosures About Market Risk		30
	Item 4 — Controls and Procedures		31
Part II — Other Information
	Item 1 — Legal Proceedings		32
	Item 6 — Exhibits and Reports on Form 8-K		32

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Part I — Financial Information

Item 1. Financial Statements

DEAN FOODS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

			September 30,			December 31,
			2003			2002
			(unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	19,980		$	45,896
	Accounts receivable, net			678,220			656,938
	Inventories			468,314			400,347
	Deferred income taxes			140,109			158,337
	Prepaid expenses and other current assets			58,204			49,628
		Total current assets		1,364,827			1,311,146
Property, plant and equipment, net				1,693,581			1,628,424
Goodwill				3,081,154			3,035,417
Identifiable intangible and other assets				607,902			607,279
		Total	$	6,747,464		$	6,582,266
Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable and accrued expenses		$	988,685		$	1,056,213
	Income taxes payable			72,021			38,488
	Current portion of long-term debt			188,274			173,442
		Total current liabilities		1,248,980			1,268,143
Long-term debt				2,443,515			2,554,482
Other long-term liabilities				205,723			236,915
Deferred income taxes				372,093			294,256
Mandatorily redeemable convertible trust issued preferred securities							585,177
Commitments and contingencies (See Note 10)
Stockholders’ equity:
	Common stock, 155,869,702 and 132,961,440 shares issued and outstanding			1,559			1,330
	Additional paid-in capital			1,528,062			979,113
	Retained earnings			987,715			718,555
	Accumulated other comprehensive income			(40,183	)		(55,705	)
		Total stockholders’ equity		2,477,153			1,643,293
		Total	$	6,747,464		$	6,582,266

See Notes to Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)

			Three Months Ended						Nine Months Ended
			September 30						September 30
			2003			2002			2003			2002
			(unaudited)						(unaudited)
Net sales			$	2,306,848		$	2,229,726		$	6,674,298		$	6,751,189
Cost of sales				1,713,311			1,636,306			4,908,375			5,012,480
Gross profit				593,537			593,420			1,765,923			1,738,709
Operating costs and expenses:
	Selling and distribution			339,296			326,489			1,009,479			972,629
	General and administrative			76,024			93,451			232,810			257,833
	Amortization expense			1,110			2,306			3,744			6,385
	Plant closing costs			2,118			4,921			3,453			11,424
	Gain on sale of frozen pre-whipped topping and frozen creamer business			(65,892	)					(65,892	)
		Total operating costs and expenses		352,656			427,167			1,183,594			1,248,271
Operating income				240,881			166,253			582,329			490,438
Other (income) expense:
	Interest expense, net			45,806			48,326			137,018			149,749
	Financing charges on trust issued preferred securities						8,394			14,164			25,184
	Equity in earnings of unconsolidated affiliates			(22	)		(254	)		(201	)		(2,061	)
	Other (income) expense, net			(1,826	)		352			(2,597	)		816
		Total other (income) expense		43,958			56,818			148,384			173,688
Income from continuing operations before income taxes and minority interest				196,923			109,435			433,945			316,750
Income taxes				74,758			41,403			164,782			120,009
Minority interest in earnings				3			25			3			41
Income from continuing operations				122,162			68,007			269,160			196,700
Income (loss) from discontinued operations, net of tax							692						585
Income before cumulative effect of accounting change				122,162			68,699			269,160			197,285
Cumulative effect of accounting change													(84,983	)
Net income			$	122,162		$	68,699		$	269,160		$	112,302
Average common shares: Basic				155,090,232			135,855,567			141,709,125			134,753,213
Average common shares: Diluted				161,088,893			163,576,335			160,404,492			163,010,600
Basic earnings per common share:
	Income from continuing operations		$	0.79		$	0.50		$	1.90		$	1.46
	Income from discontinued operations						0.01
	Cumulative effect of accounting change												(0.63	)
	Net income		$	0.79		$	0.51		$	1.90		$	0.83
Diluted earnings per common share:
	Income from continuing operations		$	0.76		$	0.45		$	1.73		$	1.30
	Income from discontinued operations
	Cumulative effect of accounting change												(0.51	)
	Net income		$	0.76		$	0.45		$	1.73		$	0.79

See Notes to Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

					Nine Months Ended
					September 30
					2003			2002
					(unaudited)
Cash Flows From Operating Activities
	Net income				$	269,160		$	112,302
	Income from discontinued operations								(585	)
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization			142,137			131,350
			Loss (gain) on disposition of assets			(2,546	)		3,126
			Gain on sale of frozen pre-whipped topping and frozen creamer business			(65,892	)
			Equity in earnings of unconsolidated affiliates			(201	)		(2,060	)
			Cumulative effect of accounting change						84,983
			Write-down of impaired assets			1,897			7,376
			Deferred income taxes			103,071			30,910
			Other, net			(3,057	)		(1,625	)
	Changes in operating assets and liabilities, net of acquisitions:
			Accounts receivable			(15,972	)		92,132
			Inventories			(70,597	)		(6,259	)
			Prepaid expenses and other assets			(154	)		(6,542	)
			Accounts payable, accrued expenses and other liabilities			(77,259	)		(53,734	)
			Income taxes			57,539			38,612
				Net cash provided by continuing operations		338,126			429,986
				Net cash provided by discontinued operations					3,995
				Net cash provided by operating activities		338,126			433,981
Cash Flows From Investing Activities
	Net additions to property, plant and equipment					(199,462	)		(148,665	)
	Cash outflows for acquisitions					(61,092	)		(213,586	)
	Net proceeds from divestitures					89,950			2,561
	Proceeds from sale of fixed assets					9,889			3,857
		Net cash used in continuing operations				(160,715	)		(355,833	)
		Net cash used in discontinued operations							(3,715	)
		Net cash used in investing activities				(160,715	)		(359,548	)
Cash Flows From Financing Activities
	Proceeds from issuance of debt					175,136			193,729
	Repayment of debt					(301,091	)		(370,892	)
	Payment of deferred financing costs					(4,459	)		(762	)
	Issuance of common stock, net of expenses					81,979			68,288
	Redemption of common stock					(152,472	)
	Redemption of TIPES					(2,420	)
		Net cash used in financing activities				(203,327	)		(109,637	)
Decrease in cash and cash equivalents						(25,916	)		(35,204	)
Cash and cash equivalents, beginning of period						45,896			78,260
Cash and cash equivalents, end of period					$	19,980		$	43,056

See Notes to Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003
(unaudited)

1. General

     Basis of Presentation — The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2002 (as amended). In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) in order to present fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. Certain reclassifications have been made to conform our 2002 Consolidated Financial Statements to the current classifications. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. Our results of operations for the period ended September 30, 2003 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this Quarterly Report should be read in conjunction with our 2002 Consolidated Financial Statements contained in our Annual Report on Form 10-K (filed with the Securities and Exchange Commission on March 27, 2003), as amended on our Annual Report on Form 10-K/A (filed with the Securities and Exchange Commission on July 3, 2003).

     On June 9, 2003, we effected a three-for-two split of our common stock. Pursuant to the split, all shareholders of record as of May 23, 2003 received an additional half share of common stock for each share held on that date. All share numbers contained in our Condensed Consolidated Financial Statements and in these Notes have been adjusted for all periods to reflect the stock split.

     This Quarterly Report, including these Notes, has been written in accordance with the Securities and Exchange Commission’s “Plain English” guidelines. Unless otherwise indicated, references in this report to “we,” “us” or “our” refer to Dean Foods Company and its subsidiaries, taken as a whole.

     Recently Adopted Accounting Pronouncements — In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations.” This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which the associated legal obligation for the liability is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and amortized over the useful life of the asset. SFAS No. 143 became effective for us in 2003. The adoption of this pronouncement did not have a material impact on our Consolidated Financial Statements.

     SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” was issued in April 2002 and is applicable to fiscal years beginning after May 15, 2002. One of the provisions of this technical statement is the rescission of SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” whereby any gain or loss on the early extinguishment of debt that was classified as an extraordinary item in prior periods in accordance with SFAS No. 4, which does not meet the criteria of an extraordinary item as defined by APB Opinion 30, must be reclassified. Adoption of this standard requires us to reclassify extraordinary losses previously reported from the early extinguishment of debt as a component of “other expense.”

     In June 2002, FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, and is effective for exit or disposal activities that are initiated after December 31, 2002. Our adoption of this standard changes the timing of the recognition of certain charges associated with exit and disposal activities.

     In November 2002, FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 clarifies the requirements of SFAS No. 5 “Accounting for Contingencies,” relating to the accounting for and disclosure of certain guarantees issued and indemnification obligations incurred. FIN No. 45 requires disclosure of certain guarantees and indemnification obligations. It also requires liability recognition for the fair value of certain guarantees and indemnification obligations made or incurred after December 31, 2002. We adopted FIN No. 45 effective January 1, 2003. See Note 10 for the disclosures required by FIN No. 45. The adoption of this pronouncement did not have a material effect on our Consolidated Financial Statements.

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     In May of 2003, FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This statement, which became effective for us on July 1, 2003, requires that certain financial instruments which had previously been classified as equity be classified as liabilities. We have no outstanding securities that meet the criteria of SFAS No. 150. Therefore, SFAS No. 150 had no impact on our Consolidated Financial Statements.

     Recently Issued Accounting Pronouncements — In April of 2003, FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including derivative instruments embedded in other contracts and hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement requires that contracts with comparable characteristics be accounted for similarly and is effective for contracts entered into or modified after June 30, 2003. Our reporting for our hedging activities is within the requirements of this statement, therefore SFAS No. 149 will have no impact on our Consolidated Financial Statements.

     In January 2003, FASB issued FIN No. 46, “Consolidation of Variable Interest Entities.” FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or in which equity investors do not bear the residual economic risks. The FIN, which will become effective for us on December 31, 2003, applies to variable interest entities (“VIEs”) created after January 31, 2003 and to VIEs in which an enterprise obtains an interest after that date. We currently utilize special purpose limited liability entities to facilitate our receivable-backed loan. Since their formations, these entities have been consolidated in our financial statements for financial reporting purposes. Therefore, FIN No. 46 will have no impact on our Consolidated Financial Statements.

     Stock-Based Compensation — We measure compensation expense for our stock-based compensation plans using the intrinsic value method and provide the required pro forma disclosures of the effect on net income and earnings per share as if the fair value-based method had been applied in measuring compensation expense.

     We have elected to follow Accounting Principles Board Opinion No. 25 and related interpretations in accounting for our stock options. All options granted to date have been to employees, officers and directors. Accordingly, no compensation expense has been recognized since stock options granted were at exercise prices which equaled or exceeded market value at the grant date. Had compensation expense been determined for stock option grants using fair value methods provided for in SFAS No. 123, “Accounting for Stock-Based Compensation,” our pro forma net income and net income per common share would have been the amounts indicated below:

		Three Months Ended						Nine Months Ended
		September 30						September 30
		2003			2002			2003			2002
					(In thousands, except share data)
Net income, as reported		$	122,162		$	68,699		$	269,160		$	112,302
Less: Stock based employee compensation, net of income tax benefit			8,352			7,833			25,843			23,435
Pro forma net income		$	113,810		$	60,866		$	243,317		$	88,867
Net income per share:
	Basic — as reported	$	0.79		$	0.51		$	1.90		$	0.83
	Basic — pro forma		0.73			0.45			1.72			0.66
	Diluted — as reported		0.76			0.45			1.73			0.79
	Diluted — pro forma		0.71			0.40			1.57			0.64
Stock option share data:
	Stock options granted during period		55,176			280,745			3,477,167			7,710,438
	Weighted average option fair value	$	13.99	(1)	$	11.82	(2)	$	11.59	(3)	$	9.99	(4)

(1)	Calculated in accordance with the Black-Scholes option pricing model, using the following assumptions: expected volatility of 37%, expected dividend yield of 0%, expected option term of seven years and risk-free rates of return as of the date of grant ranging from 3.99% to 4.00% based on the yield of seven-year U.S. Treasury securities.
(2)	Calculated in accordance with the Black-Scholes option pricing model, using the following assumptions: expected volatility of 38%, expected dividend yield of 0%, expected option term of seven years and risk-free rates of return as of the date of grant ranging from 4.09% to 4.54% based on the yield of seven-year U.S. Treasury securities.
(3)	Calculated in accordance with the Black-Scholes option pricing model, using the following assumptions: expected volatility of 37% to 38%, expected dividend yield of 0%, expected option term of seven years and risk-free rates of return as of the date of grant of ranging from 3.03% to 4.00% based on the yield of seven-year U.S. Treasury securities.
(4)	Calculated in accordance with the Black-Scholes option pricing model, using the following assumptions: expected volatility of 38%, expected dividend yield of 0%, expected option term of seven years and risk-free rates of return as of the date of grant of ranging from 4.09% to 4.87% based on the yield of seven-year U.S. Treasury securities.

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2. Acquisitions, Discontinued Operations and Divestiture

     Acquisitions — On June 30, 2003, we announced that we had signed a definitive agreement to acquire the 87% of Horizon Organic Holding Corporation (Nasdaq: HCOW) that we do not already own for an aggregate purchase price of approximately $216 million, all of which will be funded using borrowings under our senior credit facility and our receivables-backed loan. We also intend to repay Horizon Organic’s borrowings under its senior credit facility (estimated to be approximately $40 million at closing) using borrowings under our senior credit facility and our receivables-backed loan. Horizon Organic is the maker of nationally-branded Horizon® organic dairy products and juices and had sales of approximately $215 million during the 12-month period ended September 30, 2003. We currently own approximately 13% of the outstanding common stock of Horizon Organic. Completion of the acquisition is subject to various customary closing conditions, including receipt of approval of Horizon Organic’s shareholders, and is expected to close in early January 2004.

     On June 9, 2003, we completed the acquisition of Melody Farms, LLC. Melody Farms, which is now a part of the Midwest region of our Dairy Group, is a regional dairy processor based in Livonia, Michigan. Melody Farms produces a full line of fluid dairy and ice cream products from two plants in Michigan. Melody Farms had net sales of approximately $116 million during the 12-month period ended March 31, 2003.

     On October 15, 2003, we completed the acquisition of Kohler Mix Specialties, Inc. See Note 12 (“Subsequent Events”).

     Discontinued Operations — On December 30, 2002, we sold our operations in Puerto Rico for a net price of approximately $119.4 million. In accordance with generally accepted accounting principles, our financial statements have been restated to reflect our former Puerto Rico business as a discontinued operation. Revenues and income before taxes generated by our former Puerto Rico operations in 2002 are set forth in the table below. All intercompany revenues and expenses have been appropriately eliminated in the table.

	Three Months		Nine Months
	Ended		Ended
	September 30, 2002		September 30, 2002
	(In thousands)
Net sales	$	56,336	$	167,815
Income before tax (1)		1,425		1,154

(1) Corporate interest expense of $1.4 million and $4.2 million for the three months and nine months ended September 30, 2002, respectively, was allocated to our Puerto Rico operations based on the ratio of our investment in them to total debt and equity.

     Divestiture — On July 31, 2003, we completed the sale of the frozen pre-whipped topping and frozen coffee creamer business of Morningstar Foods for cash proceeds of approximately $90 million. We recorded a pretax gain on the sale of approximately $65.9 million.

3. Inventories

		At September 30,		At December 31,
		2003		2002
		(In thousands)
Raw materials and supplies		$	189,604	$	151,179
Finished goods			278,710		249,168
	Total	$	468,314	$	400,347

     Approximately $119.6 million and $97.3 million of our inventory was accounted for under the last-in, first-out (LIFO) method of accounting at September 30, 2003 and December 31, 2002, respectively. There was no material excess of current cost over the stated value of LIFO inventories at either date.

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4. Intangible Assets

     Changes in the carrying amount of goodwill for the nine months ended September 30, 2003 are as follows:

			Morningstar/			Specialty
	Dairy Group		White Wave			Foods		Other		Total
	(In thousands)
Balance at December 31, 2002	$	2,149,389	$	510,652		$	304,290	$	71,086	$	3,035,417
Acquisitions		41,691									41,691
Purchase accounting adjustments		2,304		(5,904	)						(3,600	)
Currency changes and other									7,646		7,646
Balance at September 30, 2003	$	2,193,384	$	504,748		$	304,290	$	78,732	$	3,081,154

     The gross carrying amount and accumulated amortization of our intangible assets other than goodwill as of September 30, 2003 and December 31, 2002 are as follows:

		At September 30, 2003							At December 31, 2002
		Gross					Net		Gross					Net
		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
		Amount		Amortization			Amount		Amount		Amortization			Amount
							(In thousands)
Intangible assets with indefinite lives:
	Trademarks	$	480,417	$	(14,274	)	$	466,143	$	478,691	$	(14,274	)	$	464,417
Intangible assets with finite lives:
	Customer-related		53,803		(11,887	)		41,916		56,864		(13,270	)		43,594
Total		$	534,220	$	(26,161	)	$	508,059	$	535,555	$	(27,544	)	$	508,011

     In the first quarter of 2002 we recognized an impairment charge of $37.7 million related to the goodwill of our former Puerto Rico operations in accordance with our implementation of SFAS No. 142 “Goodwill and Other Intangible Assets.” This loss is reflected as a cumulative change in accounting principle in our Consolidated Financial Statements. During the third quarter of 2002, we completed an impairment assessment, as of January 1, 2002, of our intangibles with an indefinite useful life, other than goodwill, in accordance with SFAS No. 142. We determined that an impairment of $47.3 million, net of an income tax benefit of $29 million, existed at January 1, 2002. The impairment related to certain trademarks in our Dairy Group and Morningstar/White Wave segments and was recorded in the first quarter as the cumulative effect of an accounting change. The fair value of these trademarks was determined using a present value technique.

     Amortization expense on intangible assets for the three months ended September 30, 2003 and 2002 was $1.4 million and $2.8 million, and $4.2 million and $5.8 million for the nine months ended September 30, 2003 and 2002, respectively. Estimated aggregate intangible asset amortization expense for the next five years is as follows:

2004	$5.1	million
2005	5.0	million
2006	4.8	million
2007	4.6	million
2008	4.5	million

5. Long-Term Debt

				At September 30, 2003						At December 31, 2002
				Amount			Interest			Amount			Interest
				Outstanding			Rate			Outstanding			Rate
				(Dollars in thousands)
Senior credit facility				$	1,753,625			3.00	%	$	1,827,500			3.65	%
Subsidiary debt obligations:
	Senior notes				659,706			6.625 – 8.15			656,951			6.625 – 8.15
	Receivables-backed loan				127,500			2.30			145,000			2.28
	Foreign subsidiary term loan				31,686			3.94			35,739			4.69
	Other lines of credit				11,992			3.09			11,919			3.71 – 4.69
	Industrial development revenue bonds				20,700			1.15 – 1.35			21,000			1.65 – 2.00
	Capital lease obligations and other				26,580						29,815
					2,631,789						2,727,924
		Less current portion			(188,274	)					(173,442	)
			Total	$	2,443,515					$	2,554,482

     Senior Credit Facility — Our senior credit facility provides for a revolving line of credit and two term loans. During the third quarter of 2003, we amended our senior credit facility to lower our interest rates, modify certain covenants, increase the revolving line of credit from $800 million to $1 billion, increase the Tranche A term loan from $765 million to $1 billion and decrease the Tranche B term loan from $990 million to $750 million. At September 30, 2003 there were outstanding term loan borrowings of $1.71 billion under this facility, and $43 million outstanding under the revolving line of credit. Letters of credit in the aggregate amount of $123 million were issued but undrawn. At September 30, 2003, approximately $834 million was available for future borrowings under the revolving credit facility, subject to satisfaction of certain conditions contained in the credit agreement. We are currently in compliance with all covenants contained in our credit agreement.

     Amounts outstanding under the revolver and the Tranche A term loan bear interest at a rate per annum equal to one of the following rates, at our option:

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• a base rate equal to the higher of the Federal Funds rate plus 50 basis points or the prime rate, plus a margin that varies from 0 to 75 basis points, depending on our leverage ratio (which is computed as the ratio of indebtedness to EBITDA, as such terms are defined in the credit agreement), or

• the London Interbank Offering Rate (“LIBOR”) divided by the product of one minus the Eurodollar Reserve Percentage, plus a margin that varies from 125 to 200 basis points, depending on our leverage ratio (as defined in the credit agreement).

     Borrowings under the Tranche B term loan bear interest at a rate per annum equal to one of the following rates, at our option:

• a base rate equal to the higher of the Federal Funds rate plus 50 basis points or the prime rate, plus a margin of 75 basis points, or

• LIBOR divided by the product of one minus the Eurodollar Reserve Percentage, plus a margin of 200 basis points.

     The blended interest rate in effect on borrowings under the senior credit facility, including the applicable interest rate margin, was 3% at September 30, 2003. However, we had interest rate swap agreements in place that hedged $1.43 billion of our borrowings under this facility at an average rate of 4.27%, plus the applicable interest rate margin. Interest is payable quarterly or at the end of the applicable interest period.

     Principal payments are required on the Tranche A term loan as follows:

• $37.5 million quarterly beginning on September 30, 2003 through December 31, 2004;

• $43.75 million quarterly on March 31, 2005 through December 31, 2005;

• $50.0 million quarterly on March 31, 2006 through December 31, 2006;

• $62.5 million quarterly on March 31, 2007 and June 30, 2007; and

• A final payment of $275.0 million on July 15, 2007.

     Principal payments are required on the Tranche B term loan as follows:

• $1.875 million quarterly beginning on September 30, 2003 through December 31, 2007; and

• $358.1 million on each of March 31, 2008 and July 15, 2008.

     No principal payments are due on the $1 billion line of credit until maturity on July 15, 2007.

     The credit agreement also requires mandatory principal prepayments upon the occurrence of certain asset dispositions not in the ordinary course of business.

     In consideration for the revolving commitment, we pay a quarterly commitment fee on unused amounts of the $1 billion revolving credit facility that ranges from 25 to 37.5 basis points, depending on our leverage ratio (as defined in the credit agreement).

     The senior credit facility contains various financial and other restrictive covenants and requires that we maintain certain financial ratios, including a leverage ratio (computed as the ratio of the aggregate outstanding principal amount of defined indebtedness to defined EBITDA) and an interest coverage ratio (computed as the ratio of defined EBITDA to interest expense). In addition, this facility requires that we maintain a minimum level of net worth (as defined in the credit agreement).

     Our leverage ratio must be less than or equal to 3.75 to 1. As of September 30, 2003, our leverage ratio was 3.17 to 1. Our interest coverage ratio must be greater than or equal to 3 to 1. As of September 30, 2003, our interest coverage ratio was 4.92 to 1.

     Our consolidated net worth must be greater than or equal to $1.75 billion, as increased each quarter (beginning with the quarter ended September 30, 2003) by an amount equal to 50% of our consolidated net income for the quarter, plus 50% of the amount by which stockholders’ equity is increased by certain equity issuances. As of September 30, 2003, the minimum net worth requirement was $1.81 billion, and our actual net worth (as defined in the credit agreement) was $2.38 billion.

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     Our credit agreement permits us to complete acquisitions that meet the following conditions without obtaining prior approval: (1) the acquired company is involved in the manufacture, processing and distribution of food or packaging products or any other line of business in which we are currently engaged, (2) the net cash consideration is not greater than $300 million, (3) we acquire at least 51% of the acquired entity, and (4) the transaction is approved by the Board of Directors or shareholders, as appropriate, of the target. All other acquisitions must be approved in advance by the required lenders.

     The facility also contains limitations on liens, investments and the incurrence of additional indebtedness, and prohibits certain dispositions of property and restricts certain payments, including dividends. The credit facility is secured by liens on substantially all of our domestic assets (including the assets of our subsidiaries, but excluding the capital stock of Legacy Dean Foods Company’s subsidiaries, and the real property owned by Legacy Dean Foods Company and its subsidiaries).

     The agreement contains standard default triggers, including without limitation: failure to maintain compliance with the financial and other covenants contained in the agreement, default on certain of our other debt, a change in control and certain other material adverse changes in our business. The agreement does not contain any default triggers based on our debt rating.

     Senior Notes — Legacy Dean Foods Company had certain senior notes outstanding at the time we acquired it which remain outstanding. The notes carry the following interest rates and maturities:

• $97.7 million ($100 million face value), at 6.75% interest, maturing in 2005;

• $250.4 million ($250 million face value), at 8.15% interest, maturing in 2007;

• $185.6 million ($200 million face value), at 6.625% interest, maturing in 2009; and

• $126.0 million ($150 million face value), at 6.9% interest, maturing in 2017.

     The related indentures do not contain financial covenants but they do contain certain restrictions including a prohibition against Legacy Dean Foods Company and its subsidiaries granting liens on their respective real estate interests and a prohibition against Legacy Dean Foods Company granting liens on the stock of its subsidiaries. The indentures also place certain restrictions on Legacy Dean Foods Company’s ability to divest assets not in the ordinary course of business.

     Receivables-Backed Loan — We have entered into a $400 million receivables securitization facility pursuant to which certain of our subsidiaries sell their accounts receivable to three wholly-owned special purpose entities intended to be bankruptcy-remote. The special purpose entities then transfer the receivables to third party asset-backed commercial paper conduits sponsored by major financial institutions. The assets and liabilities of these three special purpose entities are fully reflected on our balance sheet, and the securitization is treated as a borrowing for accounting purposes. During the first nine months of 2003, we had net payments of $17.5 million under this facility leaving an outstanding balance of $127.5 million at September 30, 2003. The receivables-backed loan bears interest at a variable rate based on the commercial paper yield as defined in the agreement. The average interest rate on the receivables-backed loan was 2.3% at September 30, 2003. Our ability to re-borrow under this facility is subject to a standard “borrowing base” formula. At September 30, 2003, we could have re-borrowed an additional $229.2 million under this facility.

     Foreign Subsidiary Term Loan — In connection with our acquisition of Leche Celta in February 2000, our Spanish subsidiary obtained a 42.1 million euro (as of September 30, 2003, approximately $49.1 million) non-recourse term loan from a syndicate of lenders, all of which was borrowed at closing and used to finance a portion of the purchase price. The loan, which is secured by our equity interest in Leche Celta, will expire on February 21, 2007, bears interest at a variable rate based on the ratio of Leche Celta’s debt to EBITDA (as defined in the corresponding loan agreement), and requires semi-annual principal payments. At September 30, 2003, a total of $31.7 million was outstanding under this facility. The interest rate in effect on this loan at September 30, 2003 was 3.94%. However, we had interest rate swap agreements in place that hedged 21 million euros of our borrowings under this facility at an average rate of 5.57%, plus the applicable interest rate margin.

     Other Lines of Credit — Leche Celta is our only subsidiary with its own lines of credit separate from the senior credit facility described above. Leche Celta’s primary line of credit, which is in the principal amount of 15 million euros (as of September 30, 2003 approximately $17.5 million), was obtained on July 12, 2000, bears interest at a variable interest rate based on the ratio of Leche Celta’s debt to EBITDA (as defined in the corresponding loan agreement), is secured by our equity interest in Leche Celta and will expire in June 2007. Leche Celta also utilizes other local commercial lines of credit. At September 30, 2003, $12 million was outstanding under these lines of credit at an average interest rate of 3.09%.

     Industrial Development Revenue Bonds — Certain of our subsidiaries have revenue bonds outstanding, some of which require nominal annual sinking fund redemptions. Typically, these bonds are secured by irrevocable letters of credit issued by financial

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institutions, along with first mortgages on the related real property and equipment. Interest on these bonds is due semiannually at interest rates that vary based on market conditions which, at September 30, 2003 ranged from 1.15% to 1.35%.

     Other Subsidiary Debt — 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. Capital lease obligations represent machinery and equipment financing obligations which are payable in monthly installments of principal and interest and are collateralized by the related assets financed.

     Letters of Credit — At September 30, 2003 there were $123 million of issued but undrawn letters of credit secured by our senior credit facility. In addition to the letters of credit secured by our senior credit facility, an additional $16.2 million of letters of credit were outstanding at September 30, 2003. The majority of these letters of credit were required by various utilities and government entities for performance and insurance guarantees.

     Interest Rate Agreements — We have interest rate swap agreements in place that have been designated as cash flow hedges against variable interest rate exposure on a portion of our debt, with the objective of minimizing our interest rate risk and stabilizing cash flows. These swap agreements provide hedges for loans under our senior credit facility by limiting or fixing the LIBOR interest rates specified in the senior credit facility at the interest rates noted below until the indicated expiration dates of these interest rate swap agreements.

     The following table summarizes our various interest rate agreements in effect as of September 30, 2003:

Fixed Interest Rates	Expiration Date	Notional Amounts
		(In millions)
1.47% to 4.69%	December 2003	$	675
4.01% to 6.69%	December 2004		275
5.20% to 6.74%	December 2005		400
6.78%	December 2006		75

     The following table summarizes our various interest rate agreements as of December 31, 2002:

Fixed Interest Rates	Expiration Date		Notional Amounts
			(In millions)
6.23%		June 2003	$	50
4.29% to 4.69%		December 2003		275
4.01% to 6.69%		December 2004		275
5.20% to 6.74%		December 2005		400
6.78%		December 2006		75

     We have also entered into interest rate swap agreements that provide hedges for loans under Leche Celta’s term loan. The following table summarizes these agreements:

Fixed Interest
Rates	Expiration Date	Notional Amounts
5.54%	November 2003	9 million euros (approximately $10.5 million as of September 30, 2003 and $9.4 million as of December 31, 2002)
5.6%	November 2004	12 million euros (approximately $14.0 million as of September 30, 2003 and $12.6 million as of December 31, 2002)

     These swaps are required to be recorded as an asset or liability on our consolidated balance sheet at fair value, with an offset to other comprehensive income to the extent the hedge is effective. Derivative gains and losses included in other comprehensive income are reclassified into earnings as the underlying transaction occurs. Any ineffectiveness in our hedges is recorded as an adjustment to interest expense.

     As of September 30, 2003, our derivative liability totaled $60.8 million on our consolidated balance sheet including approximately $37.3 million recorded as a component of accounts payable and accrued expenses and $23.5 million recorded as a component of other long-term liabilities. There was no hedge ineffectiveness, as determined in accordance with SFAS No. 133, for the quarter or nine months ended September 30, 2003. Approximately $7 million and $20.1 million of losses (net of taxes) were reclassified to interest expense from other comprehensive income during the quarter and nine months ended September 30, 2003, respectively. We estimate that approximately $23.8 million of net derivative losses (net of taxes) included in other comprehensive income will be reclassified into earnings within the next 12 months. These losses, if realized, will effectively raise the interest expense that would otherwise be payable on our variable rate debt.

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     Credit risk under these arrangements is remote since the counterparties to our interest rate swap agreements are major financial institutions.

6. Stockholders’ Equity

     Stock Award Plans — The following table summarizes stock option activity during the first three quarters of 2003 under our stock-based compensation programs:

					Weighted
					Average
		Options			Exercise Price
Options outstanding at December 31, 2002			19,558,530		$	16.55
	Options granted during first quarter (1)		3,337,991			24.80
	Options canceled or forfeited during first quarter (2)		(255,747	)		18.97
	Options exercised during first quarter		(2,639,070	)		15.16
Options outstanding at March 31, 2003			20,001,704			18.04
	Options granted during second quarter (1)		84,000			31.46
	Options canceled or forfeited during second quarter (2)		(622,986	)		18.03
	Options exercised during second quarter		(1,035,171	)		16.89
Options outstanding at June 30, 2003			18,427,547			18.09
	Options granted during third quarter (1)		55,176			30.22
	Options canceled or forfeited during third quarter (2)		(102,433	)		19.26
	Options exercised during third quarter		(1,188,926	)		13.48
Options outstanding at September 30, 2003			17,191,364			18.41

(1)	Employee options vest as follows: one-third on the first anniversary of the grant date, one-third on the second anniversary of the grant date, and one-third on the third anniversary of the grant date. Options granted to non-employee directors vest upon grant. On June 30 of each year, each non-employee director receives an immediately-vested option to purchase 7,500 shares of common stock.
(2)	Pursuant to the terms of our stock award plans, options that are canceled or forfeited become available for future grants.

     We also issued 30,696 shares of restricted stock during the first nine months of 2003 to non-employee directors as compensation for services rendered. Shares of restricted stock granted to non-employee directors vest one-third on grant, one-third on the first anniversary of grant and one-third on the second anniversary of grant.

     We also issued 778,500 deferred stock units (“DSU’s”) to certain key employees during the first nine months of 2003 (of which 714,588 were outstanding at September 30, 2003) and 28,088 DSU’s to non-employee directors on June 30, 2003. Each DSU represents the right to receive one share of common stock in the future. DSU’s have no exercise price. Each employee’s DSU grant vests ratably over five years, subject to certain accelerated vesting provisions based primarily on our stock price. DSU’s granted to non-employee directors vest ratably over three years.

     Earnings Per Share — Basic earnings per share is based on the weighted average number of common shares outstanding during each period. Diluted earnings per share is based on the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents during each period. The following table reconciles the numerators and denominators used in the computations of both basic and diluted earnings per share (“EPS”):

			Three Months Ended				Nine Months Ended
			September 30				September 30
			2003		2002		2003		2002
			(In thousands, except share and per-share amounts)
Basic EPS computation:
	Numerator:
		Income from continuing operations	$	122,162	$	68,007	$	269,160	$	196,700
	Denominator:
		Average common shares		155,090,232		135,855,567		141,709,125		134,753,213
	Basic EPS from continuing operations		$	0.79	$	0.50	$	1.90	$	1.46
Diluted EPS computation:
	Numerator:
		Income from continuing operations	$	122,162	$	68,007	$	269,160	$	196,700
		Net effect on earnings from conversion of mandatorily redeemable convertible preferred securities				5,331		8,994		15,993
		Income applicable to common stock	$	122,162	$	73,338	$	278,154	$	212,693

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		Three Months Ended				Nine Months Ended
		September 30				September 30
		2003		2002		2003		2002
		(In thousands, except share and per-share amounts)
Denominator:
	Average common shares — basic		155,090,232		135,855,567		141,709,125		134,753,213
	Stock option conversion (1)		5,283,856		4,721,010		5,373,049		5,257,459
	Restricted stock		714,805				730,859
	Dilutive effect of conversion of mandatorily redeemable convertible preferred securities				22,999,758		12,591,459		22,999,928
	Average common shares — diluted		161,088,893		163,576,335		160,404,492		163,010,600
	Diluted EPS from continuing operations	$	0.76	$	0.45	$	1.73	$	1.30

(1) Stock option conversion excludes 82,500 and 474,375 anti-dilutive shares for the three months ended September 30, 2003 and 2002, respectively, and 32,940 and 215,558 anti-dilutive shares for the nine months ended September 30, 2003 and 2002, respectively.

     Common Stock Repurchases — On each of January 8, 2003 and February 12, 2003, our Board of Directors authorized increases to our stock repurchase program of $150 million each. During the first nine months of 2003, we spent approximately $138 million to repurchase approximately 5.2 million shares of our common stock for an average price of $26.56 per share. At September 30, 2003, approximately $161.7 remained available under our stock repurchase authorization.

     TIPES — In three separate transactions during the second quarter of 2003, we called for redemption all of our trust-issued preferred securities (“TIPES”). We originally issued $600 million of TIPES in a private placement in 1998. The TIPES were convertible at the option of the holders, at any time, into shares of our common stock and were redeemable, at our option, at any time at specified premiums. In response to our three announced redemption transactions, holders of more than 99% of all outstanding TIPES elected to convert their TIPES into shares of our common stock rather than receive the $51.035 per security cash redemption price. Accordingly, during the second quarter of 2003, we issued an aggregate total of approximately 23 million shares of common stock to holders of TIPES in lieu of cash redemption payments, and we paid approximately $2.4 million in cash to holders who did not elect to convert. There are no remaining TIPES outstanding.

7. Comprehensive Income

     Comprehensive income consists of net income plus all other changes in equity from non-owner sources. Consolidated comprehensive income was $136.8 million and $284.7 million for the three-month and nine-month periods ended September 30, 2003. The amounts of income tax (expense) benefit allocated to each component of other comprehensive income during the nine months ended September 30, 2003 are included below.

		Pre-Tax			Tax Benefit			Net
		Income (Loss)			(Expense)			Amount
		(In thousands)
Accumulated other comprehensive income, December 31, 2002		$	(91,684	)	$	35,979		$	(55,705	)
	Cumulative translation adjustment arising during period		8,786			2,037			10,823
	Net change in fair value of derivative instruments		(13,410	)		3,250			(10,160	)
	Amounts reclassified to income statement related to derivatives		32,343			(12,274	)		20,069
	Minimum pension liability adjustment		(8,472	)		3,262			(5,210	)
Accumulated other comprehensive income, September 30, 2003		$	(72,437	)	$	32,254		$	(40,183	)

8. Plant Closing Costs

     Plant Closing Costs — As part of our overall rationalization and cost reduction program, we recorded plant closing costs of $5.1 million during the first nine months of 2003 related to the following:

• Closing of a Dairy Group ice cream plant in Hawaii;

• Organizational realignment of the Midwest region of our Dairy Group;

• Closing of a Dairy Group distribution facility in New York;

• Closing of a Dairy Group ice cream operation and maintenance facility in Ohio; and

• Realignment of Morningstar’s private label business and manufacturing operations into the Dairy Group.

     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. Under SFAS No. 146, the timing of certain costs associated with restructurings are accrued differently than in the past. We expect to incur additional charges related to these restructuring plans of approximately $2.5 million, including an additional $0.6 million in workforce reduction costs, $1.2 million in shutdown and other costs and $0.7 million in lease obligation costs. These additional charges are expected to be completed by December 2004 with the exception of the lease obligation payments for the closed Hawaii ice cream plant. The Hawaii lease expires in October 2033.

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     The principal components of our overall rationalization and cost reduction program include the following:

• Workforce reductions as a result of plant closings, plant rationalizations and consolidation of administrative functions;

• Shutdown costs, including those costs that are necessary to prepare the 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 being sold and were written down to their estimated fair value. The effect of suspending depreciation on the buildings and equipment related to the closed facilities was not significant. The carrying value of closed facilities at September 30, 2003 was approximately $5 million. We are marketing these properties for sale. Divestitures of the closed facilities has not resulted in significant modification to the estimate of fair value.

     In the first quarter of 2003, we sold a Dairy Group plant in Port Huron, Michigan. In 2001, we closed this plant and recorded plant closing costs which included a write-down in the value of the plant. We sold the closed plant for more than expected, resulting in a gain of $1.6 million. This gain was recorded as a reduction of plant closing expense, resulting in a net plant closing charge of $3.5 million during the first nine months of 2003.

     Activity with respect to plant closing costs during the first nine months of 2003 is summarized below:

					Nine Months Ended
					September 30, 2003
			At December 31,								At September 30,
			2002		Charges			Payments			2003
			(In thousands)
Cash charges:
	Workforce reduction costs		$	3,882	$	2,351		$	(3,358	)	$	2,875
	Shutdown costs			1,657		58			(1,064	)		651
	Lease obligations after shutdown			668		488			(498	)		658
	Other			786		304			(760	)		330
	Subtotal		$	6,993		3,201		$	(5,680	)	$	4,514
Write-down of assets						1,897
Gain on sale of facility						(1,645	)
		Total charges			$	3,453

     There have not been significant adjustments to the plans.

     Acquired Facility Closing Costs — As part of our purchase price allocations, we accrue costs from time to time pursuant to plans to exit certain activities and operations of acquired businesses in order to rationalize production and reduce costs and inefficiencies. Several plants were closed in connection with our acquisition of Legacy Dean Foods Company in December 2001 and one plant was closed in connection with our acquisition of Marie’s in May 2002. During the third quarter of 2003, we accrued costs related to the closing of an ice cream plant acquired in July 2003 by our Dairy Group.

     The principal components of the plans include the following:

• Workforce reductions as a result of plant closings, plant rationalizations and consolidation of administrative functions and offices;

• Shutdown costs, including those costs that are necessary to clean and prepare the 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.

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     Activity with respect to these acquisition liabilities during the first nine months of 2003 is summarized below:

			Nine Months Ended
	At		September 30, 2003					At
	December 31,							September 30,
	2002		Accruals		Payments			2003
			(In thousands)
Workforce reduction costs	$	9,002	$	100	$	(5,844	)	$	3,258
Shutdown costs		11,637		500		(4,037	)		8,100
Total	$	20,639	$	600	$	(9,881	)	$	11,358

9. 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 cost of sales reflect the cost of shipping products to customers through third party carriers, inventory warehouse costs and product loading and handling costs. 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. Shipping and handling costs that were recorded as a component of selling and distribution expense were approximately $245 million and $730.9 million during the third quarter and first nine months of 2003 and $238.5 million and $704.5 million during the third quarter and first nine months of 2002, respectively.

10. Commitments and Contingencies

     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.

     Contingent Obligations Related to Milk Supply Arrangements — On December 21, 2001, in connection with our acquisition of Legacy Dean Foods Company, we purchased Dairy Farmers of America’s (“DFA”) 33.8% stake in our Dairy Group. In connection with that transaction, we issued a contingent, subordinated promissory note to DFA in the original principal amount of $40 million. DFA is our primary supplier of raw milk, and the promissory note is designed to ensure that DFA has the opportunity to continue to supply raw milk to certain of our plants until 2021, or be paid for the loss of that business. The promissory note has a 20-year term and bears interest based on the consumer price index. Interest will not be paid in cash but will be added to the principal amount of the note annually, up to a maximum principal amount of $96 million. We may prepay the note in whole or in part at any time, without penalty. The note will only become payable if we ever materially breach or terminate one of our milk supply agreements with DFA without renewal or replacement. Otherwise, the note will expire at the end of 20 years, without any obligation to pay any portion of the principal or interest. Payments made under the note, if any, would be expensed as incurred.

     Contingent Obligations Related to White Wave Acquisition — On May 9, 2002, we completed the acquisition of White Wave, Inc. In connection with the acquisition, we established a Performance Bonus Plan pursuant to which we have agreed to pay performance bonuses to certain employees of White Wave if certain performance targets are achieved. Specifically, we agreed that if the cumulative net sales (as defined in the plan) of White Wave equal or exceed $382.5 million during the period beginning April 1, 2002 and ending March 31, 2004 (the “Incentive Period”) and White Wave does not exceed the budgetary restrictions set forth in the plan by more than $1 million during the Incentive Period, we will pay employee bonuses as follows:

• If cumulative net sales during the Incentive Period are between $382.5 million and $450 million, the bonus paid will scale ratably (meaning $129,630 for each $1 million of net sales) between $26.025 million and $35.0 million; and

• If cumulative net sales exceed $450 million during the Incentive Period, additional amounts will be paid as follows:

• First $50 million above $450 million net sales: 10% of amount in excess of $450 million, plus

• Second $50 million above $450 million net sales: 15% of amount in excess of $500 million, plus

• In excess of $550 million net sales: 20% of amount in excess of $550 million.

We currently expect the aggregate amount of bonuses payable under White Wave’s Performance Bonus Plan to be in the range of $35 million to $40 million, and we have recorded quarterly accruals based on the aggregate amount that we expect to pay. Key employees of White Wave are also entitled to receive certain payments if they are terminated without cause (or as a result of death or incapacity) during the Incentive Period.

     Contingent Obligations Related to Divested Operations — We have sold several businesses in recent years. In each case, we have retained certain known contingent liabilities related to those businesses and/or assumed an obligation to indemnify the purchasers of the businesses for certain unknown contingent liabilities, including environmental liabilities. In the case of the sale of our Puerto Rico

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operations, we were required to post collateral, including one surety bond and one letter of credit, to secure our obligation to satisfy the retained known liabilities. We do not expect any liability that we may have for these retained liabilities, or any indemnification liability, to be material.

     Enron — In 1999, we entered into an Energy Program Agreement with Enron Energy Services pursuant to which we contracted to purchase electricity for certain of our plants at a discounted rate for a ten-year period. Under the agreement, Enron (i) supplied (or arranged for the supply of) utilities to our facilities and paid the costs of such utilities directly to the utility suppliers, and (ii) made certain capital improvements at certain of our facilities in an effort to reduce our utility consumption, all in exchange for one monthly payment from us. In November 2001, Enron stopped performing under the agreement and in December 2001, Enron filed for bankruptcy protection. Shortly thereafter, Enron rejected our contract. In order to compensate us for our lost savings, the Energy Program Agreement provided for formula-based liquidated damages. We have filed a claim in Enron’s bankruptcy for our damages. We have received correspondence from Enron demanding payment of certain amounts that Enron alleges we owe under the agreement. We have disputed the validity of Enron’s claim and are in the process of attempting to negotiate an agreement with Enron for the settlement of our claims against each other. We cannot estimate the outcome of any settlement with Enron. However, we do not expect the settlement to have a material adverse impact on our financial position, results of operations or cash flows.

     Litigation, Investigations and Audits — We and our subsidiaries are parties from time to time to certain other claims, litigation, audits and investigations. In our opinion, the settlement of any such currently pending or threatened matter is not expected to have a material adverse impact on our financial position, results of operations or cash flows.

11. Business and Geographic Information and Major Customers

     Segment Data — We currently have three reportable segments: Dairy Group, Morningstar/White Wave and Specialty Foods. Our Dairy Group segment manufactures and distributes branded and private label milk, ice cream and ice cream novelties, half-and-half and whipping cream, cultured dairy products, fruit juices, other flavored drinks, bottled water, coffee creamers, dips and condensed milk. Morningstar/White Wave manufactures and sells dairy and non-dairy liquid coffee creamers, extended shelf-life milks, cultured dairy products, dips and dressings, aerosol whipped topping, egg substitute, soy milk and other soy products. Specialty Foods processes and sells pickles, relishes and peppers; powdered products such as non-dairy coffee creamers; aseptic sauces and puddings and nutritional beverages. Our European operations do not meet the definition of a segment and are reported in “Corporate/Other.” The 2002 period has been restated to remove the results of our former Puerto Rico operations, which have been reclassified as a discontinued operation.

     On May 8, 2003, we announced certain organizational changes designed to sharpen our focus on our strategic brand portfolio and enable us to realize certain manufacturing efficiencies including: (i) shifting responsibility for manufacturing, selling and distributing Morningstar Foods’ private label dairy products (which represented approximately half of Morningstar Foods’ 2002 sales) out of Morningstar Foods and into our Dairy Group, and (ii) shifting responsibility for the manufacture and distribution of all of Morningstar Foods’ remaining products (which are its nationally branded products) into the Dairy Group, with Morningstar Foods remaining responsible for the development, marketing and sale of those products. As a result of these changes, which are being implemented in stages and are currently expected to be completed by the beginning of 2004, Morningstar Foods will be re-named the Dean National Brand Group. When the realignment of our operations is complete, a new segment reporting structure will begin, pursuant to which (i) Morningstar Foods’ existing private label business will be reported in the Dairy Group segment, (ii) the results of the Dean National Brand Group and White Wave will be aggregated and reported as a segment, and (iii) Specialty Foods will remain unchanged. Until then, segment results will be reported consistently with prior years.

     The accounting policies of the segments are the same as those described in the summary of significant accounting policies set forth in Note 1 to our 2002 Consolidated Financial Statements contained in our 2002 Annual Report on Form 10-K (as amended). We evaluate performance based on operating profit not including non-recurring gains and losses, plant closing costs or foreign exchange gains and losses.

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     The amounts in the following tables are obtained from reports used by our executive management team and do not include any allocated income taxes or management fees. There are no significant non-cash items reported in segment profit or loss other than depreciation and amortization.

		Three Months Ended						Nine Months Ended
		September 30						September 30
		2003			2002			2003			2002
		(In thousands)
Net sales to external customers:
	Dairy Group	$	1,825,657		$	1,763,725		$	5,230,031		$	5,339,943
	Morningstar/White Wave		256,721			261,099			758,867			763,475
	Specialty Foods		165,748			164,103			504,362			502,681
	Corporate/Other		58,722			40,799			181,038			145,090
	Total	$	2,306,848		$	2,229,726		$	6,674,298		$	6,751,189
Intersegment sales:
	Dairy Group	$	9,522		$	7,290		$	24,026		$	22,169
	Morningstar/White Wave		24,669			19,889			70,525			77,257
	Specialty Foods		1,819			3,571			8,733			11,345
	Total	$	36,010		$	30,750		$	103,284		$	110,771
Operating income:
	Dairy Group (1)	$	161,515		$	134,835		$	462,226		$	398,182
	Morningstar/White Wave (2)		65,836			19,861			88,423			73,801
	Specialty Foods		26,827			28,321			77,672			74,475
	Corporate/Other		(13,297	)		(16,764	)		(45,992	)		(56,020	)
	Total	$	240,881		$	166,253		$	582,329		$	490,438

		At September 30
		2003		2002
		(In thousands)
Assets:
	Dairy Group	$	4,525,588	$	4,441,355
	Morningstar/White Wave		1,093,360		1,046,306
	Specialty Foods		643,620		645,946
	Corporate/Other		484,896		641,510
	Total	$	6,747,464	$	6,775,117

(1)	Operating income includes plant closing costs of $1 million in the third quarter of 2003 and $2.4 million and $6.5 million in the first nine months of 2003 and 2002, respectively.
(2)	Operating income includes a gain on the sale of the frozen pre-whipped topping and frozen creamer business of $65.9 million in the third quarter and first nine months of 2003 and plant closing costs of $1.1 million in the third quarter and first nine months of 2003 and $4.9 million in the third quarter and first nine months of 2002.

Geographic Information

		Revenue
		Three Months Ended				Nine Months Ended				Long-Lived Assets at
		September 30				September 30				September 30
		2003		2002		2003		2002		2003		2002
				(In thousands)						(In thousands)
United States		$	2,248,126	$	2,184,355	$	6,493,260	$	6,593,100	$	5,238,329	$	5,114,438
Puerto Rico(1)													129,811
Europe			58,722		45,371		181,038		158,089		144,308		120,578
	Total	$	2,306,848	$	2,229,726	$	6,674,298	$	6,751,189	$	5,382,637	$	5,364,827

(1) Revenues have been restated to remove revenues related to our former Puerto Rico operations, which have been reclassified as discontinued operations.

     Significant Customers — Our Dairy Group and Morningstar/White Wave segments had one customer that represented greater than 10% of their sales in the first nine months of 2003. Approximately 12% of our consolidated sales in the first nine months of 2003 were to that same customer.

12. Subsequent Events

     On October 15, 2003, we completed the acquisition of Kohler Mix Specialties, Inc., the dairy products division of Michael Foods, Inc. Kohler Mix Specialties had net sales of approximately $190 million in 2002 and has three plants located in White Bear Lake, Minnesota, Sulphur Springs, Texas and Newington, Connecticut. Kohler’s product line consists primarily of ultra-pasteurized creams, creamers and ice cream mixes. We paid approximately $156 million for the purchase of Kohler Mix Specialties, all of which was funded using borrowings under our receivables-backed loan.

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

     We are the leading processor and distributor of milk and other dairy products in the United States and a leading manufacturer of specialty foods.

     Our Dairy Group segment manufactures and sells milks, ice cream and ice cream novelties, creams (including half-and-half and whipping cream), cultured dairy products, juices, water, coffee creamers and dairy-based dips. The Dairy Group’s products have historically been sold primarily under our proprietary local and regional brands, with the balance of the Dairy Group’s products being sold under private labels. Our Dairy Group delivers the majority of its products directly from our plants and distribution centers to customers’ stores in trucks that we own or lease. This form of delivery is called a “direct store delivery” or “DSD” system. Our Dairy Group has one of the most extensive refrigerated DSD systems in the United States, with delivery routes spanning virtually the entire country. Our Dairy Group’s sales accounted for approximately 78% of our revenues during the first nine months of 2003.

     Our Morningstar/White Wave segment is focused primarily on the sale of nationally branded beverages and dairy-related food products such as soymilks, flavored coffee creamers, refrigerated dips and dressings and various value-added extended shelf-life milks such as Hershey’s® flavored milks and milkshakes, Land O Lakes® Dairy Ease® lactose-free milk and Folgers® Jakada® single-serve coffee and milk beverage. In addition, approximately half of Morningstar Foods’ sales have historically consisted of private label dairy products. In May 2003, we announced certain organizational changes pursuant to which responsibility for manufacturing and selling Morningstar Foods’ private label dairy products will be transferred to the Dairy Group. We are in the process of implementing this transfer as well as certain other organizational realignments between our Dairy Group and Morningstar Foods in order to sharpen our focus on Morningstar/White Wave’s strategic brand portfolio and to enable us to capture certain manufacturing efficiencies. We expect these changes to be complete by the beginning of 2004. See “— Recent Developments.” Morningstar/White Wave’s sales accounted for approximately 11% of our revenues during the first nine months of 2003.

     Our Specialty Foods segment manufactures and sells pickles, relishes and peppers; powdered coffee creamers and other powdered products; aseptic sauces and pudding and nutritional beverages. Our Specialty Foods segment is the largest pickle processor and the largest manufacturer of powdered non-dairy coffee creamers in the United States, with the majority of its products being sold under private labels. Specialty Foods’ sales accounted for approximately 8% of our revenues during the first nine months of 2003.

     We also own a European dairy processor based in Spain. Our European operations are not large enough to meet the definition of a reportable segment and, therefore, they are reported in our Corporate/Other segment.

Results of Operations

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

			Three Months Ended September 30											Nine Months Ended September 30
			2003						2002					2003						2002
			Dollars			Percent			Dollars		Percent			Dollars			Percent			Dollars		Percent
			(Dollars in thousands)														(Dollars in thousands)
Net sales			$	2,306,848			100.0	%	$	2,229,726		100.0	%	$	6,674,298			100.0	%	$	6,751,189		100.0	%
Cost of sales				1,713,311			74.3			1,636,306		73.4			4,908,375			73.5			5,012,480		74.2
Gross profit				593,537			25.7			593,420		26.6			1,765,923			26.5			1,738,709		25.8
Operating costs and expenses:
	Selling and distribution			339,296			14.7			326,489		14.6			1,009,479			15.1			972,629		14.4
	General and administrative			76,024			3.3			93,451		4.2			232,810			3.5			257,833		3.8
	Amortization expense			1,110			0.1			2,306		0.1			3,744			0.1			6,385		0.1
	Plant closing costs			2,118			0.1			4,921		0.2			3,453			0.1			11,424		0.2
	Other operating income			(65,892	)		(2.9	)							(65,892	)		(1.0	)
		Total operating expenses		352,656			15.3			427,167		19.1			1,183,594			17.8			1,248,271		18.5
Total operating income			$	240,881			10.4	%	$	166,253		7.5	%	$	582,329			8.7	%	$	490,438		7.3	%

Note: In the following sections entitled “Quarter Ended September 30, 2003 Compared to Quarter Ended September 30, 2002” and “First Nine Months of 2003 Compared to the First Nine Months of 2002,” we provide the operating expense ratio and operating margin for our Morningstar/White Wave segment on an actual basis, according to generally accepted accounting principles, and on a pro forma basis to exclude the approximately $65.9 million gain on the sale of Morningstar Foods’ frozen pre-whipped topping and frozen creamer business. We provide this comparative information in order to allow the reader to make a more meaningful assessment of that segment’s operating performance from period to period.

Quarter Ended September 30, 2003 Compared to Quarter Ended September 30, 2002

     Net Sales — Consolidated net sales increased approximately 3.5% to $2.31 billion during the third quarter of 2003 from $2.23 billion in the third quarter of 2002.

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     Net sales for the Dairy Group increased approximately 3.5%, or $61.9 million, in the third quarter of 2003 compared to the third quarter of 2002. This increase is primarily due to the effects of increased raw milk costs compared to the prior year and the acquisition of Melody Farms during the second quarter of 2003, partly offset by a 1% decrease in fluid milk volumes. In general, we change the prices that we charge our customers for our products on a monthly basis, as the costs of our raw materials fluctuate. 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 the third quarter of 2003 compared to the third quarter of 2002:

	Quarter Ended September 30*
	2003			2002			% Change
Class I raw skim milk mover(3)	$	7.50	(1)	$	6.88	(1)		9.0	%
Class I butterfat mover(3)		1.21	(2)		1.11	(2)		9.0	%
Class II raw skim milk minimum(4)		6.65	(1)		7.58	(1)		(12.3	)%
Class II butterfat minimum(4)		1.23	(2)		1.07	(2)		15.0	%

*	The prices noted in this table are not the prices that we actually pay. The federal order minimum prices at any given location for Class I raw skim milk or Class I butterfat are based on the Class I mover prices plus a location differential. Class II prices noted in the table are federal minimum prices, applicable at all federally regulated locations. Our actual cost also includes producer premiums, procurement costs and other related charges that vary by location and vendor.
(1)	Prices are per hundredweight.
(2)	Prices are per pound.
(3)	We process Class I raw skim milk and butterfat into fluid milk products.
(4)	We process Class II raw skim milk and butterfat into products such as cottage cheese, creams, ice cream and sour cream

     Net sales for Morningstar/White Wave decreased by approximately 1.7%, or $4.4 million, during the third quarter of 2003 compared to the third quarter of 2002 primarily due to the planned phase-out of the Nestle Nesquik and Nestle Coffeemate co-packing businesses; increased spending for slotting fees, couponing and certain other promotional costs related to our strategic brands, which are required to be recorded as reductions of revenue; and the sale of the frozen pre-whipped topping and frozen creamer business. The impact of these events was offset somewhat by increased volumes of our strategic brands.

     Strategic brand sales volumes increased approximately 31% in the third quarter of 2003 versus the third quarter of 2002. Morningstar/White Wave’s strategic brands include Hershey’s flavored milks and milkshakes, International Delight and Land O’Lakes coffee creamers, Silk soymilk, Sun Soy soymilk, Folger’s Jakada milk and coffee beverage, Land O’Lakes Dairy Ease, Marie’s dips and dressings and Dean’s dips.

     Net sales for our Specialty Foods segment increased slightly by approximately 1%, or $1.6 million, during the third quarter of 2003 compared to the third quarter of 2002. This increase was primarily due to an increase in non-dairy coffee creamer and nutritional beverage sales volumes, partly offset by the sale of EBI Foods, Ltd. in October 2002.

     Cost of Sales — Our consolidated cost of sales ratio was 74.3% in the third quarter of 2003 compared to 73.4% in the third quarter of 2002. The cost of sales ratio for the Dairy Group was consistent at 74.1% in the third quarter of both years.

     The cost of sales ratio for Morningstar/White Wave increased to 73.1% in the third quarter of 2003 from 68.5% in the third quarter of 2002. This increase in 2003 was due primarily to lower revenues during the period, and to certain manufacturing inefficiencies that resulted from difficulties associated with the introduction of new products and new technologies and the shifting of production between plants. Specialty Foods’ cost of sales ratio increased to 74% in the third quarter of 2003 from 71.7% in the third quarter of 2002. This increase was primarily due to rising commodity prices and increased costs associated with the relocation of certain lines of production.

     Operating Costs and Expenses — Our consolidated operating expense ratio was 15.3% in the third quarter of 2003 compared to 19.1% during the third quarter of 2002.

     The operating expense ratio at the Dairy Group was 17.1% in the third quarter of 2003 compared to 18.3% in the third quarter of 2002. The decrease in the 2003 operating expense ratio was primarily due to the effect of higher raw milk prices in 2003, lower insurance expense based on current claims experience, and the impact of certain cost savings initiatives (which related primarily to headcount reductions). Higher raw material prices generally result in higher sales dollars. Therefore, higher raw milk prices will generally reduce the Dairy Group’s operating expense ratio and lower raw milk prices will generally increase the Dairy Group’s operating expense ratio.

     The operating expense ratio at Morningstar/White Wave was 1.2% during the third quarter of 2003 compared to 23.9% in the third quarter of 2002. This decrease was driven by a gain of $65.9 million on the sale of the frozen pre-whipped topping and frozen creamer business during the third quarter of 2003. Excluding the impact of the $65.9 million gain, Morningstar/White Wave’s operating expense ratio would have been 26.9% during the third quarter of 2003 compared to 23.9% in the third quarter of 2002. This increase is primarily due to higher marketing expenses in 2003 related to the promotion of strategic brands.

     The operating expense ratio for Specialty Foods was 9.9% in the third quarter of 2003 versus 11% in the third quarter of 2002 primarily due to lower commissions expense and the sale of EBI Foods, Ltd. in October 2002, which had higher operating expenses.

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     Operating Income — Consolidated operating income during the third quarter of 2003 was $240.9 million, an increase of $74.6 million from the third quarter of 2002 operating income of $166.3 million. Our consolidated operating margin in the third quarter of 2003 was 10.4% compared to 7.5% in the third quarter of 2002.

     The Dairy Group’s operating margin increased to 8.8% in the third quarter of 2003 from 7.6% in the same period of 2002. This increase is primarily due to lower insurance expense based on current claims experience, and to the impact of certain cost savings initiatives (related primarily to headcount reductions).

     The operating margin for our Morningstar/White Wave segment increased to 25.6% in the third quarter of 2003 from 7.6% in the third quarter of 2002. This increase was the result of the $65.9 million gain on sale of the frozen pre-whipped topping and frozen creamer business. Eliminating the impact of the $65.9 million gain, Morningstar/White Wave’s operating margin would have declined to (0.02%) during the third quarter of 2003 from 7.6% during the third quarter of 2002. This decrease is primarily due to higher marketing expenses related to the promotion of strategic brands and manufacturing inefficiencies related to the introduction of new manufacturing technologies.

     Specialty Foods’ operating margin was 16.2% in the third quarter of 2003 versus 17.3% in the third quarter of 2002. This decrease was primarily due to rising commodity prices and increased costs associated with the relocation of certain lines of production.

     Other (Income) Expense — Total other expense decreased by $12.9 million in the third quarter of 2003 compared to the third quarter of 2002. There were no financing charges on preferred securities in the third quarter of 2003 versus $8.4 million in the third quarter of 2002 due to the successful retirement of these securities during the second quarter of 2003. See Note 6 to our Condensed Consolidated Financial Statements. Interest expense decreased to $45.8 million in the third quarter of 2003 compared to $48.3 million in the third quarter of 2002 due to lower interest rates and lower debt.

     Income Taxes — Income tax expense was recorded at an effective rate of 38% in the third quarter of 2003 compared to 37.8% in the third quarter of 2002. Our tax rate varies as the mix of earnings contributed by our various business units changes and as tax savings initiatives are adopted.

     Discontinued Operations — We recorded income from discontinued operations of $0.7 million during the third quarter of 2002. On December 30, 2002, we sold our operations in Puerto Rico. As a result, all amounts attributable to our former Puerto Rico operations have been reclassified to “income from discontinued operations.”

First Nine Months of 2003 Compared to the First Nine Months of 2002

     Net Sales — Consolidated net sales decreased by approximately 1.1% to $6.67 billion during the first nine months of 2003 from $6.75 billion in the first nine months of 2002.

     Net sales for the Dairy Group decreased approximately 2.1%, or $109.9 million, in the first nine months of 2003 compared to the first nine months of 2002. This decrease is primarily due to the effects of decreased raw milk costs compared to the prior year and also to the effects of an approximately 1% decrease in fluid milk volumes. In general, we change the prices that we charge our customers for our products on a monthly basis, as the costs of our raw materials fluctuate. 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 the first nine months of 2003 compared to the first nine months of 2002:

	Nine months Ended September 30*
	2003			2002			% Change
Class I raw skim milk mover(3)	$	6.57	(1)	$	7.00	(1)		(6.1	)%
Class I butterfat mover(3)		1.18	(2)		1.27	(2)		(7.1	)%
Class II raw skim milk minimum(4)		6.76	(1)		7.61	(1)		(11.2	)%
Class II butterfat minimum(4)		1.19	(2)		1.22	(2)		(2.5	)%

*	The prices noted in this table are not the prices that we actually pay. The federal order minimum prices at any given location for Class I raw skim milk or Class I butterfat are based on the Class I mover prices plus a location differential. Class II prices noted in the table are federal minimum prices, applicable at all federally regulated locations. Our actual cost also includes producer premiums, procurement costs and other related charges that vary by location and vendor.
(1)	Prices are per hundredweight.
(2)	Prices are per pound.
(3)	We process Class I raw skim milk and butterfat into fluid milk products.
(4)	We process Class II raw skim milk and butterfat into products such as cottage cheese, creams, ice cream and sour cream.

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     Net sales for Morningstar/White Wave decreased by approximately 0.6%, or $4.6 million, during the first nine months of 2003 compared to the same period in the prior year. The acquisition of White Wave contributed $105.6 million more in the first nine months of 2003 than in the first nine months of 2002. This increased contribution was offset by the planned phase-out of the Lactaid, Nestle Nesquik and Nestle Coffeemate co-packing businesses; by increased spending for slotting fees, couponing and certain other promotional costs related to our strategic brands, which are required to be recorded as reductions of revenue; and the sale of the frozen pre-whipped topping and frozen creamer business.

     On a pro forma basis as if White Wave had been acquired on January 1, 2002, strategic brand sales volumes increased approximately 30% in the first nine months of 2003 versus the first nine months of 2002. Morningstar/White Wave’s strategic brands include Hershey’s flavored milks and milkshakes, International Delight and Land O’Lakes coffee creamers, Silk soymilk, Sun Soy soymilk, Folger’s Jakada milk and coffee beverage, Land O’Lakes Dairy Ease, Marie’s dips and dressings and Dean’s dips.

     Net sales for Specialty Foods increased slightly by approximately 0.3%, or $1.7 million, during the first nine months of 2003 compared to the same period in the prior year. Sales increases in non-dairy coffee creamers and nutritional beverages were offset by lower sales in pickles, and by the decrease in sales resulting from the divestiture of EBI Foods, Ltd. in October 2002.

     Cost of Sales — Our consolidated cost of sales ratio was 73.5% in the first nine months of 2003 compared to 74.2% in the first nine months of 2002. The cost of sales ratio for the Dairy Group decreased to 73.5% in the first nine months of 2003 from 74.6% in the first nine months of 2002 due primarily to lower raw milk costs.

     The cost of sales ratio for Morningstar/White Wave increased to 71.2% in the first nine months of 2003 compared to 69.6% in the first nine months of 2002. The increase in the cost of sales ratio was due to the impact of lower sales and manufacturing inefficiencies related to the introduction of new products and new technologies and certain manufacturing realignments, offset by (i) the phase-out of the Lactaid and Nestle co-packing businesses, which had higher costs of sales, and (ii) lower raw material costs. Specialty Foods’ cost of sales ratio increased slightly to 74.4% in the first nine months of 2003 from 73.9% in the first nine months of 2002. This increase was primarily due to rising commodity prices.

     Operating Costs and Expenses — Our consolidated operating expense ratio was 17.8% in the first nine months of 2003 compared to 18.5% during the first nine months of 2002.

     The operating expense ratio at the Dairy Group was 17.7% in the first nine months of 2003 compared to 18% in the first nine months of 2002. The decrease in the 2003 operating expense ratio was due to lower insurance expense based on current claims experience, certain cost savings initiatives (related primarily to headcount reductions) and lower plant closing costs, all of which offset the effects of lower raw milk prices. Lower raw milk prices generally result in lower sales. Therefore, assuming other operating expenses remain constant, our operating expense ratio will usually increase with lower raw milk costs.

     The operating expense ratio at Morningstar/White Wave was 17.1% during the first nine months of 2003 compared to 20.7% in the first nine months of 2002. This decrease was due to the $65.9 million gain on sale of the frozen pre-whipped topping business. Excluding the impact of the $65.9 million gain, Morningstar/White Wave’s operating expense ratio was 25.8% during the first nine months of 2003 compared to 20.7% in the same period of the prior year. This increase was primarily due to higher marketing expenses related to the introduction of new products and the promotion of strategic brands. The ratio was also significantly impacted by the addition of White Wave, which is accruing significant amounts for bonuses to be paid in March 2004 under the White Wave Performance Bonus Plan that was established when we acquired White Wave in May 2002. See Note 10 to our Condensed Consolidated Financial Statements.

     The operating expense ratio for Specialty Foods was 10.2% in the first nine months of 2003 versus 11.3% in the first nine months of 2002 primarily due to lower commissions expense and the sale of EBI Foods, Ltd. in October 2002, which had higher operating expenses.

     Operating Income — Consolidated operating income during the first nine months of 2003 was $582.3 million, an increase of $91.9 million from the first nine months of 2002 operating income of $490.4 million. Our consolidated operating margin in the first nine months of 2003 was 8.7% compared to 7.3% in the first nine months of 2002.

     The Dairy Group’s operating margin increased to 8.8% in the first nine months of 2003 from 7.5% in the same period of 2002. This increase is primarily due to the effects of decreased raw milk costs compared to the prior year, along with lower insurance expense based on current claims experience, the impact of certain cost savings initiatives (related primarily to headcount reductions) and lower plant closing costs.

-22-

     The operating margin for our Morningstar/White Wave segment increased to 11.7% in the first nine months of 2003 from 9.7% in the first nine months of 2002. This increase was due to the gain on the sale of the frozen pre-whipped topping and frozen creamer business. Excluding the impact of the $65.9 million gain, Morningstar/White Wave’s operating margin would have declined to 3% during the first nine months of 2003 from 9.7% during the first nine months of 2002. This decrease is primarily due to higher marketing expenses, as well as manufacturing inefficiencies related to the introduction of new products and new technologies and certain manufacturing realignments. The ratio was also affected by significant bonus accruals in the first nine months of 2003 (versus only five months in 2002) under White Wave’s Performance Bonus Plan.

     Specialty Foods’ operating margin was 15.4% in the first nine months of 2003 versus 14.8% in the first nine months of 2002. This increase was primarily due to the sale of EBI Foods, Ltd., which had higher operating expenses.

     Other (Income) Expense — Total other expense decreased by $25.3 million in the first nine months of 2003 compared to the first nine months of 2002. Interest expense decreased to $137 million in the first nine months of 2003 from $149.7 million in the first nine months of 2002 as a result of lower interest rates and lower debt. Financing charges on preferred securities were $14.2 million in the first nine months of 2003 versus $25.2 million in the first nine months of 2002. These securities were redeemed during the second quarter of 2003. See Note 6 to our Condensed Consolidated Financial Statements.

     Income Taxes — Income tax expense was recorded at an effective rate of 38% in the first nine months of 2003 compared to 37.9% in the first nine months of 2002. Our tax rate varies as the mix of earnings contributed by our various business units changes and as tax savings initiatives are adopted.

     Discontinued Operations — We recorded income from discontinued operations of $0.6 million during the first nine months of 2002. On December 30, 2002, we sold our operations in Puerto Rico. As a result, all amounts attributable to our former Puerto Rico operations have been reclassified to “income from discontinued operations.”

     Cumulative Effect of Accounting Change — As part of our adoption of SFAS 142 on January 1, 2002 we wrote down the value of certain trademarks and the goodwill related to our Puerto Rico operations which our analysis indicated were impaired. Our adoption of this accounting standard resulted in the recognition of $85 million, net of an income tax benefit of $29 million, as a charge to earnings during the first nine months of 2002.

Recent Developments

Acquisitions and Divestiture

     On October 15, 2003, we acquired Kohler Mix Specialties, Inc., the dairy products division of Michael Foods, Inc. Kohler Mix Specialties had net sales of approximately $190 million in 2002 and has three plants located in White Bear Lake, Minnesota, Sulphur Springs, Texas and Newington, Connecticut. Kohler’s product line consists primarily of ultra-pasteurized ice cream mixes, creamers and creams. We paid approximately $156 million for the purchase of Kohler Mix Specialties, all of which was funded using borrowings under our receivables-backed loan.

     On July 31, 2003, we completed the sale of the frozen pre-whipped topping and frozen coffee creamer business of Morningstar Foods for cash proceeds of approximately $90 million. Part of our strategy is to divest assets where appropriate in order to ensure that our financial and management resources are closely aligned with our strategic direction and expertise. The divested operations were our only operations with frozen warehouse distribution.

     On June 30, 2003, we announced that we had signed a definitive agreement to acquire the 87% of Horizon Organic Holding Corporation (Nasdaq: HCOW) that we do not already own for an aggregate purchase price of approximately $216 million, all of which will be funded using borrowings under our senior credit facility and our receivables-backed loan. We also intend to repay Horizon Organic’s borrowings under its credit facility (expected to be approximately $40 million at closing) using borrowings under our senior credit facility and our receivables-backed loan. Horizon Organic is the maker of nationally-branded Horizon® organic dairy products and juices and had sales of approximately $215 million during the 12-month period ended September 30, 2003. We currently own approximately 13% of the outstanding common stock of Horizon Organic. Completion of the acquisition is subject to various customary closing conditions, including receipt of approval of Horizon Organic’s shareholders, and is expected to close in early January 2004. Once the acquisition is completed, Horizon Organic’s financial results will be reported in our Morningstar/White Wave segment.

     On June 9, 2003, we completed the acquisition of Melody Farms, LLC. Melody Farms, which is now a part of the Midwest region of our Dairy Group, is a regional dairy processor based in Livonia, Michigan. Melody Farms produces a full line of fluid dairy and ice cream products from two plants in Michigan. Melody Farms had net sales of approximately $116 million during the 12-month period ended March 31, 2003.

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Amendment to Credit Facility

     During the third quarter of 2003, we amended our senior credit facility to (1) lower the interest rates, (2) increase the available amount of the revolver from $800 million to $1 billion, (3) increase the principal balance of the lower-rate Tranche A term loan from $765 million to $1 billion, (3) lower the principal balance of the higher-rate Tranche B term loan from $990 million to $750 million, (4) fix the leverage ratio requirement at 3.75 to 1, and (5) make certain other financial covenant changes. The new terms of the credit agreement are described in detail in Note 5 to our Condensed Consolidated Financial Statements.

Organizational Changes

     On May 8, 2003, we announced certain organizational changes designed to sharpen our focus on our strategic brand portfolio and enable us to realize certain manufacturing efficiencies including: (i) shifting responsibility for manufacturing, selling and distributing Morningstar Foods’ private label dairy products (which represented approximately half of Morningstar Foods’ 2002 sales) out of Morningstar Foods and into our Dairy Group, and (ii) shifting responsibility for the manufacture and distribution of all of Morningstar Foods’ remaining products (which are its nationally branded products) into the Dairy Group, with Morningstar Foods remaining responsible for the development, marketing and sale of those products. As a result of these changes, which are being implemented in stages and are currently expected to be complete by the beginning of 2004, Morningstar Foods will be re-named the Dean National Brand Group. When the realignment of our operations is complete, a new segment reporting structure will begin, pursuant to which (i) Morningstar Foods’ existing private label business will be reported in the Dairy Group segment, (ii) the results of the Dean National Brand Group and White Wave will be aggregated and reported as a segment, and (iii) Specialty Foods will remain unchanged. Until then, segment results will be reported consistently with prior years.

TIPES

     In three separate transactions during the second quarter of 2003, we called for redemption all of our trust-issued preferred securities (“TIPES”). We originally issued $600 million of TIPES in a private placement in 1998. The TIPES were convertible at the option of the holders, at any time, into shares of our common stock and were redeemable, at our option, at any time at specified premiums. In response to our three announced redemption transactions, holders of more than 99% of all outstanding TIPES elected to convert their TIPES into shares of our common stock rather than receive the cash redemption price. Accordingly, during the second quarter of 2003, we issued an aggregate total of approximately 23 million shares of common stock to holders of TIPES in lieu of cash redemption payments, and we paid approximately $2.4 million in cash to holders who did not elect to convert. There are no remaining TIPES outstanding.

Stock Buyback

     During the third quarter of 2003, we spent approximately $10 million to repurchase 360,000 shares of our common stock for an average purchase price of $27.52 per share. At November 7, 2003, approximately $161.7 million remained available under our current authorization.

Stock Split

     On May 7, 2003, our Board of Directors declared a three-for-two split of our common stock. The split was paid on June 9, 2003 to shareholders of record on May 23, 2003. All share numbers in this Quarterly Report on Form 10-Q have been adjusted for all periods to reflect the split.

Liquidity and Capital Resources

Historical Cash Flow

     During the first nine months of 2003, we met our working capital needs with cash flow from operations. Net cash provided by operating activities from continuing operations was $338.1 million for 2003 as contrasted to $430 million for 2002, a decrease of $91.9 million. Net cash provided by operating activities was primarily impacted by changes in working capital which used $106.4 million in 2003 compared to 2002, when changes in working capital provided $64.2 million in cash. This was partly offset by a change in cash provided by deferred income taxes of $72.2 million and increased net income.

     Net cash used in investing activities for continuing operations was $160.7 million in the first nine months of 2003 compared to $355.8 million in the first nine months of 2002, a decrease of $195.1 million. We used approximately $199.5 million for capital expenditures.

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     During the first nine months of 2003, we used approximately $152.5 million to repurchase our stock, and we received approximately $82 million as a result of stock option exercises and employee stock purchases through our employee stock purchase plan. We had net payments of debt during the first nine months of 2003 of $126 million.

Current Debt Obligations

     Our senior credit facility provides us with a revolving line of credit of up to $1 billion and two term loans in the amounts of $1 billion and $750 million, respectively. The senior credit facility, which is secured by substantially all of our assets, contains various financial and other restrictive covenants and requires that we maintain certain financial ratios, including a leverage ratio (computed as the ratio of the aggregate outstanding principal amount of defined indebtedness to defined EBITDA) and an interest coverage ratio (computed as the ratio of defined EBITDA to interest expense). In addition, this facility requires that we maintain a minimum level of net worth (as defined by the agreement). The agreement contains standard default triggers, including without limitation: failure to maintain compliance with the financial and other covenants contained in the agreement, default on certain of our other debt, a change in control and certain other material adverse changes in our business. The agreement does not contain any default triggers based on our debt rating. See Note 5 to our Condensed Consolidated Financial Statements for detailed information regarding the terms of our credit agreement, including interest rates, principal payment schedules and mandatory prepayment provisions.

     At September 30, 2003 we had outstanding borrowings of $1.75 billion under our senior credit facility (compared to $1.83 billion at December 31, 2002), including approximately $43 million that was drawn under the revolving credit facility, in addition to $123 million of letters of credit that were issued but undrawn. As of September 30, 2003 approximately $834 million was available for future borrowings under our senior credit facility, subject to satisfaction of certain conditions contained in the loan agreement. We are currently in compliance with all covenants contained in our credit agreement.

     In addition to our senior credit facility, we also have a $400 million receivables-backed credit facility, which had $127.5 million outstanding at September 30, 2003. Approximately $229.2 million was available for borrowing under this facility at September 30, 2003. See Note 5 to our Condensed Consolidated Financial Statements for more information about our receivables-backed facility.

     Other indebtedness outstanding at September 30, 2003 included $700 million face value of outstanding indebtedness under Legacy Dean Foods Company’s senior notes, approximately $31.7 million of term indebtedness and an approximately $12 million line of credit at our Spanish subsidiary, $20.7 million of industrial development revenue bonds and approximately $26.9 million face value of capital lease and other obligations. See Note 5 to our Condensed Consolidated Financial Statements.

     The table below summarizes our obligations for indebtedness and lease and purchase obligations at September 30, 2003 (dollars in thousands).

				Payments Due by Period
				10/01/03		10/01/04		10/01/05		10/01/06		10/01/07
				to		to		to		to		to
Indebtedness & Lease Obligations		Total		09/30/04		09/30/05		09/30/06		09/30/07		09/30/08		Thereafter
Senior credit facility		$	1,753,625	$	157,500	$	176,250	$	201,250	$	500,500	$	718,125
Senior notes(1)			700,000				100,000				250,000				350,000
Receivables-backed loan			127,500						127,500
Foreign subsidiary term loan			31,686		9,453		9,103		8,753		4,377
Other lines of credit			11,992		9,312						2,680
Industrial development revenue bonds			20,700		300		300		300		300		300		19,200
Capital lease obligations and other(1)			26,946		11,708		5,474		7,035		2,312		303		114
Operating leases			365,017		77,090		59,771		48,249		38,755		34,553		106,599
Purchase obligations(2)			56,407		9,895		9,895		9,895		9,840		7,592		9,290
	Total	$	3,093,873	$	275,258	$	360,793	$	402,982	$	808,764	$	760,873	$	485,203

(1) Represents face value of senior notes and other debt obligations.

(2) Represents obligations incurred by our Specialty Foods segment related to our pickle business, including certain minimum purchase requirements and certain minimum storage costs.

     In addition to the letters of credit secured by our senior credit facility, we had at September 30, 2003 approximately $16.2 million of letters of credit with three other banks that were issued but undrawn. The majority of these were required by various utilities and government entities for performance and insurance guarantees.

Other Long-Term Liabilities

     We offer pension benefits to certain employees through various defined benefit pension plans and also offer certain health care and life insurance benefits to eligible employees and their eligible dependents upon the retirement of such employees. Reported costs of

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providing noncontributory defined pension benefits and other postretirement benefits are dependent upon numerous factors, assumptions and estimates.

     For example, these costs are impacted by actual employee demographics (including age, compensation levels and employment periods), the level of contributions made to the plan and earnings on plan assets. Our pension plan assets are primarily made up of equity and fixed income investments. Changes made to the provisions of the plan may also impact current and future pension costs. Fluctuations in actual equity market returns as well as changes in general interest rates may result in increased or decreased pension costs in future periods. Pension costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the discount rates used in determining the projected benefit obligation and pension costs.

     In accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” changes in pension obligations associated with these factors may not be immediately recognized as pension costs on the income statement, but generally are recognized in future years over the remaining average service period of plan participants. As such, significant portions of pension costs recorded in any period may not reflect the actual level of cash benefits provided to plan participants.

Other Commitments and Contingencies

     On December 21, 2001, in connection with our acquisition of Legacy Dean Foods Company, we issued a subordinated promissory note to Dairy Farmers of America (“DFA”) in the original principal amount of $40 million. DFA is our primary supplier of raw milk and the promissory note is designed to ensure that DFA has the opportunity to continue to supply raw milk to certain of our plants until 2021, or be paid for the loss of that business. The promissory note has a 20-year term and bears interest based on the consumer price index. Interest will not be paid in cash, but will be added to the principal amount of the note annually, up to a maximum principal amount of $96 million. We may prepay the note in whole or in part at any time, without penalty. The note will only become payable if we ever materially breach or terminate one of our milk supply agreements with DFA without renewal or replacement. Otherwise, the note will expire at the end of 20 years, without any obligation to pay any portion of the principal or interest. Payments under this note, if any, would be expensed as incurred.

     We also have the following contingent obligations, in addition to contingent liabilities related to ordinary course litigation and audits:

• the obligation to pay performance bonuses to White Wave’s management team in the event that established performance hurdles are met by March 2004 (which bonuses we expect to be in the range of $35 million to $40 million);

• certain indemnification obligations related to businesses that we have divested; and

• residual value guarantees under certain leases.

     See Note 10 to our Condensed Consolidated Financial Statements for more information about our contingent obligations.

Future Capital Requirements

     During the fourth quarter of 2003, we intend to invest approximately $100 million in capital expenditures primarily for our existing manufacturing facilities and distribution capabilities. We intend to fund these expenditures using cash flow from operations.

     We expect that cash flow from operations will be sufficient to meet our requirements for our existing businesses for the foreseeable future.

     We expect to complete the acquisition of Horizon Organic in early January 2004 and we intend to pay the approximately $256 million purchase price (including the repayment of debt) using borrowings under our senior credit facility and our receivables-backed loan. We also intend to pursue other acquisitions that are compatible with our core business strategy. In addition, we may repurchase our stock pursuant to our stock repurchase program. Approximately $161.7 million was available for spending under our stock repurchase program as of September 30, 2003. We base our decisions regarding when to repurchase stock on a variety of factors, including primarily an analysis of the optimal use of available

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capital, taking into account our stock price and the relative expected return on alternative investments. Any acquisitions or stock repurchases will be funded through cash flows from operations or borrowings under our senior credit facility.

     If necessary, we believe that we have the ability to secure additional financing for our future capital requirements.

Critical Accounting Policies

     There have been no changes to our critical accounting policies since we filed our 2002 amended annual report on Form 10-K.

Known Trends and Uncertainties

Economic Environment

     As a result of the recent economic environment in this country, and due to the highly competitive environment currently existing in the food retailing industry, many of our retail and foodservice customers have experienced economic difficulty over the past 18 months to 2 years. A number of our customers have been forced to close stores and certain others have sought bankruptcy protection. This trend could have a material adverse affect on us if a material number of our customers, or any one large customer, were to be forced to close a significant number of stores or file for bankruptcy protection.

     Many of our retail customers have become increasingly price sensitive in the current economic environment. We have recently been subject to a number of intensely competitive bidding situations, which has resulted in margin erosion on sales to several customers. We expect this trend to continue. In bidding situations we are subject to the risk of losing certain customers altogether. Loss of any of our largest customers could have a material adverse impact on our financial results. We do not have contracts with many of our largest customers.

Prices of Raw Milk and Cream

     In our Dairy Group and Morningstar/White Wave segments, our raw milk cost changes are based on the federal and certain state governments’ minimum prices, regional and national milk supply conditions and arrangements with our suppliers. Generally, we pay the federal minimum prices for raw milk, plus certain producer premiums (or “over-order” premiums) and location differentials. We also incur other raw milk procurement costs in some locations (such as hauling, field personnel, etc.). A change in the federal minimum price does not necessarily mean an identical change in our total raw material cost, as over-order premiums may increase or decrease. This relationship is different in every region of the country, and sometimes within a region based on supplier arrangements. However, in general, the overall change in the commodity environment can be linked to the change in federal minimum prices. Bulk cream is also a significant raw material cost to the Dairy Group and Morningstar Foods. Bulk cream is typically purchased based on a multiple of the AA butter price on the Chicago Mercantile Exchange. Bulk cream is used in our Class II products such as ice cream, ice cream mix, creams and creamers, sour cream and cottage cheese.

     In 2002 and in the first seven months of 2003, prices for raw milk and butter were unusually low. Beginning in September, prices for raw milk and butter increased significantly. We expect raw milk prices to remain at current levels through the fourth quarter of 2003.

     In general, we change the prices that we charge our customers for our products on a monthly basis, as the costs of our raw materials fluctuate. However, there can be a lag between the time of a raw material cost increase or decrease and the effectiveness of a corresponding price change to our customers, and in some cases we are contractually restrained with respect to the means and timing of implementing price changes. Also, at some point price increases could erode our volumes. These factors can cause volatility in our earnings. Our sales and operating profit margin (expressed as a percentage of sales) fluctuate with the price of our raw materials. We expect our Dairy Group and Morningstar/White Wave profit margins to be adversely affected in the fourth quarter of 2003 as a result of the expected increase in the price of raw milk.

Risk Factors

     This report contains statements about our future that are not statements of historical fact. In some cases, you can identify these statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “seek to,” “anticipates,” “plans,” “believes,” “estimates,” “intends,” “predicts,” “potential” or “continue” or the negative of such terms and other comparable terminology. These statements are only predictions, and in evaluating those statements, you should carefully consider the risks outlined below. Actual performance or results may differ materially and adversely.

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Our Failure to Successfully Compete Could Adversely Affect Our Prospects and Financial Results

     Our businesses are subject to significant competition based on a number of factors. Our failure to successfully compete against our competitors could have a material adverse effect on our business. Many of our competitors, especially those with nationally branded products that compete with our nationally branded products, have significantly greater resources than we do. Also, in many cases, those nationally branded products have significantly more name-recognition and longer histories of success.

     Over the past several years, the retail grocery and foodservice industries have experienced significant consolidation. As our customer base continues to consolidate, we expect competition to intensify as we compete for the business of fewer customers, and there can be no assurance that we will be able to keep our existing customers, or gain new customers. Winning new customers is especially important to the growth of our Dairy Group, as demand tends to be relatively flat in the dairy industry.

     There are several large regional grocery chains that have captive dairy operations. As the consolidation of the grocery industry continues, we could be adversely affected if any one or more of our existing customers were to decide to establish captive dairy operations, or be sold to a chain with captive dairy operations.

Our Branding Efforts May Not Succeed

     We have invested, and intend to continue to invest, significant resources toward the development and growth of our branded, value-added portfolio of products, particularly at our Morningstar/White Wave segment. We believe that sales of these products could be a significant source of growth and profitability for our business. However, the success of our efforts will ultimately depend on customer and consumer acceptance of our branded products, of which there can be no assurance. If our efforts do not succeed, we may not be able to continue to significantly increase sales or profit margins. Initial product launches are often accompanied by significant up-front costs incurred to gain distribution for and to promote the new products. These costs can erode profit margins unless and until such time as sales of the new product grow to a point that can support such marketing spending. Moreover, the launch of new products can put a significant strain on our manufacturing and distribution systems that could cause us to incur unexpected costs, which could be significant.

Changes in Raw Material and Other Input Costs Can Adversely Affect Us

     The most important raw materials that we use in our operations are raw milk and bulk cream, and high density polyethylene resin. The prices of these materials increase and decrease based on supply and demand, and, in some cases, governmental regulation. In many cases we are able to adjust our pricing to reflect changes in raw material costs. Volatility in the cost of our raw materials can adversely affect our performance, however, because price changes often lag changes in costs. These lags tend to erode our profit margins. Extremely high raw material costs can also put downward pressure on our margins and our volumes. We expect raw milk prices to remain high for the remainder of 2003.

     Because our Dairy Group delivers the majority of its products directly to customers through our “direct store delivery” system, we are a large consumer of fuel. Increases in fuel prices can adversely affect our results of operations. We are also a significant consumer of electricity, so any significant increase in energy prices could adversely affect our financial performance.

Certain Organizational Changes and New Technologies Present Us with Temporary Operational Challenges

     On May 8, 2003, we announced certain organizational changes designed to sharpen Morningstar Foods’ focus on its strategic brand portfolio and enable us to realize certain manufacturing efficiencies, including: (i) shifting responsibility for manufacturing, selling and distributing Morningstar Foods’ private label dairy products (which were approximately half of Morningstar Foods’ 2002 sales) out of Morningstar Foods and into the Dairy Group, and (ii) shifting responsibility for the manufacture and distribution of all of Morningstar Foods’ remaining products (which are its nationally branded products) into the Dairy Group, with Morningstar Foods remaining responsible for the development, marketing and sales of those products. After these changes are implemented, which is expected to be by the beginning of 2004, Morningstar Foods will be renamed the Dean National Brand Group. As part of this process, we are shifting production of certain products between plants and consolidating production into fewer plants. These changes present a number of operational challenges. The accomplishment of these strategic changes will require a significant amount of management’s attention. Any operational missteps during this transition period could cause us to incur unexpected costs or loss of revenue, which could be significant. Our failure to effectively manage this process could have an adverse impact on our results of operations.

     Also, as part of our efforts to bring new and innovative products to consumers, we have invested in certain new processing technologies and, in some cases, new packaging designs. We believe these changes will add value to our portfolio of strategic brands. However, we are subject to operational risk as we bring up new equipment with the new technologies necessary to manufacture these new products. Any significant operational misstep related to these changes could have an adverse impact on our results of operations.

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Loss of Rights to Any of Our Licensed Brands Could Adversely Affect Us

     We sell certain of our products under licensed brand names such as Hershey’s®, Borden®, Pet®, Folgers®, Land-O-Lakes® and others. In some cases, we have invested, and intend to continue to invest, 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.

We Have Substantial Debt and Other Financial Obligations and We May Incur Even More Debt

     We have substantial debt and other financial obligations and significant unused borrowing capacity. See “ — Liquidity and Capital Resources.”

     We have pledged substantially all of our assets (including the assets of our subsidiaries) to secure our indebtedness. Our high debt level and related debt service obligations:

• require us to dedicate significant cash flow to the payment of principal and interest on our debt which reduces the funds we have available for other purposes,

• may limit our flexibility in planning for or reacting to changes in our business and market conditions,

• impose on us additional financial and operational restrictions, and

• expose us to interest rate risk since a portion of our debt obligations are at variable rates.

     Our ability to make scheduled payments on our debt and other financial obligations depends on our financial and operating performance. Our financial and operating performance is subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control. A significant increase in interest rates could adversely impact our financial results. If we do not comply with the financial and other restrictive covenants under our credit facilities (see Note 5 to our Condensed Consolidated Financial Statements), we may default under them. Upon default, our lenders could accelerate the indebtedness under the facilities, foreclose against their collateral or seek other remedies.

Negative Health Claims Could Adversely Affect Us

     As a manufacturer of food products, positive or negative publicity or medical research regarding the health effects of the types of foods that we produce affects us.

     For example, incidences of bovine spongiform encephalopathy (“BSE” or “mad cow disease”) in other countries have raised public concern about the safety of eating beef and using or ingesting certain other animal-derived products. The World Health Organization, the U.S. Food and Drug Administration and the United States Department of Agriculture have all affirmed that BSE is not transmitted to milk. However, we are still subject to risk as a result of public perception that milk products may be affected by mad cow disease. To date, we have not seen any measurable impact on our milk sales resulting from concerns about mad cow disease. However, should public concerns about the safety of milk or milk products escalate as a result of further occurrences of mad cow disease or other health risks, we could suffer a loss of sales, which could have a material and adverse affect on our financial results.

We May Be Subject to Product Liability Claims

     We sell food products for human consumption, which involves risks such as:

• product contamination or spoilage,

• product tampering, and

• other adulteration of food products.

     Consumption of an adulterated, contaminated or spoiled product may result in personal illness or injury. We could be subject to claims or lawsuits relating to an actual or alleged illness or injury, and we could incur liabilities that are not insured or that exceed our insurance coverages.

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     Although we maintain quality control programs designed to address food quality and safety issues, an actual or alleged problem with the quality, safety or integrity of our products at any of our facilities could result in:

• product withdrawals,

• product recalls,

• negative publicity,

• temporary plant closings, and

• substantial costs of compliance or remediation.

     Any of these events could have a material and adverse effect on our financial condition, results of operations or cash flows.

Loss of or Inability to Attract Key Personnel Could Adversely Affect Our Business

     Our success depends to a large extent on the skills, experience and performance of our key personnel. The loss of one or more of these persons could hurt our business. We do not maintain key man life insurance on any of our executive officers, directors or other employees. If we are unable to attract and retain key personnel, our business will be adversely affected.

Certain Provisions of Our Certificate of Incorporation, Bylaws and Delaware Law Could Deter Takeover Attempts

     Some provisions in our certificate of incorporation and bylaws could delay, prevent or make more difficult a merger, tender offer, proxy contest or change of control. Our stockholders might view any such transaction as being in their best interests since the transaction could result in a higher stock price than the current market price for our common stock. Among other things, our certificate of incorporation and bylaws:

• authorize our board of directors to issue preferred stock in series with the terms of each series to be fixed by our board of directors,

• divide our board of directors into three classes so that only approximately one-third of the total number of directors is elected each year,

• permit directors to be removed only for cause, and

• specify advance notice requirements for stockholder proposals and director nominations.

     In addition, with certain exceptions, the Delaware General Corporation Law restricts mergers and other business combinations between us and any stockholder that acquires 15% or more of our voting stock.

     We also have a stockholder rights plan. Under this plan, after the occurrence of specified events, our stockholders will be able to buy stock from us or our successor at reduced prices. These rights do not extend, however, to persons participating in takeover attempts without the consent of our board of directors. Accordingly, this plan could delay, defer, make more difficult or prevent a change of control.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Fluctuations

     In order to reduce the volatility of earnings that arises from changes in interest rates, we manage interest rate risk through the use of interest rate swap agreements. These swap agreements provide hedges for loans under our senior credit facility by limiting or fixing the LIBOR interest rates specified in the senior credit facility at the interest rates noted below until the indicated expiration dates.

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     These swaps have been designated as cash flow hedges against variable interest rate exposure. The following table summarizes our various interest rate swap agreements in effect as of September 30, 2003:

	Expiration	Notional
Fixed Interest Rates	Date	Amounts
		(In millions)
1.47% to 4.69%	December 2003	$	675
4.01% to 6.69%	December 2004		275
5.20% to 6.74%	December 2005		400
6.78%	December 2006		75

     The following table summarizes our various interest rate agreements as of December 31, 2002:

	Expiration	Notional
Fixed Interest Rates	Date	Amounts
		(In millions)
6.23%	June 2003	$	50
4.29% to 4.69%	December 2003		275
4.01% to 6.69%	December 2004		275
5.20% to 6.74%	December 2005		400
6.78%	December 2006		75

     We have also entered into interest rate swap agreements that provide hedges for loans under Leche Celta’s term loan. See Note 5 to our Condensed Consolidated Financial Statements. The following table summarizes these agreements as of September 30, 2003 and December 31, 2002:

Fixed
Interest	Expiration
Rates	Date	Notional Amounts
5.54%	November 2003	9 million euros (approximately $10.5 million as of September 30, 2003 and $9.4 million as of December 31, 2002)
5.6%	November 2004	12 million euros (approximately $14.0 million as of September 30, 2003 and $12.6 million as of December 31, 2002

     We are exposed to market risk under these arrangements due to the possibility of interest rates on our credit facilities falling below the rates on our interest rate derivative agreements. We incurred approximately $7 million and $20.1 million of additional interest expense, net of taxes, during the quarter and nine months ending September 30, 2003 as a result of interest rates on our variable rate debt falling below the agreed-upon interest rate on our existing swap agreements. Credit risk under these arrangements is remote since the counterparties to our interest rate derivative agreements are major financial institutions.

     A majority of our debt obligations are currently at variable rates. We have performed a sensitivity analysis assuming a hypothetical 10% adverse movement in interest rates. As of September 30, 2003, the analysis indicated that such interest rate movement would not have a material effect on our financial position, results of operations or cash flows. However, actual gains and losses in the future may differ materially from that analysis based on changes in the timing and amount of interest rate movement and our actual exposure and hedges.

Foreign Currency

     We are exposed to foreign currency risk due to operating cash flows and various financial instruments that are denominated in foreign currencies. Our most significant foreign currency exposures relate to the euro. At this time, we believe that potential losses due to foreign currency fluctuations would not have a material impact on our consolidated financial position, results of operations or operating cash flow.

Item 4. Controls and Procedures

Quarterly 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 the end of the period covered by this Quarterly Report. 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 quarterly 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 are also 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 controls 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 controls’ 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, subject to the limitations noted above, as of the end of the period covered by this Quarterly Report, our Disclosure Controls were effective to provide reasonable assurance that material information is made known to management, particularly during the period when our periodic reports are being prepared.

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Part II — Other Information

Item 1. Legal Proceedings

     On November 4, 2003, we received a notice (a so-called “Wells Notice”) from the Securities and Exchange Commission (the “SEC”) indicating that the SEC is considering bringing a civil injunctive action against our company. The notice cites the SEC’s belief that we aided and abetted The Fleming Companies in the improper acceleration of revenue recognition by providing Fleming with correspondence that allowed Fleming to characterize two payments totaling $2.7 million made by us to Fleming as current income rather than deferred revenue to be recognized over future periods. Two officers of our Dairy Group subsidiary received similar notices. We properly expensed the two payments made to Fleming during the quarters in which they were paid, and the Wells Notice contains no allegations regarding our financial statements. We have the opportunity to respond in writing to the Wells Notice before the SEC makes a formal decision regarding what action, if any, should be taken. We intend to cooperate fully with the SEC in its investigation and we do not expect this matter to have a material adverse impact on our company.

Item 6. Exhibits and Reports on Form 8-K

     (a)  Exhibits

10	Fourth Amendment to Credit Agreement
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     (b)  Form 8-K’s

     •     Form 8-K filed November 5, 2003

     •     Form 8-K filed August 7, 2003

     •     Form 8-K filed June 30, 2003

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SIGNATURES

     Pursuant to the requirement 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.

	DEAN FOODS COMPANY
	/s/ Barry A. Fromberg
	Barry A. Fromberg
	Executive Vice President, Chief Financial Officer
	(Principal Accounting Officer)
November 14, 2003

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EXHIBIT INDEX

Exhibit
Number		Description
	10	Fourth Amendment to Credit Agreement
	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-10 3 d10459exv10.htm EX-10 FOURTH AMENDMENT TO CREDIT AGREEMENT

Exhibit 10

EXECUTION VERSION

FOURTH AMENDMENT TO CREDIT AGREEMENT

     THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this “Fourth Amendment”) is entered into as of August 29, 2003, by and among DEAN FOODS COMPANY (formerly known as Suiza Foods Corporation), a Delaware corporation (the “Borrower”), those certain subsidiaries of the Borrower party to the Credit Agreement referred to below (the “Guarantors”), the lenders party to the Credit Agreement defined below (the “Lenders”) pursuant to the authorization (in the form attached hereto as Annex A, the “Authorization”), WACHOVIA BANK, NATIONAL ASSOCIATION (formerly known as First Union National Bank), as Administrative Agent for the Lenders (the “Administrative Agent”) and BANK ONE, NA, as Syndication Agent for the Lenders (the “Syndication Agent”). Except as otherwise defined in this Fourth Amendment, terms defined in the Credit Agreement referred to below are used herein as defined therein.

RECITALS

     WHEREAS, the Borrower, the Guarantors, the Administrative Agent, the Syndication Agent, Fleet National Bank, Harris Trust and Savings Bank and SunTrust Bank, as Co-Documentation Agents and the Lenders are parties to that certain Credit Agreement dated as of July 31, 2001 (as amended by that certain First Amendment to Credit Agreement dated as of December 19, 2001, that certain Second Amendment to Credit Agreement dated as of April 30, 2002 and that certain Third Amendment to Credit Agreement dated as of December 13, 2002 and as further amended, restated, modified or supplemented from time to time, the “Credit Agreement”), which provides for the making of (A) revolving loans in a principal amount not to exceed $800,000,000, (B) a six-year term loan in an original principal amount of $900,000,000 (which outstanding principal amount has been reduced to $765,000,000 by scheduled amortization through the date hereof), (C) a seven-year term loan in an original principal amount of $1,000,000,000 (which original principal amount has been reduced to $990,000,000 by scheduled amortization through the date hereof), and (D) certain other financial accommodations to the Borrower;

     WHEREAS, the Borrower has requested that the Lenders consent to certain modifications to the Credit Agreement; and

     WHEREAS, the Converting Lenders (as defined below) have agreed to maintain in effect and amend the Credit Agreement on the terms and subject to the conditions set forth in this Fourth Amendment.

     NOW, THEREFORE, the parties hereto hereby agree as follows:

     Section 1. Conversion of Loans and Commitments.

     (A)  The parties hereby agree that upon the date of satisfaction of the conditions set forth in Section 5 of this Fourth Amendment (the “Conversion Date”), (1) the Revolving Commitments of each Lender which has delivered an executed Authorization (each such Lender,

a “Converting Lender”) shall be converted into Revolving-1 Commitments, (2) the outstanding Revolving Loans of each Converting Lender shall be converted into Revolving-1 Loans, (3) the outstanding Tranche A Term Loans of each Converting Lender shall be converted into Tranche A-l Term Loans, and (4) the outstanding Tranche B Term Loans of each Converting Lender shall be converted into Tranche B-l Term Loans, in each case in the amounts and the percentages, as applicable, set forth in the Register for such Converting Lender. In the event that, immediately after giving effect to the payments, conversions and reallocations on the Conversion Date as contemplated by this Section 1(A), the outstanding principal amount of a Converting Lender’s Revolving-1 Loans, Tranche A-l Term Loan and Tranche B-l Term Loan will exceed the outstanding principal amount of such Lender’s Revolving Loans, Tranche A Term Loan and Tranche B Term Loan immediately prior to giving effect to such payments, conversions and reallocations, then such Converting Lender shall make an advance in an amount equal to such excess. Furthermore, the Administrative Agent shall make such reallocations of outstanding Loans of each Converting Lender as are necessary in order that the (x) Revolving-1 Loans of such Converting Lender reflect such Converting Lender’s Revolving-1 Commitment Percentage of all outstanding Revolving-1 Loans, (y) Tranche A-l Term Loans of such Converting Lender reflect such Converting Lender’s Tranche A-l Term Loan Commitment and (z) Tranche B-l Term Loans of such Converting Lender reflect such Converting Lender’s Tranche B-l Term Loan Commitment, in each case with respect to the foregoing clauses (x), (y), and (z), as set forth on the Register immediately after giving effect to the payments, conversions and reallocations contemplated in this Section 1(A).

     (B)  As of the Conversion Date, after giving effect to the payments, conversions and reallocations described in Section 1(A), (1) the aggregate Revolver-1 Commitments shall be $1,000,000,000, (2) the aggregate Tranche A-l Term Loan shall be $1,000,000,000, and (3) the aggregate Tranche B-l Term Loan shall be $750,000,000. The Revolving Commitments, outstanding Revolving Loans, outstanding Tranche A Term Loans and outstanding Tranche B Term Loans of all Lenders other than the Converting Lenders (the “Departing Lenders”) shall be repaid in full and terminated and each such Departing Lender shall cease to be a Lender under the Credit Agreement. In addition, on the Conversion Date (1) the existing Revolving Commitment will be entirely re-evidenced and replaced with the Revolving-1 Commitment, (2) the existing Tranche A Term Loans shall be entirely re-evidenced and replaced with the Tranche A-l Term Loans and (3) the Tranche B Term Loans shall be entirely re-evidenced and replaced with the Tranche B-l Term Loans. The Borrower hereby agrees that after the Conversion Date, neither the Administrative Agent, the Syndication Agent nor any Lender shall have any further obligations with respect to the Revolving Commitment, the Tranche A Term Loans or the Tranche B Term Loans.

     (C)  All outstanding promissory notes issued by the Borrower to any Lender shall be promptly returned to the Administrative Agent who shall forward such notes to the Borrower for cancellation. Upon the request of any Lender, the Borrower shall execute and deliver to such Lender new Revolving-1 Notes, Tranche A-l Term Notes or Tranche B-l Term Notes, as applicable, substantially in the form of the Revolving Notes, Tranche A Term Notes and Tranche B Term Notes.

2

     (D)  To the extent any conversion, reallocation or prepayment provided in this Section 1 is deemed to conflict with any of the provisions of Section 2.8(a) of the Credit Agreement (including without limitation, any provision concerning the allocation of prepayments or permitting the refusal of any prepayment) any such conflicting provisions are hereby waived for purposes of this Fourth Amendment.

     (E)  The events and transactions described and contemplated in this Section 1 are not intended to, and shall not, constitute a novation of the Credit Agreement or any of the indebtedness incurred in connection therewith, including without limitation, any Obligations.

     Section 2. Amendments to Credit Agreement. Subject to the satisfaction of the conditions precedent set forth in Section 5 of this Fourth Amendment, the parties hereby agree that the Credit Agreement shall be amended as follows:

     (A)  Amendment to Certain References. Effective as of the Conversion Date (1) the Credit Agreement is amended by deleting all references to Schedule 2.1 (a) (other than the reference in the table of contents) and replacing such references with the words “the Register” and (2) the Credit Agreement and each applicable Loan Document is amended by deleting references to the terms listed under the column heading “Deleted References” in the following tables and replacing such references with the new terms listed under the column heading “New References” in the following tables.

Deleted Reference	New Reference
Revolving Commitment	Revolving - 1 Commitment
Revolving Commitment Percentage	Revolving - 1 Commitment Percentage
Revolving Commitment Termination Date	Revolving - 1 Commitment Termination Date
Revolving Committed Amount	Revolving - 1 Committed Amount
Revolving Loan	Revolving - 1 Loan
Revolving Note	Revolving - 1 Note
Revolving Notes	Revolving - 1 Notes

Deleted Reference	New Reference
Tranche A Term Loan	Tranche A-l Term Loan
Tranche A Term Loan Commitment	Tranche A-l Term Loan Commitment
Tranche A Term Loan Commitment Percentage	Tranche A-l Term Loan Commitment Percentage
Tranche A Term Loan Committed Amount	Tranche A-l Term Loan Committed Amount
Tranche A Term Loan Maturity Date	Tranche A-l Term Loan Maturity Date
Tranche A Term Note	Tranche A-l Term Note
Tranche A Term Notes	Tranche A-l Term Notes

Deleted Reference	New Reference
Tranche B Term Loan	Tranche B-l Term Loan
Tranche B Term Loan Commitment	Tranche B-l Term Loan Commitment
Tranche B Term Loan Commitment Percentage	Tranche B-l Term Loan Commitment Percentage
Tranche B Term Loan Committed Amount	Tranche B-l Term Loan Committed Amount
Tranche B Term Loan Maturity Date	Tranche B-l Term Loan Maturity Date
Tranche B Term Note	Tranche B-l Term Note
Tranche B Term Notes	Tranche B-l Term Notes

3

     (B)  Amendment to the Definition of “Applicable Percentage”: Section 1.1 of the Credit Agreement is amended effective as of the Conversion Date by deleting the definition of the term “Applicable Percentage” set forth therein in its entirety and replacing it with the following:

     “Applicable Percentage” shall mean, for any day, the rate per annum set forth below opposite the applicable level (the “Level”) then in effect, it being understood that the Applicable Percentage for (a) Revolving-1 Loans and Tranche A-1 Term Loans which are Alternate Base Rate Loans shall be the percentage set forth under the column “Alternate Base Rate Margin for Revolving-1 Loans and Tranche A-1 Term Loans”, (b) Revolving-1 Loans and Tranche A-1 Term Loans which are LIBOR Rate Loans shall be the percentage set forth under the column “LIBOR Rate Margin for Revolving-1 Loans, Tranche A-1 Term Loans and the Letter of Credit Fee”, (c) Tranche B-l Term Loans which are Alternate Base Rate Loans shall be the percentage set forth under the column “Alternate Base Rate Margin for Tranche B-l Term Loans,” (d) Tranche B-l Term Loans which are LIBOR Rate Loans shall be the percentage set forth under the column “LIBOR Rate Margin for Tranche B-l Term Loans”, (e) the Letter of Credit Fee shall be the percentage set forth under the column “LIBOR Rate Margin for Revolving-1 Loans, Tranche A-1 Term Loans and Letter of Credit Fee” and (f) the Commitment Fee shall be the percentage set forth under the column “Commitment Fee”:

						LIBOR
			Alternate			Rate
			Base Rate			Margin for
			Margin for			Revolving-
			Revolving-			1 Loans,			Alternate			LIBOR
			1 Loans			Tranche			Base Rate			Rate
			and			A-1 Term			Margin for			Margin for
			Tranche			Loans and			Tranche			Tranche
	Leverage		A-1 Term			Letter of			B-1 Term			B-1 Term			Commit-
Level	Ratio		Loans			Credit Fee			Loans			Loans			ment Fee
	≥ 3.50 to
I		1.00		0.750	%		2.000	%		0.750	%		2.000	%		0.375	%
	< 3.50 to
II	1.00 but
	≥ 3.00 to
		1.00		0.500	%		1.750	%		0.750	%		2.000	%		0.375	%
	< 3.00 to
III	1.00 but
	≥ 2.50 to
		1.00		0.250	%		1.500	%		0.750	%		2.000	%		0.300	%
	< 2.50 to
IV		1.00		0.000	%		1.250	%		0.750	%		2.000	%		0.250	%

4

     The Applicable Percentage shall, in each case, be determined and adjusted quarterly on the date (each an “Interest Determination Date”) three (3) Business Days after the earlier of the date on which the Borrower provides or is required to provide to the Administrative Agent the annual or quarterly financial information and certifications in accordance with the provisions of Sections 5.1(a), 5.1(b) and 5.2(c). Such Applicable Percentage shall be effective from such Interest Determination Date until the next such Interest Determination Date. If the Borrower shall fail to provide the annual or quarterly financial information and certifications in accordance with the provisions of Sections 5.1(a), 5.1(b) and 5.2(c), the Applicable Percentage from such Interest Determination Date shall, on the date five (5) Business Days after the date by which the Borrower was so required to provide such financial information and certifications to the Administrative Agent and the Lenders, be based on Level I until such time as the date which is three (3) Business Days after the date such information and certifications are provided, whereupon the Level shall be determined by the then current Leverage Ratio.

     (C)  Amendment to Definition of “Credit Party Obligations”: Section 1.1 of the Credit Agreement is amended effective as of the Conversion Date by deleting clause (ii) in the definition of “Credit Party Obligations” and replacing it with “(ii) all liabilities and obligations, whenever arising, owing from the Borrower or any of its Restricted Subsidiaries under any Hedging Agreement (which such Hedging Agreement is permitted hereunder) with any Person that is a Lender (or an Affiliate of any such Lender) hereunder at the time such Hedging Agreement is executed or becomes a Lender (or an Affiliate of a Person that becomes a Lender) at any time after such Hedging Agreement was executed (all such obligations with respect to any such Hedging Agreement, “Hedging Obligations”).”

     (D)  Amendment to Definition of “Note” or “Notes”: Section 1.1 of the Credit Agreement is amended effective as of the Conversion Date by adding the following sentence to the definition of the term “Note” or “Notes”:

     From and after the Fourth Amendment Effective Date, some or all of the Loans may not be evidenced by Notes, and consequently, with respect to any Lender that has made Loans not evidenced by Notes, any reference to a Revolving-1 Note, Tranche A-l Term Note, Tranche B-l Term Note, or Note, shall, as applicable, be deemed to be a reference to the related Credit Party Obligations that would be represented by such a Revolving-1 Note, Tranche A-l Term Note, Tranche B-l Term Note or Note had such Lender elected to have its Loans represented by Notes.

     (E)  Amendment to Definition of “Permitted Liens”: Section 1.1 of the Credit Agreement is amended effective as of the Conversion Date by deleting clause (i) of paragraph (b) in the definition of the term “Permitted Liens” and replacing it with “(i) to the extent such Liens secure Hedging Obligations,”.

5

     (F)  Amendment to Definition of “Permitted Receivables Financing”: Section 1.1 of the Credit Agreement is amended effective as of the Conversion Date by deleting reference to “$400,000,000” in the definition of the term “Permitted Receivables Financing” and replacing it with “$500,000,000”.

     (G)  New Definitions: Section 1.1 of the Credit Agreement is amended effective as of the Conversion Date by adding the following definitions thereto in the appropriate alphabetical order:

     “Existing Tranche A Term Loan” shall have the meaning set forth in Section 2.4 hereof.

     “Existing Tranche B Term Loan” shall have the meaning set forth in Section 2.5 hereof.

     “Fourth Amendment” shall mean that certain Fourth Amendment to Credit Agreement among the Borrower, the Administrative Agent and the Lenders dated as of August 29, 2003.

     “Fourth Amendment Effective Date” shall mean the date upon which all of the conditions precedent set forth in the Fourth Amendment shall have been satisfied.

     “Hedging Obligation” shall have the meaning set forth in the definition of Credit Party Obligations.

     “Original Tranche A Term Loan” shall have the meaning set forth in Section 2.4 hereof.

     “Original Tranche B Term Loan” shall have the meaning set forth in Section 2.5 hereof.

     (H)  Amendment to Section 2.1. Section 2.1 of the Credit Agreement is amended effective as of the Conversion Date by deleting the second sentence thereof in its entirety and replacing it with the following:

     On the Funding Date the Lenders committed to make revolving loans in an aggregate amount equal to EIGHT HUNDRED MILLION DOLLARS ($800,000,000). After giving effect to the conversion and reallocation of loans and commitments pursuant to Section 1 of the Fourth Amendment, the aggregate amount available under this Section 2.1 shall be equal to ONE BILLION DOLLARS ($1,000,000,000), (as such aggregate maximum amount may be reduced from time to time as provided in Section 2.7, the “Revolving-1 Committed Amount”).

     (I)  Amendment to Sections 2.1(d), 2.2(d), 2.4(c), and 2.5(c): From and after the Fourth Amendment Effective Date, any Lender may elect not to have its Loans evidenced by

6

Notes, and accordingly, Sections 2.1(d), 2.2(d), 2.4(c) and 2.5(c) shall be amended, effective as of the Conversion Date, by deleting in each such section “shall be evidenced by a duly executed promissory note” and substituting thereof “may, at the election of such Lender, be evidenced by a duly executed promissory note”.

     (J)  Amendments to Section 2.4. Section 2.4 of the Credit Agreement is amended effective as of the Conversion Date by:

(1) deleting the first sentence of subsection (a) in its entirety and replacing it with the following:

     On the Funding Date the Lenders made available to the Borrower a term loan in Dollars in an aggregate principal amount of NINE HUNDRED MILLION DOLLARS ($900,000,000) (the “Original Tranche A Term Loan”). After giving effect to scheduled amortization from the Funding Date to the Fourth Amendment Effective Date, the Original Tranche A Term Loan has been reduced to SEVEN HUNDRED SIXTY FIVE MILLION DOLLARS ($765,000,000) as of the Fourth Amendment Effective Date (the “Existing Tranche A Term Loans”). After giving effect to the conversion and reallocation of Existing Tranche A Term Loans and advancing of additional Tranche A-1 Term Loans described in Section 1 of the Fourth Amendment and evidenced in the Register, the outstanding amount of all term loans made under this Section 2.4(a) shall be equal to ONE BILLION DOLLARS ($1,000,000,000), (the “Tranche A-1 Term Loan Committed Amount”): and

(2) deleting subsection (b) in its entirety and replacing it with the following:

     (b) Repayment of Tranche A-1 Term Loan. The principal amount of the Tranche A-1 Term Loan shall be repaid, unless accelerated sooner pursuant to Section 7.2, in accordance with the following schedule:

Principal Amortization	Tranche A-1 Term Loan
Payment Date	Principal Amortization Payment
September 30, 2003	$	37,500,000
December 31, 2003	$	37,500,000
March 31, 2004	$	37,500,000
June 30, 2004	$	37,500,000
September 30, 2004	$	37,500,000
December 31, 2004	$	37,500,000
March 31, 2005	$	43,750,000

7

Principal Amortization		Tranche A-1 Term Loan
Payment Date	Principal Amortization Payment
June 30, 2005		$	43,750,000
September 30, 2005		$	43,750,000
December 31, 2005		$	43,750,000
March 31, 2006		$	50,000,000
June 30, 2006		$	50,000,000
September 30, 2006		$	50,000,000
December 31, 2006		$	50,000,000
March 31, 2007		$	62,500,000
June 30, 2007		$	62,500,000
Tranche A-1 Term Loan Maturity Date		$	275,000,000

     (K)  Amendments to Section 2.5. Section 2.5 of the Credit Agreement is amended effective as of the Conversion Date by:

(1) deleting the first sentence of subsection (a) in its entirety and replacing it with the following:

     On the Funding Date, the Lenders made available to the Borrower a term loan in Dollars in an aggregate principal amount of ONE BILLION DOLLARS ($1,000,000,000) (the “Original Tranche B Term Loan”). After giving effect to scheduled amortization from the Funding Date to the Fourth Amendment Effective Date, the Original Tranche B Term Loan has been reduced to NINE HUNDRED NINETY MILLION DOLLARS ($990,000,000) (the “Existing Tranche B Term Loan”). After giving effect to the repayment, conversion and reallocation of the Existing Tranche B Term Loan set forth in Section 1 of the Fourth Amendment, the outstanding amount of all term loans made under this Section 2.5(a) shall be equal to SEVEN HUNDRED FIFTY MILLION DOLLARS ($750,000,000) (the “Tranche B-l Term Loan Committed Amount”); and

     (2) deleting subsection (b) in its entirety and replacing it with the following:

8

          (b)  Repayment of Tranche B-l Term Loan. The principal amount of the Tranche B-l Term Loan shall be repaid, unless accelerated sooner pursuant to Section 7.2, in accordance with the following schedule:

Principal Amortization	Tranche B-1 Term Loan
Payment Date	Principal Amortization Payment
September 30, 2003	$	1,875,000
December 31, 2003	$	1,875,000
March 31, 2004	$	1,875,000
June 30, 2004	$	1,875,000
September 30, 2004	$	1,875,000
December 31, 2004	$	1,875,000
March 31, 2005	$	1,875,000
June 30, 2005	$	1,875,000
September 30, 2005	$	1,875,000
December 31, 2005	$	1,875,000
March 31, 2006	$	1,875,000
June 30, 2006	$	1,875,000
September 30, 2006	$	1,875,000
December 31, 2006	$	1,875,000
March 31, 2007	$	1,875,000
June 30, 2007	$	1,875,000
September 30, 2007	$	1,875,000
December 31, 2007	$	1,875,000
March 31, 2008	$	358,125,000
Tranche B-l Term Loan Maturity Date	$	358,125,000

     (L)  Amendment to Section 2.8(a) of the Credit Agreement: Section 2.8(a) of the Credit Agreement, “Optional Prepayments” is amended effective as of the Conversion Date by deleting such section in its entirety and replacing it with the following:

     (a) Optional Prepayments. The Borrower shall have the right to prepay Loans in whole or in part from time to time; provided, however, that (i) each partial prepayment

9

of Loans (other than Swingline Loans) shall be in a minimum principal amount of $5,000,000 and integral multiples of $1,000,000 in excess thereof and (ii) each prepayment of Swingline Loans shall be in a minimum principal amount of $100,000 and integral multiples of $100,000 in excess thereof. The Borrower shall give irrevocable written notice (or telephone notice promptly confirmed in writing which confirmation may be by fax) of any such voluntary prepayment to the Administrative Agent (which shall notify the Lenders thereof as soon as practicable) not later than 1:30 P.M. (Charlotte, North Carolina time) on the Business Day prior to the date of the requested prepayment in the case of Alternate Base Rate Loans, and on the third Business Day prior to the date of the requested prepayment in the case of LIBOR Rate Loans. Amounts prepaid under this Section 2.8(a) shall be applied first pro rata to the Tranche A-1 Term Loan (ratably to the remaining principal installments thereof) and the Tranche B-l Term Loan (ratably to the remaining principal installments thereof) (provided, however, promptly upon notification thereof, one or more holders of the Tranche B-l Term Loan may decline to accept such payment to the extent there are sufficient amounts under the Tranche A-1 Term Loan outstanding to be paid with such prepayment, in which case, such declined payments shall be allocated pro rata among the Tranche A-1 Term Loan and the Tranche B-l Term Loan held by Lenders accepting such payments) and then (after the Tranche A-1 Term Loan and Tranche B-l Term Loan have been paid in full) to the Revolving-1 Loans. Subject to the foregoing terms, amounts prepaid under this Section 2.8(a) shall be applied first to Alternate Base Rate Loans and then to LIBOR Rate Loans in direct order of Interest Period maturities. All prepayments under this Section 2.8(a) shall be without premium or penalty except that (i) any prepayments of the Tranche B-l Term Loan made during the period commencing on the Fourth Amendment Effective Date and ending on May 29, 2004 will require payment of a premium of 0.50% of the principal amount being prepaid on such date and (ii) all prepayments shall be subject to Section 2.18. Interest on the principal amount prepaid shall be payable on the date of such prepayment. Amounts prepaid on the Swingline Loans and the Revolving-1 Loans may be reborrowed in accordance with the terms hereof. Amounts prepaid on the Tranche A-1 Term Loan and the Tranche B-l Term Loan may not be reborrowed.

     (M)  Amendment to Section 2.8(b). Section 2.8(b) of the Credit Agreement, “Mandatory Prepayments” is amended effective as of the Conversion Date by:

     (1) deleting clause (iii) thereof and replacing it with:

     “(iii) [Reserved]”;

     (2) deleting clause (v) thereof and replacing it with:

     “(v) [Reserved]”; and

     (3) adding the following sentence at the end of clause (vi):

     Any prepayments of the Tranche B-l Term Loan made during the period commencing on the Fourth Amendment Effective Date and ending on May 29, 2004

10

pursuant to Section 2.8(b)(ii) will require payment of a premium of 0.50% of the principal amount being prepaid on such date.

     (N)  Amendment to Section 2.13(b). Section 2.13(b) of the Credit Agreement, “Allocations of Payments After Event of Default” is amended effective as of the second Business Day after the Conversion Date by adding the words “and any Hedging Obligations (including any termination payments and any accrued and unpaid interest thereon) (pro rata in accordance with all such amounts due)” at the end of the parenthetical in paragraph FIFTH thereof.

     (O)  Amendment to Section 5.9. Section 5.9 of the Credit Agreement, “Financial Covenants” is amended effective as of the Conversion Date by deleting Section 5.9 in its entirety and replacing it with the following:

     Section 5.9 Financial Covenants.

     The Borrower shall, and shall cause each of its Restricted Subsidiaries to, comply with the following financial covenants:

     (a) Leverage Ratio. The Leverage Ratio, as of the last day of each fiscal quarter of the Borrower and its Restricted Subsidiaries, shall be less than or equal to 3.75 to 1.00.

     (b) Interest Coverage Ratio. The Interest Coverage Ratio, as of the last day of each fiscal quarter of the Borrower and its Restricted Subsidiaries, shall be greater than or equal to 3.00 to 1.0.

     (c) Minimum Consolidated Net Worth. The Consolidated Net Worth shall at all times be equal to or greater than $1,750,000,000, increased on a cumulative basis as of the end of each fiscal quarter of the Borrower and its Restricted Subsidiaries, commencing with the fiscal quarter ending September 30, 2003, by an amount equal to 50% of the Consolidated Net Income (with no deduction for net losses) for the fiscal quarter then ended plus 50% of the amount by which the “total stockholders equity” of the Borrower is increased as a result of any public or private offering of ownership interests of the Borrower after the Fourth Amendment Effective Date (other than increases to the extent such increases result from Equity Issuances to, or capital contributions from, any Affiliate of the Borrower or Equity Issuances pursuant to an employee or director stock option or incentive plan or other employee benefit plan or from Equity Issuances in connection with the acquisition of assets or Capital Stock). Promptly upon consummation of each such public or private offering, the Borrower shall notify the Administrative Agent in writing of the amount of such increase in total stockholders equity.

     (P)  Amendment to Section 10.1. Section 10.1 of the Credit Agreement, “The Guaranty” shall be amended effective as of the Conversion Date by deleting the words “Hedging Agreements with any Lender” and replacing them with “Hedging Obligations”.

11

     Section 3. Agreements Regarding Hedging Agreements. Notwithstanding anything in any Credit Document to the contrary, the parties hereto agree that: (A) no repayment or prepayment shall affect any of the Borrower’s obligations under any Hedging Agreement, (B) the disposition of any Hedging Agreement shall not be prohibited, (C) Hedging Agreements shall not constitute any portion of the Collateral, and (D) Hedging Obligations may only be terminated and/or accelerated by the applicable counterparty with respect to such Hedging Obligations solely in accordance with the terms of the applicable Hedging Agreement.

     Section 4. Representations and Warranties. Each of the Credit Parties represents and warrants as follows:

     (A)  It has taken all necessary action to authorize the execution, delivery and performance of this Fourth Amendment and each other document executed in connection herewith to which it is a party in accordance with their respective terms.

     (B)  This Fourth Amendment has been duly executed and delivered by such Person and constitutes such Person’s legal, valid and binding obligation, enforceable in accordance with its terms, except as such enforceability may be subject to (1) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors’ rights generally and (2) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).

     (C)  No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by such Person of this Fourth Amendment, other than filings required to comply with applicable securities laws.

     (D)  After giving effect to this Fourth Amendment, the representations and warranties set forth in the Credit Agreement are, subject to the limitations set forth therein, true and correct in all material respects as of the date hereof (except for those which expressly relate to an earlier date).

     (E)  No Default or Event of Default has occurred and is continuing as of the date hereof.

     Section 5. Conditions Precedent. This Fourth Amendment shall become effective on the date hereof upon satisfaction (or waiver) of each of the following conditions precedent:

     (A)  This Fourth Amendment. The Administrative Agent shall have received (1) a duly executed counterpart of this Fourth Amendment from the Administrative Agent and each Credit Party and (2) an Authorization from each Converting Lender.

     (B)  Repayment. The Borrower shall have repaid in full the outstanding Loans (together with all applicable accrued and unpaid fees and interest) of each Departing Lender.

     (C)  Opinion of Counsel. The Administrative Agent shall have received a legal opinion of counsel to the Borrower and its Subsidiaries, addressed to the Lenders and the

12

Administrative Agent and dated as of the date hereof which shall be in form and substance to the Administrative Agent, as to the due authorization, execution, delivery and enforceability of this Fourth Amendment and such other matters as reasonably requested by the Administrative Agent.

     (D)  Receipt of Fees. The Administrative Agent, on behalf of itself and each Converting Lender, shall have received from the Borrower the fees set forth in the fee letter dated July 28, 2003 executed by the Borrower, the Agents and the Arrangers.

     (E)  Costs, Expenses and Fees. The Borrower shall have paid any and all out-of-pocket costs (to the extent invoiced) incurred by the Agents or the Arrangers (including the reasonable fees and expenses of each Agent’s legal counsel and other advisors and professionals engaged by the Agents or the Arrangers in connection with this Fourth Amendment) and fees and other amounts payable to either Agent in connection with the arrangement, negotiation, execution and delivery of this Fourth Amendment.

     (F)  Other Documents. The Administrative Agent shall have received any other documents, certificates or instruments reasonably requested thereby in connection with the execution of this Fourth Amendment.

     Section 6. Acknowledgement of Guarantors and Reaffirmation of Security Documents.

     (A)  By their execution hereof, each of the Guarantors listed on the signature pages to this Fourth Amendment hereby expressly (1) consents to the modifications and amendments set forth in this Fourth Amendment, (2) reaffirms all of its respective covenants, representations, warranties and other obligations set forth in the Credit Agreement and the other Credit Documents to which it is a party and (3) acknowledges, represents and agrees that its respective covenants, representations, warranties and other obligations set forth in the Credit Agreement and the other Credit Documents to which it is a party remain in full force and effect.

     (B)  Each Credit Party hereby confirms that each of the Security Documents to which it is a party shall continue to be in full force and effect and is hereby ratified and reaffirmed in all respects as if fully restated as of the date hereof by this Fourth Amendment. In furtherance of the reaffirmations set forth in this Section 6(B) each Credit Party hereby grants and assigns a security interest in all Collateral (including, without limitation, any real property or other Collateral) identified in any Security Document as collateral security for the Credit Party Obligations.

     Section 7. Miscellaneous.

     (A)  Limited Amendment. Except as expressly provided herein, the Credit Agreement shall remain unmodified and in full force and effect. This Fourth Amendment shall not be deemed (1) to be a waiver of, or consent to, a modification or amendment of, any other term or condition of the Credit Agreement or any other Credit Document or (2) to prejudice any other right or rights which the Administrative Agent or the Lenders may now have or may have in the future under or in connection with the Credit Agreement or the other Credit Documents or any of the instruments or agreements referred to therein, as the same may be amended or modified from time to time. References in the Credit Agreement (including references to such Credit Agreement as amended

13

hereby) to “this Agreement” (and indirect references such as “hereunder”, “hereby”, “herein”, and “hereof) and in any Credit Document to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby.

     (B)  Confidentiality. Notwithstanding any provision of any Credit Document to the contrary, each party hereto may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure (as such terms are used in Sections 6011, 6111 and 6112 of the Internal Revenue Code and the Treasury Regulations promulgated thereunder) of the transactions contemplated by this Fourth Amendment or any other Credit Document, and all materials of any kind (including opinions or other tax analyses) that are provided to such party relating to such tax treatment and tax structure. For this purpose, tax treatment and tax structure shall not include (i) the identity of any existing or future party to the transactions contemplated by this Fourth Amendment or any other Credit Document, (ii) the existence or status of any negotiations or (iii) any pricing information or any other term or detail not related to the tax structure or tax aspects of the transactions contemplated by this Fourth Amendment or any other Credit Document.

     (C)  Counterparts. This Fourth Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Fourth Amendment by signing any such counterpart.

     (D)  Further Assurances. Upon the request of the Administrative Agent and at the sole expense of the Borrower, the Borrower will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Administrative Agent may reasonably request to effectuate the provisions and purposes of this Fourth Amendment.

     (E)  Fax Transmission. A facsimile, telecopy or other reproduction of this Fourth Amendment may be executed by one or more parties hereto, and an executed copy of this Fourth Amendment may be delivered by one or more parties hereto by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute an original of this Fourth Amendment as well as any facsimile, telecopy or other reproduction hereof.

     (F)  Governing Law. This Fourth Amendment shall be governed by, and construed in accordance with, the law of the State of North Carolina without regard to the conflicts of law or choice of law provisions thereof.

[Signature Pages Follow]

14

     IN WITNESS WHEREOF, each of the parties hereto have caused this Fourth Amendment to be duly executed and delivered by its proper and duly authorized officers as of the day and year first above written.

BORROWER:	DEAN FOODS COMPANY,
	a Delaware corporation
	By:	/s/ Cory M. Olson
	Name:	Cory M. Olson
	Title:	Senior Vice President

GUARANTORS:	DEAN MANAGEMENT CORPORATION,
	a Delaware corporation (formerly known as Suiza
	Management Corporation, by change of name only)
	SUIZA DAIRY GROUP HOLDINGS, INC.,
	a Nevada corporation
	PREFERRED HOLDINGS, INC.,
	a Delaware corporation (formerly known as Suiza Preferred
	Holdings, Inc., by change of name only)
	THOMPSON BEVERAGE ACQUISITION
	CORPORATION,
	a Delaware corporation
	SFG CAPITAL CORPORATION,
	A Delaware corporation
	MORNINGSTAR FOODS HOLDINGS, INC.,
	a Delaware corporation (formerly known as Suiza U.S.
	Holding Company, by change of name only)
	MORNINGSTAR FOODS INC.,
	a Delaware corporation
	DEAN PUERTO RICO HOLDINGS, LLC,
	a Delaware limited liability company (formerly known as
	Suiza Dairy Corporation by change of name only)

By:	/s/ Cory Olson
Name:	Cory Olson
Title:	Authorized Agent

[signature pages continue]

[Fourth Amendment-Dean Foods]

SUIZA DAIRY GROUP GP, LLC,

a Delaware limited liability company

DAIRY GROUP AVIATION, LLC,

a Delaware limited liability company (formerly known as

Suiza Dairy Group Aviation, LLC, by change of name only)

COUNTRY FRESH, LLC,

a Michigan limited liability company

LONDON’S FARM DAIRY, LLC,

a Delaware limited liability company

DEAN NORTHEAST, LLC,

a Delaware limited liability company (formerly known as

Suiza GTL, LLC, by change of name only)

NEW ENGLAND DAIRIES, LLC,

a Delaware limited liability company

TUSCAN/ LEHIGH MANAGEMENT, L.L.C.,

a Delaware limited liability company

DEAN SOUTHEAST, LLC,

a Delaware limited liability company (formerly known as

Suiza Southeast, LLC, by change of name only)

BROUGHTON FOODS, LLC,

a Delaware limited liability company

DAIRY FRESH, LLC,

a Delaware limited liability company

LAND-O-SUN DAIRIES, LLC,

a Delaware limited liability company

LOUIS TRAUTH DAIRY, LLC,

a Delaware limited liability company

SCHENKEL’S ALL-STAR DAIRY, LLC,

a Delaware limited liability company

SCHENKEL’S ALL-STAR DELIVERY, LLC,

a Delaware limited liability company

DEAN SOUTHWEST, LLC,

a Delaware limited liability company (formerly known as

Suiza Southwest, LLC, by change of name only)

COUNTRY DELITE FARMS, LLC,

a Delaware limited liability company

MODEL DAIRY, LLC,

a Delaware limited liability company

ROBINSON DAIRY, LLC,

a Delaware limited liability company

By:	/s/ Cory M. Olson
Name:
Title:

[signature pages continue]

[Fourth Amendment-Dean Foods]

SFG MANAGEMENT LIMITED LIABILITY

COMPANY,

a Delaware limited liability company

SOUTHERN FOODS HOLDINGS,

a Delaware statutory trust (formerly known as Southern

Foods Holding Company, LLC)

SULPHUR SPRINGS CULTURED SPECIALTIES,

LLC,

a Delaware limited liability company

SHENANDOAH’S PRIDE, LLC,

a Delaware limited liability company

DEAN DAIRY SERVICES, LLC,

a Delaware limited liability company (formerly

known as Suiza Dairy Services, LLC by change of name only)

RYAN FOODS COMPANY, LLC,

a Delaware limited liability company

(formerly Ryan Foods Company)

DEAN DIP AND DRESSING COMPANY, LLC,

a Delaware limited liability company

(formerly Dean Dip and Dressing Company)

By:	- -s- Cory M. Olson
Name:	Cory M. Olson
Title:	Authorized Signature

SUIZA DAIRY GROUP, INC.,

a Delaware corporation (formerly known as Suiza Dairy

Group, L.P.)

By:	- -s- Cory M. Olson
Name:	Cory M. Olson
Title:	Authorized Agent

[signature pages continue]

[Fourth Amendment-Dean Foods]

SOUTHERN FOODS SERVICES, L.P.,
a Delaware limited partnership
By:     SFG MANAGEMENT
LIMITED LIABILITY COMPANY,
a Delaware limited liability company
By:	-s- Cory M. Olson
Name:
Title:
SOUTHERN FOODS GROUP, L.P.,
a Delaware limited partnership
By:     SFG MANAGEMENT
LIMITED LIABILITY COMPANY,
a Delaware limited liability company
By:	-s- Cory M. Olson
Name:
Title:
TUSCAN/ LEHIGH DAIRIES, INC,
a Delaware corporation (formerly known as Tuscan/Lehigh Dairies, L.P.)
By:	-s- Cory M. Olson
Name:
Title:
DEAN HOLDING COMPANY,
a Delaware corporation (formerly known as Blackhawk Acquisition Corp., successor by merger to Dean Foods Company, a Delaware corporation)
By:	-s- Cory M. Olson
Name:
Title:

[signature pages continue]

[Fourth Amendment-Dean Foods]

ALTA-DENA CERTIFIED DAIRY, INC., a Delaware corporation
ALTA-DENA HOLDINGS, INC., a California corporation
31 LOGISTICS, INC., a Delaware corporation
BARBER MILK, INC., a Delaware corporation (formerly known as Barber Dairies, Inc., by change of name only)
By:	-s- Cory M. Olson
Name:
Title:
BERKELEY FARMS, INC., a California corporation
CREAMLAND DAIRIES, INC., a New Mexico corporation
DEAN DAIRY PRODUCTS COMPANY, a Pennsylvania corporation
DEAN FOODS BUSINESS SERVICES COMPANY, a Delaware corporation
DEAN FOODS COMPANY OF CALIFORNIA, INC., a Delaware corporation
DEAN FOODS COMPANY OF INDIANA, INC., a Delaware corporation
MIDWEST ICE CREAM COMPANY, a Delaware corporation (formerly known as Dean Foods Ice Cream Company, by change of name only)
DEAN FOODS NORTH CENTRAL, INC., a Delaware corporation
DEAN FOODS REGIONAL BUSINESS SERVICES, INC., a Delaware corporation
DEAN MILK COMPANY, INC., a Kentucky corporation
DEAN MILK PROCUREMENT COMPANY, a Delaware corporation
DEAN PICKLE AND SPECIALTY PRODUCTS COMPANY, a Wisconsin corporation
DEAN SPECIALTY FOODS COMPANY, a Delaware corporation

[signature pages continue]

[Fourth Amendment-Dean Foods]

DEAN TRANSPORTATION, INC., an Ohio corporation
DIPS LIMITED PARTNER II, a Delaware statutory trust (formerly known as DTMC, Inc.)
ELGIN BLENDERS, INCORPORATED, an Illinois corporation
GANDY’S DAIRIES, INC., a Texas corporation
LIBERTY DAIRY COMPANY, a Michigan corporation
MCARTHUR DAIRY, INC., a Florida corporation
MAYFIELD DAIRY FARMS, INC., a Delaware corporation
MEADOW BROOK DAIRY COMPANY, a Pennsylvania corporation
By:	-s- Cory M. Olson
Name:	Cory M. Olson
Title:	Authorized Agent
THE MEADOWS DISTRIBUTING COMPANY, an Illinois corporation
PURITY DAIRIES, INCORPORATED, a Delaware corporation
RDPC, INC., a Delaware corporation
REITER AKRON, INC., an Ohio corporation (formerly known as Reiter Dairy, Inc.)
T.G. LEE FOODS, INC., a Florida corporation
VERIFINE DAIRY PRODUCTS CORPORATION OF SHEBOYGAN, INC., a Wisconsin corporation
WENGERT’S DAIRY, INC., a Delaware corporation
RYAN FOODS NORTH CENTRAL, LLC., a Delaware limited liability company (formerly known as Ryan Foods North Central, Inc.)
MAPLEHURST FARMS, LLC, an Indiana limited liability company

[signature pages continue]

[Fourth Amendment-Dean Foods]

DEAN SPECIALTY FOODS GROUP, LLC, a Delaware limited liability company
DEAN DAIRY HOLDINGS, LLC, a Delaware limited liability company
DEAN MIDWEST, LLC, a Delaware limited liability company
DEAN SOUTHEAST II, LLC, a Delaware limited liability company
DEAN SOUTHWEST II, LLC, a Delaware limited liability company
DEAN SOCAL, LLC, a Delaware limited liability company (formerly known as Suiza SoCal, LLC by change of name only)
DEAN DAIRY SPECIALTIES, LLC, a Delaware limited liability company
ICE CREAM PRODUCTS, LLC, a Delaware limited liability company
By:	-s- Cory M. Olson
Name:
Title:
MORNINGSTAR SERVICES INC., a Delaware corporation
By:	-s- Cory M. Olson
Name:
Title:
NEPTUNE DELAWARE CORPORATION, a Delaware corporation
By:	-s- Cory M. Olson
Name:
Title:

[signature pages continue]

[Fourth Amendment-Dean Foods]

DEAN SPECIALTY INTELLECTUAL PROPERTY SERVICES, L.P., a Delaware limited partnership
By:      DIPS GP II, INC.,             its general partner
By:	-s- Cory M. Olson
Name:	Cory M. Olson
Title:	Authorized Agent
DEAN INTELLECTUAL PROPERTY SERVICES II, L.P., a Delaware limited partnership
By:      DIPS GP II, INC., its general partner
By:	-s- Cory M. Olson
Name:	Cory M. Olson
Title:	Authorized Agent
DIPS GP II, INC., a Delaware corporation
By:	-s- Cory M. Olson
Name:	Cory M. Olson
Title:	Authorized Agent
DIPS LIMITED PARTNER, a Delaware entity (formerly known as Dips LP, Inc.)
By:	-s- Cory M. Olson
Name:	Cory M. Olson
Title:	Authorized Agent

[signature pages continue]

[Fourth Amendment-Dean Foods]

DIPS GP, INC., a Delaware corporation
By:	-s- Cory M. Olson
Name:
Title:
DEAN INTELLECTUAL PROPERTY SERVICES, L.P., a Delaware limited partnership
By:      DIPS GP, INC., its general partner
By:	-s- Cory M. Olson
Name:
Title:
WHITE WAVE, INC., a Colorado corporation
By:	-s- Cory M. Olson
Name:
Title:
BARBER ICE CREAM, LLC, a Delaware limited liability company
DEAN ILLINOIS DAIRIES, LLC, a Delaware limited liability company
DEAN NORTHEAST II, LLC, a Delaware limited liability company
FAIRMONT DAIRY, LLC, a Delaware limited liability company
By:	-s- Cory M. Olson
Name:
Title:

[signature pages continue]

[Fourth Amendment-Dean Foods]

DEAN MIDWEST II, LLC, a Delaware limited liability company
PET O’FALLON, LLC, a Delaware limited liability company
By:	-s- Cory M. Olson
Name:
Title:
REITER SPRINGFIELD, LLC, a Delaware limited liability company
By:	-s- Cory M. Olson
Name:
Title:
DEMCO XXIV L.L.C., a Michigan limited liability company
By:	-s- Cory M. Olson
Name:
Title:
MELODY FARMS, L.L.C., a Delaware, limited liability company
By:	-s- Cory M. Olson
Name:
Title:
TERRACE DAIRY, LLC, a Delaware limited liability company
By:	-s- Cory M. Olson
Name:
Title:

[signature pages continue]

[Fourth Amendment-Dean Foods]

AGENTS AND LENDERS:	WACHOVIA BANK, NATIONAL ASSOCIATION, in its capacity as Administrative Agent and individually in its capacity as a Lender, on behalf of itself and the other Lenders (other than the Syndication Agent) pursuant to the Authorization
	By:	-s- John Gregory
	Name:	John Gregory
	Title:	VP

[signature pages continue]

[Fourth Amendment-Dean Foods]

LENDERS:	BANK ONE, NA, in its capacity as Syndication Agent and individually in its capacity as a Lender
	By:	-s- T. Heldring
	Name:	T. Heldring
	Title:	MO

[Fourth Amendment-Dean Foods]

ANNEX I

Form of Lender Authorization

AUTHORIZATION

August 29, 2003

Wachovia Bank, National Association,
as Administrative Agent
Attn: Syndication Agency Services
NC-0760
301 South College Street
Charlotte, NC 28288-0760

Re: Fourth Amendment dated as of August 29, 2003 (the “Fourth Amendment”) to that certain Credit Agreement dated as of July 31, 2001 (as amended by that certain First Amendment to Credit Agreement dated as of December 19, 2001, that certain Second Amendment to Credit Agreement dated as of April 30, 2002 and that certain Third Amendment to Credit Agreement dated as of December 13, 2002 and as further amended, restated, modified or supplemented from time to time) by and among Dean Foods Company (formerly known as Suiza Foods Corporation), as borrower (the “Borrower”), certain subsidiaries of the Borrower party thereto, as guarantors, the banks and financial institutions party thereto, as lenders, Fleet National Bank, Harris Trust and Savings Bank and SunTrust Bank, as co-documentation agents, Bank One, NA, as syndication agent and Wachovia Bank, National Association (formerly known as First Union National Bank), as administrative agent (the “Administrative Agent”).

       This letter acknowledges our receipt and review of the Fourth Amendment in the form posted on the Dean Foods Intralinks Workspace. By executing this letter, we hereby authorize the Administrative Agent to execute and deliver the Fourth Amendment on our behalf.

[Insert name of applicable financial institution]

By:

Name:

Title:

EX-31.1 4 d10459exv31w1.htm EX-31.1 CERTIFICATION OF CEO - SECTION 302

EXHIBIT 31.1

CERTIFICATION

     I, Gregg Engles, certify that:

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

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Dean Foods Company, and its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.	[Omitted in accordance with SEC Release Nos. 33-8238 and 34-47986]
c.	Evaluated the effectiveness of Dean Foods Company’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and
d.	Disclosed in this quarterly report any change in Dean Foods Company's internal control over financial reporting that occurred during Dean Foods Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Dean Foods Company’s internal control over financial reporting.

5. Dean Foods Company’s other certifying officers and I have disclosed, based on our most recent evaluation, to Dean Foods Company’s auditors and the audit committee of Dean Foods Company’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting reasonably likely to adversely affect Dean Foods Company’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in Dean Foods Company’s internal controls.

	/s/ Gregg Engles
	Gregg Engles
	Chief Executive Officer
November 14, 2003

EX-31.2 5 d10459exv31w2.htm EX-31.2 CERTIFICATION OF CFO - SECTION 302

EXHIBIT 31.2

CERTIFICATION

     I, Barry A. Fromberg, certify that:

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

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Dean Foods Company, and its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.	[Omitted in accordance with SEC Release Nos. 33-8238 and 34-47986]
c.	Evaluated the effectiveness of Dean Foods Company’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and
d.	Disclosed in this quarterly report any change in Dean Foods Company's internal control over financial reporting that occurred during Dean Foods Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Dean Foods Company’s internal control over financial reporting.

5. Dean Foods Company’s other certifying officers and I have disclosed, based on our most recent evaluation, to Dean Foods Company’s auditors and the audit committee of Dean Foods Company’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting reasonably likely to adversely affect Dean Foods Company’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in Dean Foods Company’s internal controls.

	/s/ BARRY A. FROMBERG
	Barry A. Fromberg
	Chief Financial Officer
November 14, 2003

EX-32.1 6 d10459exv32w1.htm EX-32.1 CERTIFICATION OF CEO - SECTION 906

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Form 10-Q of Dean Foods Company (the “Company”) for the quarter ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregg Engles, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Report fairly presents in all material respects, the financial condition and results of operations of the Company.

	/s/ GREGG ENGLES
	Gregg Engles
	Chairman of the Board and Chief Executive Officer
November 14, 2003

Note: This certification accompanies the Report pursuant to Section 902 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed, except to the extent required by the Sarbanes-Oxley Act of 2002, by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2 7 d10459exv32w2.htm EX-32.2 CERTIFICATION OF CFO - SECTION 906

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Form 10-Q of Dean Foods Company (the “Company”) for the quarter ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barry A. Fromberg, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Report fairly presents in all material respects, the financial condition and results of operations of the Company.

	/s/ BARRY A. FROMBERG
	Barry A. Fromberg
	Executive Vice President and Chief Financial Officer
November 14, 2003

Note: This certification accompanies the Report pursuant to Section 902 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed, except to the extent required by the Sarbanes-Oxley Act of 2002, by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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