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 Exchange Act of 1934
For the Quarterly Period Ended June 30, 2006
or
[ ]	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	75-2559681
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

2515 McKinney Avenue, Suite 1200

Dallas, Texas 75201

(214) 303-3400

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

area code, of 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 [ ]

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

Large accelerated filer [X];          Accelerated filer [ ];          Non-accelerated filer [ ]

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

      As of August 4, 2006, the number of shares outstanding of each class of common stock was: 133,478,082

Common Stock, par value $.01

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		30
	Item 3 — Quantitative and Qualitative Disclosures About Market Risk		43
	Item 4 — Controls and Procedures		44
Part II — Other Information
	Item 1 — Legal Proceedings		46
	Item 1A — Risk Factors		46
	Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		49
	Item 4 — Submission of Matters to a Vote of Security Holders		49
	Item 6 — Exhibits		50
Change in Control Agreement
Proprietary Information, Inventions and Non-Compete Agreement
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

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Part I — Financial Information

Item 1. Financial Statements

DEAN FOODS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

			June 30,		December 31,
			2006		2005
			(unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	30,378	$	24,456
	Receivables, net			699,612		818,431
	Inventories			358,243		355,004
	Deferred income taxes			111,611		137,776
	Prepaid expenses and other current assets			84,722		65,526
		Total current assets		1,284,566		1,401,193
Property, plant and equipment, net				1,780,350		1,776,801
Goodwill				2,932,454		2,922,940
Identifiable intangible and other assets				668,270		648,223
Assets of discontinued operations				266,527		301,727
		Total	$	6,932,167	$	7,050,884
Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable and accrued expenses		$	777,722	$	926,067
	Income taxes payable			9,370		34,541
	Current portion of long-term debt			182,150		65,326
		Total current liabilities		969,242		1,025,934
Long-term debt				3,194,039		3,321,522
Deferred income taxes				486,337		449,707
Other long-term liabilities				229,302		225,479
Liabilities of discontinued operations				124,530		126,029
Commitments and contingencies (Note 11)
Stockholders’ equity:
	Preferred stock, none issued			—		—
	Common stock, 133,173,139 and 134,209,190 shares issued and outstanding, with a par value of $0.01 per share			1,332		1,342
	Additional paid-in capital			841,480		922,791
	Retained earnings			1,085,673		1,004,013
	Accumulated other comprehensive income (loss)			232		(25,933	)
		Total stockholders’ equity		1,928,717		1,902,213
		Total	$	6,932,167	$	7,050,884

See Notes to Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share data)

			Three Months Ended						Six Months Ended
			June 30						June 30
			2006			2005			2006			2005
			(unaudited)
Net sales			$	2,477,884		$	2,515,130		$	4,986,925		$	4,989,701
Cost of sales				1,794,555			1,867,895			3,652,628			3,731,243
Gross profit				683,329			647,235			1,334,297			1,258,458
Operating costs and expenses:
	Selling and distribution			408,843			386,383			813,610			774,313
	General and administrative			98,739			97,200			201,020			188,940
	Amortization of intangibles			1,508			1,482			2,929			3,151
	Facility closing and reorganization costs			2,950			2,437			7,352			8,828
		Total operating costs and expenses		512,040			487,502			1,024,911			975,232
Operating income				171,289			159,733			309,386			283,226
Other (income) expense:
	Interest expense			48,768			38,625			96,304			77,844
	Other (income) expense, net			(86	)		(205	)		14			(282	)
		Total other expense		48,682			38,420			96,318			77,562
Income from continuing operations before income taxes				122,607			121,313			213,068			205,664
Income taxes				47,812			47,287			83,579			80,946
Income from continuing operations				74,795			74,026			129,489			124,718
Income (loss) from discontinued operations, net of tax				(45,927	)		7,600			(47,829	)		18,377
Net income			$	28,868		$	81,626		$	81,660		$	143,095
Average common shares:
	Basic			135,037,233			150,833,996			135,103,306			150,330,585
	Diluted			140,433,760			157,219,798			141,104,654			156,442,366
Basic earnings per common share:
	Income from continuing operations		$	0.55		$	0.49		$	0.96		$	0.83
	Income (loss) from discontinued operations			(0.34	)		0.05			(0.36	)		0.12
Net income			$	0.21		$	0.54		$	0.60		$	0.95
Diluted earnings per common share:
	Income from continuing operations		$	0.53		$	0.47		$	0.92		$	0.80
	Income (loss) from discontinued operations			(0.32	)		0.05			(0.34	)		0.11
Net income			$	0.21		$	0.52		$	0.58		$	0.91

See Notes to Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

														Accumulated
														Other
			Common Stock						Additional					Comprehensive			Total
									Paid-In			Retained		Income			Stockholders’
			Shares			Amount			Capital			Earnings		(Loss)			Equity
			(unaudited)
Balance, December 31, 2005				134,209,190		$	1,342		$	922,791		$	1,004,013	$	(25,933	)	$	1,902,213
	Issuance of common stock			2,701,149			27			34,069			—		—			34,096
	Share-based compensation expense			—			—			20,262			—		—			20,262
	Purchase and retirement of treasury stock			(3,737,200	)		(37	)		(135,642	)		—		—			(135,679	)
	Net income			—			—			—			81,660		—			81,660
	Other comprehensive income (Note 8):
		Change in fair value of derivative instruments		—			—			—			—		16,834			16,834
		Amounts reclassified to income statement related to hedging activities		—			—			—			—		(1,867	)		(1,867	)
		Cumulative translation adjustment		—			—			—			—		11,198			11,198
Balance, June 30, 2006				133,173,139		$	1,332		$	841,480		$	1,085,673	$	232		$	1,928,717

See Notes to Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

				Six Months Ended
				June 30
				2006			2005
				(unaudited)
Cash flows from operating activities:
	Net income			$	81,660		$	143,095
	Loss (income) from discontinued operations				47,829			(18,377	)
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			111,875			105,719
		Share-based compensation expense			20,262			21,214
		Loss on disposition of assets			962			585
		Write-down of impaired assets			1,888			697
		Deferred income taxes			55,145			20,071
		Other			676			(2,143	)
	Changes in operating assets and liabilities, net of acquisitions:
		Receivables			121,981			42,497
		Inventories			(3,513	)		(6,542	)
		Prepaid expenses and other assets			(6,870	)		23,965
		Accounts payable and accrued expenses			(142,302	)		6,961
		Income taxes payable			(25,021	)		(4,782	)
			Net cash provided by continuing operations		264,572			332,960
			Net cash provided by (used in) discontinued operations		(1,693	)		28,452
			Net cash provided by operating activities		262,879			361,412
Cash flows from investing activities:
	Additions to property, plant and equipment				(113,569	)		(130,596	)
	Cash outflows for acquisitions and investments				(10,960	)		(1,296	)
	Proceeds from sale of fixed assets				3,404			5,281
			Net cash used in continuing operations		(121,125	)		(126,611	)
			Net cash used in discontinued operations		(9,505	)		(21,709	)
			Net cash used in investing activities		(130,630	)		(148,320	)
Cash flows from financing activities:
	Proceeds from issuance of debt				498,020			1,400
	Repayment of debt				(524,058	)		(288,281	)
	Payment of deferred financing costs				(6,561	)		(3,281	)
	Issuance of common stock				10,052			38,873
	Tax savings on share-based compensation				24,044			12,697
	Redemption of common stock				(135,679	)		—
			Net cash used in continuing operations		(134,182	)		(238,592	)
			Net cash provided by discontinued operations		7,855			29,167
			Net cash used in financing activities		(126,327	)		(209,425	)
Increase in cash and cash equivalents					5,922			3,667
Cash and cash equivalents, beginning of period					24,456			25,357
Cash and cash equivalents, end of period				$	30,378		$	29,024

See Notes to Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2006

(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, 2005. 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 information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. Our results of operations for the period ended June 30, 2006 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 2005 Consolidated Financial Statements contained in our Annual Report on Form 10-K (filed with the Securities and Exchange Commission on March 10, 2006).

      Certain reclassifications have been made to conform the prior year’s Condensed Consolidated Financial Statements to the current year’s classifications. During the six months ended June 30, 2006, we reclassified the presentation of expense recognition for reusable packaging utilized in our distribution process to distribution expense. The reclassification reduced cost of sales and increased distribution expense by $9.7 million and $18.8 million for the three and six months ended June 30, 2005, respectively. The reclassification had no impact on net income.

      During the second quarter of 2006, we committed to a plan to sell our Iberian operations with the expectation that the sale of such operations will be completed within one year. Our Condensed Consolidated Financial Statements for the three-month and six-month periods ended June 30, 2006 and 2005 have been reclassified to give effect to the Iberian operations as discontinued operations.

      On June 27, 2005, we completed the spin-off (“Spin-off”) of our indirect majority-owned subsidiary TreeHouse Foods, Inc. (“TreeHouse”). Immediately prior to the Spin-off, we transferred to TreeHouse (1) all of the businesses previously conducted by our Specialty Foods Group segment, (2) the Mocha Mix^® non-dairy coffee creamer and Second Nature^® liquid egg substitute businesses previously conducted by WhiteWave Foods Company, and (3) the foodservice salad dressings businesses, previously conducted by the Dairy Group and WhiteWave Foods Company. In August 2005, we completed the sale of our Marie’s^® dips and dressings and Dean’s^® dips businesses to Ventura Foods. Our Condensed Consolidated Financial Statements for the three-month and six-month periods ended June 30, 2005 have been reclassified to give effect to the businesses transferred to TreeHouse and the Marie’s dips and dressings and Dean’s dips businesses as discontinued operations.

      Unless otherwise indicated, references in this report to “we,” “us” or “our” refer to Dean Foods Company and its subsidiaries, taken as a whole.

      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 inventory warehouse costs, product loading and handling costs. Our Dairy Group includes costs associated with transporting finished products from our manufacturing facilities to our own distribution warehouses within cost of sales while WhiteWave Foods Company includes these costs in selling and distribution expense. Shipping and handling costs included in selling and distribution expense consist primarily of route delivery costs for both company-owned delivery routes and independent distributor routes, to the extent that such independent distributors are paid a delivery fee, and the cost of shipping products to customers through third party carriers. Shipping and handling costs recorded as a

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component of selling and distribution expense were approximately $315.9 million and $295.5 million in the second quarter of 2006 and 2005, respectively, and $624.8 million and $589.4 million during the first six months of 2006 and 2005, respectively.

      Recently Adopted Accounting Pronouncements — Effective January 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment”. Among its provisions, SFAS No. 123(R) requires the Company to recognize compensation expense for equity awards over the vesting period based on their grant-date fair value. Prior to the adoption of SFAS No. 123(R), we utilized the intrinsic-value based method of accounting under APB Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations, and adopted the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation”. Under the intrinsic-value based method of accounting, compensation expense for stock options granted to the Company’s employees and directors was measured as the excess of the quoted market price of common stock at the grant date over the amount the recipient must pay for the stock. The Company’s policy is to grant stock options at fair value on the date of grant and as a result no compensation expense was historically recognized for stock options. As our restricted stock units do not require the recipients to pay for the stock, we have historically recognized compensation expense for the fair value at the date of grant over the vesting period. The fair value for the restricted stock unit grants is equal to the closing price of our stock on the date immediately prior to the date of grant.

      Compensation expense is recognized only for share-based payments expected to vest. We estimate forfeitures at the date of grant based on the Company’s historical experience and future expectations. Prior to the adoption of SFAS No. 123(R), the effect of forfeitures on the pro forma expense was recognized based on estimated forfeitures.

      In order to enhance comparability among all periods presented, we elected to adopt SFAS No. 123(R) using the modified retrospective approach. Under this transition method, the results for prior periods reflect the recognition of the compensation expense and related income tax benefit historically disclosed in our financial statements. As a result of adopting SFAS No. 123(R), our income before taxes, net income, basic earnings per share and diluted earnings per share were lower than if we had continued to account for share-based compensation under APB Opinion No. 25 as follows:

		Three Months				Six Months Ended
		Ended June 30				June 30
		2006		2005		2006		2005
		(In thousands, except share data)
Decrease in:
	Income before taxes	$	6,023	$	6,729	$	11,047	$	12,904
	Net income		4,033		5,022		6,703		9,750
	Basic EPS	$	0.03	$	0.03	$	0.05	$	0.06
	Diluted EPS		0.03		0.03		0.05		0.06

      For financial reporting purposes, share-based compensation expense is included within the same financial statement caption where the recipient’s cash compensation is reported, and is classified as a corporate item for business segment reporting. See Note 6 for information regarding our share-based compensation programs.

      Effective January 1, 2006, we adopted SFAS No. 151, “Inventory Costs — an Amendment of ARB No. 43, Chapter 4.” This statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material, requiring that those items be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads be based on the normal capacity of the production facilities. The adoption of this statement did not have a material impact on our Consolidated Financial Statements.

      Effective January 1, 2006, we adopted SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29.” SFAS No. 153 eliminates the rule in APB No. 29 which excluded

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from fair value measurement exchanges of similar productive assets. Instead, SFAS No. 153 excludes from fair value measurement exchanges of nonmonetary assets that do not have commercial substance. The adoption of this statement did not have a material impact on our Consolidated Financial Statements.

      Recently Issued Accounting Pronouncements — The Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes” in June 2006. This interpretation clarifies the accounting for income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We are currently evaluating the impact of FIN No. 48 on our Consolidated Financial Statements. This interpretation will become effective for us in the first quarter of 2007.

2. Discontinued Operations

      Iberian Operations — During the second quarter of 2006, we committed to a plan to sell our Iberian operations. These operations manufacture, market and sell private label and branded milk in Spain and Portugal. The decision to sell such operations is part of our strategy to focus on our core dairy and branded businesses. As a result, we have revised all reportable periods to reclassify these operations as discontinued.

      As required by SFAS No. 142, “Goodwill and Other Intangible Assets”, as we now believe it is more likely than not that the Iberian operations will be sold, we performed an interim test for goodwill impairment as of June 30, 2006 and concluded that the carrying value of the goodwill may not be recoverable. Accordingly, we recognized an estimated non-cash impairment charge of $46.4 million, net of an income tax benefit of $8.1 million representing our best estimate as of June 30, 2006 of the goodwill impairment required based on our expected proceeds upon sale of the Iberian operations.

      Sale of Marie’s Dips and Dressings and Dean’s Dips — On August 22, 2005, we completed the sale of tangible and intangible assets related to the production and distribution of Marie’s dips and dressings and Dean’s dips to Ventura Foods. We also agreed to license the Dean trademark to Ventura Foods for use on certain non-dairy dips. The sales price was approximately $194 million. The sale of these brands is part of our strategy to focus on our core dairy and branded businesses.

      Spin-off of TreeHouse — On January 25, 2005, we formed TreeHouse. At that time, TreeHouse sold shares of common stock to certain members of a newly retained management team, who purchased approximately 1.67% of the outstanding common stock of TreeHouse, for an aggregate purchase price of $10 million.

      On June 27, 2005, we completed the Spin-off. Immediately prior to the Spin-off we transferred to TreeHouse (1) all of the businesses previously conducted by our Specialty Foods Group segment, (2) the Mocha Mix non-dairy coffee creamer and Second Nature liquid egg substitute businesses previously conducted by WhiteWave Foods Company, and (3) the foodservice salad dressings businesses previously conducted by the Dairy Group and WhiteWave Foods Company. The Spin-off was effected by means of a share dividend of the TreeHouse common stock held by us to our stockholders of record on June 20, 2005 (the “Record Date”). In the distribution, our stockholders received one share of TreeHouse common stock for every five shares of our common stock held by them on the Record Date.

      Prior to the Spin-off, we entered into certain agreements with TreeHouse to define our ongoing relationship. These arrangements include agreements that define our respective responsibilities for taxes, employee matters and all other liabilities and obligations related to the transferred businesses. Following the Spin-off, we have no ownership interest in TreeHouse. We transferred the obligation for pension and other postretirement benefit plans of transferred employees and retirees to TreeHouse. In 2005, we transferred a portion of the related plan assets. In 2006, we transferred the remaining plan assets related to such obligations.

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      Our financial statements have been reclassified to give effect to the businesses transferred to TreeHouse and the Iberian operations, Marie’s dips and dressings and Dean’s dips businesses as discontinued operations.

      Net sales and income before taxes generated by discontinued operations were as follows:

	Three Months					Six Months Ended
	Ended June 30(1)					June 30(1)
	2006			2005		2006			2005
	(In thousands)
Net sales	$	80,276		$	291,734	$	163,202		$	560,391
Income (loss) before taxes(2)		(54,696	)		15,437		(58,402	)		32,549

(1)

All intercompany sales and expenses have been appropriately eliminated in the table.

(2)

Interest expense of $1.7 million and $3.4 million in the three and six month periods ended June 30, 2006, respectively, was allocated to our Iberian discontinued operations based on the net assets of our discontinued operations relative to our total net assets. Interest expense of $2.8 million and $5.4 million in the three and six month periods ended June 30, 2005, respectively, was allocated to our Iberian operations and Marie’s dips and dressings and Dean’s dips discontinued operations based on the net assets of our discontinued operations relative to our total net assets.

      Major classes of assets and liabilities of our Iberian operations included in Assets and Liabilities of Discontinued Operations were as follows:

	June 30,		December 31,
	2006		2005
	(In thousands)
Current assets	$	75,895	$	75,774
Non-current assets		190,632		225,953
Current liabilities(1)		114,967		111,397
Non-current liabilities(1)		9,563		14,632

(1)  Liabilities at June 30, 2006 and December 31, 2005 include $61.0 million and $50.0 million, respectively, of long-term debt obligations including current portion.

3. Inventories

		June 30,		December 31,
		2006		2005
		(In thousands)
Raw materials and supplies		$	156,758	$	151,442
Finished goods			201,485		203,562
	Total	$	358,243	$	355,004

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4. Intangible Assets

      Changes in the carrying amount of goodwill for the six months ended June 30, 2006 are as follows:

				WhiteWave
				Foods
	Dairy Group			Company			Total
	(In thousands)
Balance at December 31, 2005	$	2,400,843		$	522,097		$	2,922,940
Acquisitions		9,727			—			9,727
Purchase accounting adjustments		(114	)		(99	)		(213	)
Balance at June 30, 2006	$	2,410,456		$	521,998		$	2,932,454

      The gross carrying amount and accumulated amortization of our intangible assets other than goodwill as of June 30, 2006 and December 31, 2005 are as follows:

		June 30, 2006							December 31, 2005
		Gross					Net		Gross					Net
		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
		Amount		Amortization			Amount		Amount		Amortization			Amount
		(In thousands)
Intangible assets with indefinite lives:
	Trademarks	$	511,791	$	(5,877	)	$	505,914	$	511,662	$	(5,877	)	$	505,785
Intangible assets with finite lives:
	Customer-related		87,575		(24,589	)		62,986		86,525		(21,358	)		65,167
Total		$	599,366	$	(30,466	)	$	568,900	$	598,187	$	(27,235	)	$	570,952

      Amortization expense on intangible assets for both the three months ended June 30, 2006 and 2005 was $1.8 million. Amortization expense on intangible assets for the six months ended June 30, 2006 and 2005 was $3.7 million and $3.6 million, respectively.

      Estimated aggregate intangible asset amortization expense for the next five years is as follows:

2006	$	7.4 million
2007		7.3 million
2008		7.1 million
2009		6.9 million
2010		6.7 million

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5. Long-Term Debt

				June 30, 2006						December 31, 2005
				Amount			Interest			Amount			Interest
				Outstanding			Rate			Outstanding			Rate
				(In thousands)
Dean Foods debt obligations:
	Senior credit facility			$	1,799,300			6.16	%	$	2,258,600			5.16%
	Senior notes				498,043			7.00			—			—
					2,297,343						2,258,600
Subsidiary debt obligations:
	Senior notes				570,210			6.625-8.15			568,493			6.625-8.15
	Receivables-backed facility				493,200			5.50			548,400			4.60
	Capital lease obligations and other				15,436						11,355
					1,078,846						1,128,248
					3,376,189						3,386,848
		Less current portion			(182,150	)					(65,326	)
			Total	$	3,194,039					$	3,321,522

      Senior Credit Facility — Our senior credit facility provides for a $1.5 billion revolving credit facility and a $1.5 billion term loan. At June 30, 2006, there were outstanding term loan borrowings of $1.5 billion under the senior credit facility, and $299.3 million outstanding under the revolving credit facility. Letters of credit in the aggregate amount of $128.2 million were issued but undrawn. At June 30, 2006, approximately $1.07 billion was available for future borrowings under the revolving credit facility, subject to satisfaction of certain ordinary course conditions contained in the credit agreement.

      Both the revolving credit facility and term loan bear interest, at our election, at the base rate plus a margin that varies from zero to 25 basis points depending on our credit ratings (as issued by Standard & Poor’s and Moody’s), or LIBOR plus a margin that varies from 50 to 150 basis points, depending on our credit ratings (as issued by Standard & Poor’s and Moody’s). The blended interest rate in effect on borrowings under the senior credit facility, including the applicable interest rate margin, was 6.16% at June 30, 2006. However, we had interest rate swap agreements in place that hedged $1.625 billion of our borrowings under the senior credit facility at an average rate of 4.5%, 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 term loan as follows:

•  $56.3 million quarterly beginning on December 31, 2006 through September 30, 2008;

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

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

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

      The credit agreement also requires mandatory principal prepayments upon the occurrence of certain asset dispositions or recovery events.

      In consideration for the revolving commitment, we pay a quarterly commitment fee on unused amounts of the revolving credit facility that ranges from 12.5 to 30 basis points, depending on our credit ratings (as issued by Standard & Poor’s and Moody’s).

      The senior credit facility contains various financial and other restrictive covenants and requires that we maintain certain financial ratios, including a maximum leverage and minimum interest coverage ratio. We are currently in compliance with all covenants contained in our credit agreement.

-12-

      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 purchase price is not greater than $500 million, (3) we acquire at least 51% of the acquired entity, (4) the transaction is approved by the Board of Directors or shareholders, as appropriate, of the target and (5) after giving effect to such acquisition on a pro-forma basis, we are in compliance with all financial covenants. All other acquisitions must be approved in advance by the required lenders.

      The senior credit 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 senior 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 the former Dean Foods Company’s (“Legacy Dean’s”) subsidiaries, and the real property owned by Legacy Dean and its subsidiaries.

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

      Dean Foods Senior Notes — On May 17, 2006, we issued $500 million aggregate principal amount of 7.0% senior unsecured notes. The senior unsecured notes mature on June 1, 2016 and interest is payable on June 1 and December 1 of each year, beginning December 1, 2006. The outstanding balance at June 30, 2006 was $498.0 million.

      The indenture under which we issued the senior unsecured notes does not contain financial covenants but does contain covenants that, among other things, limit our ability to incur secured indebtedness, enter into sale-leaseback transactions and engage in mergers, consolidations and sales of all or substantially all of our assets.

      The notes are senior unsecured obligations and are effectively subordinated to the indebtedness outstanding under our senior credit facility and any other secured debt we may incur. The notes are fully and unconditionally guaranteed by the subsidiaries that are guarantors under our senior credit facility, which are substantially all of our wholly owned U.S. subsidiaries other than our receivables securitization subsidiaries.

      We may, at our option, redeem some or all of the notes at any time at a redemption price equal to the greater of:

•  100% of the principal amount of the notes being redeemed; and

•  The sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed (excluding interest accrued to the redemption date) from the redemption date to the maturity date discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury rate plus 50 basis points,

plus, in each case, accrued and unpaid interest on the principal amount being redeemed to the redemption date.

      If we experience a change in control, we may be required to offer to purchase the notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest.

      We used all of the net proceeds from the sale of the notes to reduce a corresponding amount of borrowings under our senior credit facility.

-13-

      Subsidiary Senior Notes — Legacy Dean had certain senior notes outstanding at the time of the acquisition, which remain outstanding. The notes carry the following interest rates and maturities:

•  $250.1 million ($250 million face value), at 8.15% interest, maturing in 2007;

•  $191.5 million ($200 million face value), at 6.625% interest, maturing in 2009; and

•  $128.6 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 and its subsidiaries granting liens on certain of their real property interests and a prohibition against Legacy Dean granting liens on the stock of its subsidiaries.

      Receivables-Backed Facility — We entered into a $600 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 Condensed Consolidated Balance Sheet, and the securitization is treated as a borrowing for accounting purposes. During the first six months of 2006, we made net payments of $55.2 million on this facility leaving an outstanding balance of $493.2 million at June 30, 2006. The receivables-backed facility bears interest at a variable rate based on the commercial paper yield as defined in the agreement. The average interest rate on this facility was 5.50% at June 30, 2006. Our ability to re-borrow under this facility is subject to a borrowing base formula. The receivables-backed facility was fully funded at June 30, 2006.

      Capital Lease Obligations and Other — Capital lease obligations and 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.

      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 at both June 30, 2006 and December 31, 2005:

Fixed Interest Rates	Expiration Date		Notional Amounts
			(In millions)
3.65% to 6.78%		December 2006	$	625
4.81% to 4.84%		December 2007		500
4.07% to 4.27%		December 2010		500

      These swaps are required to be recorded as an asset or liability on our Condensed 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.

-14-

      As of June 30, 2006 and December 31, 2005, our derivative asset and liability balances were:

		June 30,			December 31,
		2006			2005
		(In thousands)
Current derivative asset		$	13,859		$	5,877
Long-term derivative asset			21,304			10,028
	Total derivative asset	$	35,163		$	15,905
Current derivative liability		$	(459	)	$	(1,926	)
Long-term derivative liability			—			(400	)
	Total derivative liability	$	(459	)	$	(2,326	)

      There was no hedge ineffectiveness for the three and six months ended June 30, 2006, respectively. Approximately $1.8 million and $1.9 million of interest income (net of taxes) were reclassified to interest expense from other comprehensive income during the three and six months ended June 30, 2006, respectively. We estimate that approximately $8.1 million of net derivative income (net of taxes) included in other comprehensive income will be reclassified into earnings within the next 12 months. These gains will partially offset the higher interest payments recorded on our variable rate debt.

      We are exposed to market risk under these arrangements due to the possibility of interest rates on the credit facilities falling below the rates on our interest rate swap agreements. Credit risk under these arrangements is remote because the counterparties to our interest rate swap agreements are major financial institutions.

      Guarantor Information — On May 17, 2006 we issued $500 million aggregate principal amount of 7.0% senior notes. The senior notes are unsecured obligations and are fully and unconditionally guaranteed by substantially all of our wholly-owned U.S. subsidiaries other than our receivables securitization subsidiaries.

-15-

      The following condensed consolidating financial statements present the financial position, results of operations and cash flows of Dean Foods (“Parent”), the subsidiary guarantors of the senior notes and separately the combined results of the subsidiaries that are not a party to the guarantees. The non-guarantor subsidiaries reflect our foreign subsidiary operations in addition to our three receivables securitization subsidiaries. We do not allocate interest expense from the receivables-backed facility to the three receivables securitization subsidiaries. Therefore, the interest costs related to this facility are reflected within the guarantor financial information presented.

			Condensed Consolidating Balance Sheet as of June 30, 2006
								Non-
					Guarantor			Guarantor					Consolidated
			Parent		Entities			Subsidiaries		Eliminations			Totals
			(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	128	$	25,149		$	5,101	$	—		$	30,378
	Receivables, net			17		48,830			650,765		—			699,612
	Intercompany receivables			172,339		2,229,459			389,193		(2,790,991	)		—
	Other current assets			91,949		462,607			20		—			554,576
		Total current assets		264,433		2,766,045			1,045,079		(2,790,991	)		1,284,566
Property, plant and equipment, net				1,616		1,761,018			17,716		—			1,780,350
Goodwill				—		2,932,363			91		—			2,932,454
Identifiable intangible and other assets				72,242		596,024			4		—			668,270
Investment in subsidiaries				6,349,198		—			—		(6,349,198	)		—
Assets of discontinued operations				—		—			266,527		—			266,527
		Total	$	6,687,489	$	8,055,450		$	1,329,417	$	(9,140,189	)	$	6,932,167
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	39,567	$	737,874		$	281	$	—		$	777,722
	Income taxes payable			233,781		(224,534	)		123		—			9,370
	Intercompany notes			1,739,793		561,295			489,903		(2,790,991	)		—
	Current portion of long-term debt			168,750		13,400			—		—			182,150
		Total current liabilities		2,181,891		1,088,035			490,307		(2,790,991	)		969,242
Long-term debt				2,128,593		572,246			493,200		—			3,194,039
Other long-term liabilities				448,288		267,351			—		—			715,639
Liabilities of discontinued operations				—		—			124,530		—			124,530
Total stockholders’ equity				1,928,717		6,127,818			221,380		(6,349,198	)		1,928,717
		Total	$	6,687,489	$	8,055,450		$	1,329,417	$	(9,140,189	)	$	6,932,167

-16-

			Condensed Consolidating Balance Sheet as of December 31, 2005
								Non-
					Guarantor			Guarantor					Consolidated
			Parent		Entities			Subsidiaries		Eliminations			Totals
			(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	249	$	18,677		$	5,530	$	—		$	24,456
	Receivables, net			21		41,962			776,448		—			818,431
	Intercompany receivables			285,354		2,217,898			373,488		(2,876,740	)		—
	Other current assets			106,684		451,378			244		—			558,306
		Total current assets		392,308		2,729,915			1,155,710		(2,876,740	)		1,401,193
Property, plant and equipment, net				613		1,761,208			14,980		—			1,776,801
Goodwill				—		2,922,849			91		—			2,922,940
Identifiable intangible and other assets				54,468		593,746			9		—			648,223
Investment in subsidiaries				6,101,994		—			—		(6,101,994	)		—
Assets of discontinued operations				—		—			301,727		—			301,727
		Total	$	6,549,383	$	8,007,718		$	1,472,517	$	(8,978,734	)	$	7,050,884
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	55,354	$	870,336		$	377	$	—		$	926,067
	Income taxes payable			233,928		(199,518	)		131		—			34,541
	Intercompany notes			1,674,132		658,512			544,096		(2,876,740	)		—
	Current portion of long-term debt			56,250		4,465			4,611		—			65,326
		Total current liabilities		2,019,664		1,333,795			549,215		(2,876,740	)		1,025,934
Long-term debt				2,202,350		570,772			548,400		—			3,321,522
Other long-term liabilities				425,156		250,030			—		—			675,186
Liabilities of discontinued operations				—		—			126,029		—			126,029
Total stockholders’ equity				1,902,213		5,853,121			248,873		(6,101,994	)		1,902,213
		Total	$	6,549,383	$	8,007,718		$	1,472,517	$	(8,978,734	)	$	7,050,884

-17-

		Condensed Consolidating Statements of Income
		for the Three Months Ended June 30, 2006
								Non-
					Guarantor			Guarantor						Consolidated
		Parent			Entities			Subsidiaries			Eliminations			Totals
		(In thousands)
Net sales		$	—		$	2,476,277		$	1,607		$	—		$	2,477,884
Cost of sales			—			1,793,278			1,277			—			1,794,555
Gross profit			—			682,999			330			—			683,329
	Selling and distribution		—			408,697			146			—			408,843
	Other operating expense		802			102,164			231			—			103,197
	Interest (income) expense		30,736			18,694			(662	)		—			48,768
	Other (income) expense, net		—			(479	)		393			—			(86	)
	Income from subsidiaries		(154,145	)		—			—			154,145			—
Income (loss) from continuing operations before income taxes			122,607			153,923			222			(154,145	)		122,607
Income taxes			47,812			59,509			73			(59,582	)		47,812
Income (loss) from continuing operations			74,795			94,414			149			(94,563	)		74,795
Loss from discontinued operations, net of tax			—			(226	)		(45,701	)		—			(45,927	)
Net income (loss)		$	74,795		$	94,188		$	(45,552	)	$	(94,563	)	$	28,868

		Condensed Consolidating Statements of Income
		for the Three Months Ended June 30, 2005
								Non-
					Guarantor			Guarantor						Consolidated
		Parent			Entities			Subsidiaries			Eliminations			Totals
		(In thousands)
Net sales		$	—		$	2,513,506		$	1,624		$	—		$	2,515,130
Cost of sales			—			1,866,592			1,303			—			1,867,895
Gross profit			—			646,914			321			—			647,235
	Selling and distribution		—			386,239			144			—			386,383
	Other operating expense		(75	)		100,828			366			—			101,119
	Interest expense		18,247			20,262			116			—			38,625
	Other (income) expense, net		—			(413	)		208			—			(205	)
	Income from subsidiaries		(139,485	)		—			—			139,485			—
Income (loss) from continuing operations before income taxes			121,313			139,998			(513	)		(139,485	)		121,313
Income taxes			47,287			54,070			(192	)		(53,878	)		47,287
Income (loss) from continuing operations			74,026			85,928			(321	)		(85,607	)		74,026
Income (loss) from discontinued operations, net of tax			(670	)		7,815			455			—			7,600
Net income (loss)		$	73,356		$	93,743		$	134		$	(85,607	)	$	81,626

-18-

		Condensed Consolidating Statements of Income
		for the Six Months Ended June 30, 2006
								Non-
					Guarantor			Guarantor						Consolidated
		Parent			Entities			Subsidiaries			Eliminations			Totals
		(In thousands)
Net sales		$	—		$	4,983,883		$	3,042		$	—		$	4,986,925
Cost of sales			—			3,650,246			2,382			—			3,652,628
Gross profit			—			1,333,637			660			—			1,334,297
	Selling and distribution		—			813,301			309			—			813,610
	Other operating expense		2,379			208,458			464			—			211,301
	Interest (income) expense		59,663			37,377			(736	)		—			96,304
	Other (income) expense, net		(10	)		(714	)		738			—			14
	Income from subsidiaries		(275,100	)		—			—			275,100			—
Income (loss) from continuing operations before income taxes			213,068			275,215			(115	)		(275,100	)		213,068
Income taxes			83,579			106,498			(60	)		(106,438	)		83,579
Income (loss) from continuing operations			129,489			168,717			(55	)		(168,662	)		129,489
Loss from discontinued operations, net of tax			—			(226	)		(47,603	)		—			(47,829	)
Net income (loss)		$	129,489		$	168,491		$	(47,658	)	$	(168,662	)	$	81,660

		Condensed Consolidating Statements of Income
		for the Six Months Ended June 30, 2005
								Non-
					Guarantor			Guarantor						Consolidated
		Parent			Entities			Subsidiaries			Eliminations			Totals
		(In thousands)
Net sales		$	—		$	4,986,904		$	2,797		$	—		$	4,989,701
Cost of sales			—			3,729,041			2,202			—			3,731,243
Gross profit			—			1,257,863			595			—			1,258,458
	Selling and distribution		—			774,047			266			—			774,313
	Other operating expense		58			200,574			287			—			200,919
	Interest expense		36,804			39,937			1,103			—			77,844
	Other (income) expense, net		—			(488	)		206			—			(282	)
	Income from subsidiaries		(242,526	)		—			—			242,526			—
Income (loss) from continuing operations before income taxes			205,664			243,793			(1,267	)		(242,526	)		205,664
Income taxes			80,946			94,791			(476	)		(94,315	)		80,946
Income (loss) from continuing operations			124,718			149,002			(791	)		(148,211	)		124,718
Income (loss) from discontinued operations, net of tax			(670	)		18,151			896			—			18,377
Net income (loss)		$	124,048		$	167,153		$	105		$	(148,211	)	$	143,095

-19-

		Condensed Consolidating Statements of Cash Flows
		for the Six Months Ended June 30, 2006
								Non-
					Guarantor			Guarantor			Consolidated
		Parent			Entities			Subsidiaries			Totals
		(In thousands)
Net cash provided by (used in) operating activities		$	(120,373	)	$	259,517		$	123,735		$	262,879
	Additions to property, plant and equipment		(1,069	)		(109,167	)		(3,333	)		(113,569	)
	Cash outflows for acquisitions and investments		(10,960	)		—			—			(10,960	)
	Proceeds from sale of fixed assets		—			3,404			—			3,404
	Other		—			—			(9,505	)		(9,505	)
Net cash used in investing activities			(12,029	)		(105,763	)		(12,838	)		(130,630	)
	Proceeds from issuance of debt		498,020			—			—			498,020
	Repayment of debt		(459,300	)		(4,947	)		(59,811	)		(524,058	)
	Payment of deferred financing costs		(6,561	)		—			—			(6,561	)
	Issuance of common stock, net of expenses		10,052			—			—			10,052
	Tax savings on share-based compensation		24,044			—			—			24,044
	Redemption of common stock		(135,679	)		—			—			(135,679	)
	Other		—			—			7,855			7,855
Net cash used in financing activities			(69,424	)		(4,947	)		(51,956	)		(126,327	)
Net change in intercompany balances			201,705			(142,335	)		(59,370	)		—
Increase (decrease) in cash and cash equivalents			(121	)		6,472			(429	)		5,922
Cash and cash equivalents, beginning of period			249			18,677			5,530			24,456
Cash and cash equivalents, end of period		$	128		$	25,149		$	5,101		$	30,378

-20-

		Condensed Consolidating Statements of Cash Flows
		for the Six Months Ended June 30, 2005
								Non-
					Guarantor			Guarantor			Consolidated
		Parent			Entities			Subsidiaries			Totals
		(In thousands)
Net cash provided by (used in) operating activities		$	(34,934	)	$	363,635		$	32,711		$	361,412
	Additions to property, plant and equipment		(299	)		(129,775	)		(522	)		(130,596	)
	Cash outflows for acquisitions and investments		(1,296	)		—			—			(1,296	)
	Proceeds from sale of fixed assets		—			3,081			2,200			5,281
	Other		—			(7,816	)		(13,893	)		(21,709	)
Net cash used in investing activities			(1,595	)		(134,510	)		(12,215	)		(148,320	)
	Proceeds from issuance of debt		—			—			1,400			1,400
	Repayment of debt		(178,750	)		(106,863	)		(2,668	)		(288,281	)
	Payment of deferred financing costs		(3,281	)		—			—			(3,281	)
	Issuance of common stock, net of expenses		38,873			—			—			38,873
	Tax savings on share-based compensation		12,697			—			—			12,697
	Other		—			11,360			17,807			29,167
Net cash provided by (used in) financing activities			(130,461	)		(95,503	)		16,539			(209,425	)
Net change in intercompany balances			172,514			(137,339	)		(35,175	)		—
Increase (decrease) in cash and cash equivalents			5,524			(3,717	)		1,860			3,667
Cash and cash equivalents, beginning of period			174			24,326			857			25,357
Cash and cash equivalents, end of period		$	5,698		$	20,609		$	2,717		$	29,024

6. Common Stock and Share-Based Compensation

      Under our share-based long-term incentive compensation plans (including inducement grants to newly-hired employees) we grant stock options and restricted stock units to certain employees and directors. Non-employee directors also can elect to receive their compensation in the form of restricted stock in lieu of cash.

      Stock Options — Under the terms of our stock option plans, employees and non-employee directors may be granted options to purchase our stock at a price equal to the market price on the date the option is granted. Employee options vest 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. All unvested options vest immediately upon a change of control. Each non-employee director receives an immediately vested option to purchase 7,500 shares of common stock on June 30 of each year.

      We recognize share-based compensation expense for stock options ratably over the vesting period. The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model, using the following assumptions:

	Six Months	Six Months
	Ended	Ended
	June 30, 2006	June 30, 2005
Expected volatility	25%	25%
Expected dividend yield	0%	0%
Expected option term	4.5 years	4.5 years
Risk-free rate of return	4.28 to 5.10%	3.63 to 4.26%

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      The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to contractual terms (generally 10 years), vesting schedules and expectations of future employee and director behavior. Expected stock price volatility is based on a combination of historical volatility of the Company’s stock and expectations with regard to future volatility. The risk-free rates are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. Historically, we have not paid dividends and have no current intent to change such practice.

      The following table summarizes stock option activity during the first six months of 2006:

					Weighted		Weighted		Aggregate
					Average		Average		Intrinsic
		Options			Exercise Price		Contractual Life		Value
Options outstanding at December 31, 2005			17,859,283		$	18.87
	Options granted during the first six months		2,605,305			37.69
	Options canceled or forfeited during the first six months(1)		(609,616	)		15.04
	Options exercised during the first six months		(3,114,454	)		14.46
Options outstanding at June 30, 2006			16,740,518			22.76		6.54	$	243,107,090
Options exercisable at June 30, 2006			11,863,116			18.48		5.55	$	222,005,804

(1)  Pursuant to the terms of our stock option plans, options that are canceled or forfeited become available for future grants.

      The weighted-average grant date fair value of options granted during the six months ended June 30, 2006 and 2005 was $10.97 per share and $7.71 per share, respectively, and the total intrinsic value of options exercised during the same periods was $73.2 million and $35.1 million, respectively. The fair value of shares vested during the six months ended June 30, 2006 and 2005 was $22.8 million and $40.4 million, respectively.

      During the three months ended June 30, 2006 and 2005, we recognized stock option expense of $6.0 million and $6.7 million, respectively, and an income tax benefit related to stock option expense of $2.0 million and $1.7 million, respectively. During the first six months of 2006 and 2005, we recognized stock option expense of $11.0 million and $12.9 million, respectively, and an income tax benefit related to the stock option expense of $4.3 million and $3.2 million, respectively.

      During the first six months of 2006, cash received from stock option exercises was $27.7 million and the total tax benefit for tax deductions to be realized for these option exercises was $31.7 million. In addition, we received 610,757 shares of common stock in lieu of cash for stock option exercises.

      At June 30, 2006, there was $34.3 million of total unrecognized stock option expense, all of which is related to nonvested awards. This compensation expense is expected to be recognized over the weighted-average remaining period of 1.2 years.

      Stock Units — We issue restricted stock units to certain senior employees and non-employee directors as part of our long-term incentive program. A stock unit represents the right to receive one share of common stock in the future. Stock units have no exercise price. Each employee’s stock unit grant typically vests ratably over five years, subject to certain accelerated vesting provisions based primarily on our stock price. Stock units granted to non-employee directors vest ratably over three years. All unvested stock units

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vest immediately upon a change of control. The following table summarizes stock unit activity during the first six months of 2006:

		Employees			Directors			Total
Stock units outstanding at December 31, 2005			825,248			67,774			893,022
	Stock units issued during the first six months		443,750			25,500			469,250
	Shares issued during first six months upon vesting of stock units		(117,801	)		(21,048	)		(138,849	)
	Stock units cancelled or forfeited during the first six months(1)		(94,487	)		—			(94,487	)
Stock units outstanding at June 30, 2006			1,056,710			72,226			1,128,936
Weighted average grant date fair value		$	31.69		$	35.47		$	31.87

(1)  Pursuant to the terms of our stock unit plans, stock units that are canceled or forfeited become available for future grants.

      During the three months ended June 30, 2006 and 2005, we recognized stock unit expense of $4.9 million and $6.0 million, respectively, and an income tax benefit related to stock unit expense of $1.8 million and $1.2 million, respectively. Our expense for the three months ended June 30, 2006 and 2005 included $2.6 million and $3.9 million, respectively, related to the accelerated vesting of certain stock units. During the first six months of 2006 and 2005, we recognized stock unit expense of $9.2 million and $8.3 million, respectively, and an income tax benefit related to the stock unit expense of $3.2 million and $2.1 million, respectively. Our expense for the six months ended June 30, 2006 and 2005 included $4.7 million and $3.9 million, respectively, related to the accelerated vesting of certain stock units.

      The weighted-average grant date fair value of stock units granted during the six months ended June 30, 2006 and 2005 was $37.49 per share and $27.79 per share, respectively. At June 30, 2006, there was $26.3 million of total unrecognized stock unit expense, all of which is related to nonvested awards. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 3.9 years.

      Restricted Stock — We offer our non-employee directors the option to receive their compensation for services rendered in either cash or shares of restricted stock. Shares of restricted stock vest one-third on grant, one-third on the first anniversary of grant and one-third on the second anniversary of grant. The following table summarizes restricted stock activity during the first six months of 2006:

				Weighted-
				Average Grant
	Shares			Date Fair Value
Nonvested at December 31, 2005		29,516		$	35.27
Restricted shares granted during the first six months		14,805			38.02
Restricted shares vested during the first six months		(16,840	)		35.70
Nonvested at June 30, 2006		27,481			36.49

      Stock Repurchases — During the first six months of 2006, we incurred approximately $135.7 million, including commissions and fees, to repurchase 3,737,200 shares of our common stock for an average price of $36.31 per share. The repurchases were funded using borrowings under our senior credit facility and cash flow from operations.

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7. 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 outstanding 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				Six Months Ended
			June 30				June 30
			2006		2005		2006		2005
			(In thousands, except share data)
Basic EPS computation:
	Numerator:
		Income from continuing operations	$	74,795	$	74,026	$	129,489	$	124,718
	Denominator:
		Average common shares		135,037,233		150,833,996		135,103,306		150,330,585
		Basic EPS from continuing operations	$	0.55	$	0.49	$	0.96	$	0.83
Diluted EPS computation:
	Numerator:
		Income from continuing operations	$	74,795	$	74,026	$	129,489	$	124,718
	Denominator:
		Average common shares — basic		135,037,233		150,833,996		135,103,306		150,330,585
		Stock option conversion		5,126,554		5,216,310		5,630,865		4,954,320
		Stock units		269,973		1,169,492		370,483		1,157,461
		Average common shares — diluted		140,433,760		157,219,798		141,104,654		156,442,366
		Diluted EPS from continuing operations	$	0.53	$	0.47	$	0.92	$	0.80

8. Comprehensive Income (Loss)

      The components of comprehensive income (loss) are summarized below.

		Three Months Ended						Six Months Ended
		June 30						June 30
		2006			2005			2006			2005
		(In thousands)
Net income		$	28,868		$	81,626		$	81,660		$	143,095
Other comprehensive income (loss):
	Cumulative translation adjustment		7,724			(12,955	)		11,198			(23,918	)
	Change in fair value of derivative instruments, net of tax		7,815			(1,276	)		16,834			1,814
	Amounts reclassified to income statement related to hedging activities, net of tax		(1,808	)		2,382			(1,867	)		5,409
	Minimum pension liability adjustment, net of tax		—			(686	)		—			(1,792	)
			13,731			(12,535	)		26,165			(18,487	)
Comprehensive income		$	42,599		$	69,091		$	107,825		$	124,608

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9. Employee Retirement and Postretirement Benefits

      Defined Benefit Plans — The benefits under our defined benefit plans are based on years of service and employee compensation.

		Three Months						Six Months
		Ended						Ended
		June 30						June 30
		2006			2005			2006			2005
		(In thousands)
Components of net period cost:
	Service cost	$	576		$	727		$	1,265		$	1,454
	Interest cost		4,452			4,251			8,285			8,502
	Expected return on plan assets		(4,048	)		(3,925	)		(7,891	)		(7,850	)
Amortizations:
	Unrecognized transition obligation		27			27			55			54
	Prior service cost		269			157			425			314
	Unrecognized net loss		791			753			1,722			1,506
	Effect of settlement		(409	)		887			175			1,774
Net periodic benefit cost		$	1,658		$	2,877		$	4,036		$	5,754

      We expect to contribute $25.8 million to the pension plans during 2006.

      Postretirement Benefits — Certain of our subsidiaries provide healthcare benefits to certain retirees who are covered under specific group contracts.

		Three Months						Six Months
		Ended						Ended
		June 30						June 30
		2006			2005			2006			2005
		(In thousands)
Components of net period cost:
	Service cost	$	230		$	251		$	531		$	502
	Interest cost		417			277			750			554
Amortizations:
	Prior service cost		(16	)		(18	)		(34	)		(35	)
	Unrecognized net loss		380			71			479			142
Net periodic benefit cost		$	1,011		$	581		$	1,726		$	1,163

      We expect to contribute $2.6 million to the postretirement health plans during 2006.

10. Facility Closing And Reorganization Costs

      Facility Closing and Reorganization Costs — We recorded net facility closing and reorganization costs of $3.0 million and $2.4 million during the three months ended June 30, 2006 and 2005, respectively, and $7.4 million and $8.8 million during the six months ended June 30, 2006 and 2005, respectively.

      The charges recorded during 2006 are primarily related to the closing of a Dairy Group plant in Union, New Jersey and the reorganization of WhiteWave Foods Company.

      We expect to incur additional charges related to these restructuring plans of approximately $4.6 million, including approximately $100,000 in work force reduction costs and approximately $4.5 million in shutdown and other costs. Substantially all of these additional charges are expected to be incurred by December 2006.

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

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

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

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

•  Costs associated with the reorganization of WhiteWave Foods Company supply chain and distribution activities, including termination of certain contractual agreements; and

•  Write-downs of property, plant and equipment and other assets, primarily for asset impairments as a result of facilities that are no longer used in operations. The impairments relate primarily to owned buildings, land and equipment at the facilities, which are written down to their estimated fair value and held for sale. 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 June 30, 2006 was approximately $14.0 million. We are marketing these properties for sale.

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

      Activity for the first six months of 2006 is summarized below:

		Accrued								Accrued
		Charges at								Charges at
		December 31,		Charges						June 30,
		2005		(Reversals)			Payments			2006
		(In thousands)
Cash charges:
	Workforce reduction costs	$	8,302	$	945		$	(4,957	)	$	4,290
	Shutdown costs		209		3,540			(3,724	)		25
	Lease obligations after shutdown		2,072		(30	)		(946	)		1,096
	Settlement of contracts		724		45			(769	)		—
	Other		470		964			(1,215	)		219
Subtotal		$	11,777		5,464		$	(11,611	)	$	5,630
Noncash charges:
	Write-down of assets				1,888
Total charges				$	7,352

      Acquired Facility Closing and Other Exit Costs — As part of our purchase price allocations, we accrue costs from time to time pursuant to plans to exit certain facilities and activities of acquired businesses in order to rationalize production and reduce costs and inefficiencies. During 2004, we accrued costs to close two Dairy Group facilities acquired in 2003 and the Horizon Organic Farm and Education Center acquired in 2004, as well as to exit certain acquired contractual obligations.

      The principal components of the plans include the following:

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

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

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

      Activity with respect to these acquisition liabilities during the first six months of 2006 is summarized below:

	Accrued					Accrued
	Charges at					Charges at
	December 31,					June 30,
	2005		Payments			2006
	(In thousands)
Workforce reduction costs	$	366	$	(155	)	$	211
Shutdown and exit costs		40,479		(38,816	)		1,663
Total	$	40,845	$	(38,971	)	$	1,874

11. Commitments and Contingencies

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

      Contingent Obligations Related to Milk Supply Arrangements — On December 21, 2001, in connection with our acquisition of the former Dean Foods Company, we purchased Dairy Farmers of America’s (“DFA”) 33.8% interest in our Dairy Group. In connection with that transaction, we entered into two agreements with DFA designed to ensure that DFA has the opportunity to continue to supply raw milk to certain of our facilities, or be paid for the loss of that business. One such agreement is a promissory note with a 20-year term that 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 materially breach or terminate one of our milk supply agreements with DFA without renewal or replacement. Otherwise, the note will expire in 2021, without any obligation to pay any portion of the principal or interest. Payments made under the note, if any, would be expensed as incurred. The other agreement would require us to pay damages to DFA if we fail to offer DFA the right to supply milk to certain facilities that we acquired as part of the former Dean Foods after the pre-existing agreements with certain other suppliers or producers expire.

      Insurance — We retain selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses. Many of these potential losses are covered under conventional insurance programs with third party carriers with high deductible limits. In other areas, we are self-insured with stop-loss coverages. These deductibles range from $350,000 for medical claims to $2.0 million for casualty claims. We believe we have established adequate reserves to cover these claims.

      During 2005, we experienced operational disruptions in our Dairy Group segment caused by Hurricanes Katrina and Rita. Our insurance policies cover a portion of our business interruption losses for 12 months following the restoration of our property. During the first quarter of 2006, we received approximately $3.1 million in settlement of a portion of our business interruption claim for the period of August 29, 2005 through December 31, 2005. The insurance proceeds are recorded within cost of sales. We will continue to submit additional business interruption claims during 2006, and we will recognize these amounts upon settlement of the claims.

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      Leases and Purchase Obligations — 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 one 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.

      We have entered into various contracts obligating us to purchase minimum quantities of raw materials used in our production processes, including organic soybeans and organic raw milk. We enter into these contracts from time to time to ensure a sufficient supply of raw ingredients. In addition, we have contractual obligations to purchase various services that are part of our production process.

      Litigation, Investigations and Audits — We are party from time to time to certain claims, litigation, audits and investigations. We believe that we have established adequate reserves to satisfy any probable liability we may have under all such claims, litigations, audits and investigations that are currently pending. 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.

12. Business and Geographic Information and Major Customers

      We currently have two reportable segments: the Dairy Group and WhiteWave Foods Company.

      Our Dairy Group segment is our largest segment. It manufactures, markets and distributes a wide variety of branded and private label dairy case products, such as milk, cream, ice cream, cultured dairy products and juices, to retailers, distributors, foodservice outlets, schools and governmental entities across the United States.

      Our WhiteWave Foods Company segment manufactures, develops, markets and sells a variety of nationally branded soy, dairy and dairy-related products, such as Silk^® soymilk and cultured soy products, Horizon Organic^® dairy products, International Delight^® coffee creamers, LAND O’LAKES^® creamer and fluid dairy products and Rachel’s Organic^® dairy products. WhiteWave Foods Company sells its products to a variety of customers, including grocery stores, club stores, natural foods stores, mass merchandisers, convenience stores and foodservice outlets. Rachel’s Organic manufactures and distributes organic dairy products in the United Kingdom under the Rachel’s Organic and Divine Rice^® brand names. A portion of our WhiteWave Foods Company’s products (approximately $27.1 million and $26.4 million for the quarter ended June 30, 2006 and 2005, respectively, and $54.7 million and $53.8 million for the six months ended June 30, 2006 and 2005, respectively) are sold through the Dairy Group’s distribution network. Those sales, together with their related costs, are included in WhiteWave Foods Company for segment reporting purposes.

      We evaluate the performance of our segments based on operating profit or loss before gains and losses on the sale of assets, facility closing and reorganization costs and foreign exchange gains and losses. In addition, the expense related to share-based compensation has not been allocated to our segments and is reflected entirely within the caption “Corporate”. Therefore, the measure of segment profit or loss presented below is before such items. The accounting policies of our segments are the same as those described in the summary of significant accounting policies set forth in Note 1 to our 2005 Consolidated Financial Statements contained in our 2005 Annual Report on Form 10-K.

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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						Six Months Ended
			June 30						June 30
			2006			2005			2006			2005
			(In thousands)
Net sales to external customers:
	Dairy Group		$	2,170,691		$	2,227,602		$	4,372,758		$	4,420,676
	WhiteWave Foods Company			307,193			287,528			614,167			569,025
		Total	$	2,477,884		$	2,515,130		$	4,986,925		$	4,989,701
Intersegment sales:
	Dairy Group		$	3,250		$	16,177		$	6,673		$	36,476
	WhiteWave Foods Company			22,909			24,245			46,031			50,041
		Total	$	26,159		$	40,422		$	52,704		$	86,517
Operating income:
	Dairy Group		$	180,478		$	171,441		$	333,225		$	320,392
	WhiteWave Foods Company			29,978			28,626			56,076			41,206
	Corporate			(36,217	)		(37,897	)		(72,563	)		(69,544	)
	Segment operating income			174,239			162,170			316,738			292,054
	Facility closing and reorganization costs			(2,950	)		(2,437	)		(7,352	)		(8,828	)
		Total	$	171,289		$	159,733		$	309,386		$	283,226

			June 30,		December 31,
			2006		2005
			(In thousands)
Assets:
	Dairy Group		$	5,077,189	$	5,197,092
	WhiteWave Foods Company			1,332,714		1,308,388
	Corporate			255,737		243,677
	Discontinued operations			266,527		301,727
		Total	$	6,932,167	$	7,050,884

Geographic Information —

		Net Sales
		Three Months Ended				Six Months Ended				Long-Lived Assets
		June 30				June 30
										June 30,		December 31,
		2006		2005		2006		2005		2006		2005
		(In thousands)								(In thousands)
United States		$	2,456,144	$	2,498,030	$	4,944,171	$	4,956,667	$	5,371,203	$	5,338,432
Europe			21,740		17,100		42,754		33,034		200,503		235,485
	Total	$	2,477,884	$	2,515,130	$	4,986,925	$	4,989,701	$	5,571,706	$	5,573,917

      Significant Customers — Our WhiteWave Foods Company and Dairy Group segments each had a single customer that represented greater than 10% of their sales in the first six months of 2006. Approximately 17.3% of our consolidated net sales in the first six months of 2006 were to this same customer.

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13. Subsequent Events

      Subsequent to June 30, 2006, we entered into an agreement to sell our Iberian operations. We expect cash proceeds of approximately $110 million, net of debt to be assumed by the purchaser and transaction costs. Subject to the timing of regulatory approval and typical closing conditions, we expect the transaction to be completed prior to the end of the year. Under the agreement we will retain certain known contingent obligations. No significant gain or loss is expected on the transaction.

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

Business Overview

      We are a leading food and beverage company. Our Dairy Group is the largest processor and distributor of milk and various other dairy products in the United States. The Dairy Group manufactures and sells its products under a variety of local and regional brand names and under private labels. Our WhiteWave Foods Company segment manufactures, markets and sells a variety of well known soy, dairy and dairy-related nationally branded products such as: Silk^® soymilk and cultured soy products, Horizon Organic^® dairy products, International Delight^® coffee creamers, and LAND O’ LAKES^® creamers and fluid dairy products.

      Dairy Group — Our Dairy Group segment is our largest segment, with approximately 88% of our consolidated sales in the six months ended June 30, 2006. Our Dairy Group manufactures, markets and distributes a wide variety of branded and private label dairy case products, such as milk, cream, ice cream, cultured dairy products and juices to retailers, distributors, foodservice outlets, schools and governmental entities across the United States. Due to the perishable nature of the Dairy Group’s products, our Dairy Group delivers the majority of its products directly to its customers’ stores in refrigerated trucks or trailers that we own or lease. This form of delivery is called a “direct store delivery” or “DSD” system and we believe we have one of the most extensive refrigerated DSD systems in the United States. The Dairy Group sells its products primarily on a local or regional basis through its local and regional sales forces, although some national customer relationships are coordinated by the Dairy Group’s corporate sales department. Most of the Dairy Group’s customers, including its largest customer, purchase products from the Dairy Group either by purchase order or pursuant to contracts that are generally terminable at will by the customer.

      WhiteWave Foods Company — WhiteWave Foods Company manufactures, develops, markets and sells a variety of nationally-branded soy, dairy and dairy-related products, such as Silk soymilk and cultured soy products; Horizon Organic dairy and other products; International Delight coffee creamers; LAND O’LAKES creamers and fluid dairy products and Rachel’s Organic dairy products. WhiteWave Foods Company also sells The Organic Cow^® organic dairy products; White Wave^® and Tofu Town^® branded tofu and Hershey’s^® milks and milkshakes. We license the LAND O’LAKES and Hershey’s names from third parties.

Recent Developments

Discontinued Operations

      Our international operations include the manufacture and distribution of private label and branded milk across Spain and Portugal (Iberia). We entered the Iberian market in February 2000 prior to the merger of Suiza Foods Corporation and Dean Foods Company, which occurred in December 2001, when we believed that opportunities for domestic expansion appeared limited. With the emergence of the WhiteWave Foods Company platform and additional growth opportunities within our domestic Dairy Group, our primary focus has been on our domestic operations. Accordingly, with the change in our strategic focus, we concluded that there are other organizations that may be better positioned to take advantage of the Iberian market. In the second quarter of 2006, we committed to a plan to sell our Iberian operations with the expectation that such sale could be completed within one year. As a result, we have revised all reportable periods to reclassify these operations as discontinued.

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      As required by SFAS No. 142, “Goodwill and Other Intangible Assets”, we performed an interim test for goodwill impairment as of June 30, 2006 and concluded that the carrying value of the goodwill may not be recoverable. Accordingly, we recognized an estimated non-cash impairment charge of $46.4 million, net of an income tax benefit of $8.1 million.

      We recently entered into an agreement to sell our Iberian operations. We expect cash proceeds of approximately $110 million, net of debt to be assumed by the purchaser and transaction costs. Subject to the timing of regulatory approval and typical closing conditions, we expect the transaction to be completed prior to the end of the year. No significant gain or loss is expected to be recognized upon completion of the transaction.

      On June 27, 2005, we completed the spin-off (“Spin-off”) of our indirect, majority-owned subsidiary TreeHouse Foods, Inc. (“TreeHouse”). Immediately prior to the Spin-off, we transferred to TreeHouse (1) the businesses previously conducted by our Specialty Foods Group segment, (2) the Mocha Mix^® and Second Nature^® businesses previously conducted by WhiteWave Foods Company, and (3) the foodservice salad dressings businesses previously conducted by the Dairy Group and WhiteWave Foods Company. The Spin-off was effected by means of a share dividend of the TreeHouse common stock held by us to our stockholders of record on June 20, 2005 (the “Record Date”). In the distribution, our stockholders received one share of TreeHouse common stock for every five shares of our common stock held by them on the Record Date.

      On August 22, 2005, we completed the sale of certain tangible and intangible assets related to the production and distribution of Marie’s dips and dressings and Dean’s dips. We also licensed the Dean trademark to Ventura Foods for use on certain non-dairy dips. The sales price was approximately $194 million.

      Both the TreeHouse Spin-off and the Marie’s dips and dressings and Dean’s dips transactions were part of our strategy to focus on our core dairy and branded businesses. Prior periods have been revised to remove the results of our former Specialty Foods Group segment and Mocha Mix, Second Nature and private label dressings businesses and our Marie’s dips and dressings and Dean’s dips businesses, which have been reclassified as discontinued operations.

Management Changes

      On April 27, 2006, we announced Jack F. Callahan Jr. as the Executive Vice President and Chief Financial Officer. He began his employment in May 2006. Previously, Mr. Callahan served as Senior Vice President of Corporate Strategy and Development at PepsiCo, where he oversaw all corporate strategy and merger and acquisition activity.

Facility Closing and Reorganization Activities

      We recorded a total of approximately $7.4 million in facility closing and reorganization costs during the first six months of 2006, related to previously announced plans. We expect to incur additional charges related to these restructuring plans of approximately $4.6 million, primarily in 2006. These charges include the following costs:

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

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

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

•  Costs associated with the reorganization of WhiteWave Foods Company’s supply chain and distribution activities, including termination of certain contractual agreements; and

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

      See Note 10 to our Condensed Consolidated Financial Statements for more information regarding our facility closing and reorganization activities.

Results of Operations

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

			Three Months Ended June 30										Six Months Ended June 30
			2006					2005					2006					2005
			Dollars		Percent			Dollars		Percent			Dollars		Percent			Dollars		Percent
			(Dollars in millions)
Net sales			$	2,477.9		100.0	%	$	2,515.1		100.0	%	$	4,986.9		100.0	%	$	4,989.7		100.0	%
Cost of sales				1,794.6		72.4			1,867.9		74.3			3,652.6		73.2			3,731.2		74.8
Gross profit				683.3		27.6			647.2		25.7			1,334.3		26.8			1,258.5		25.2
Operating costs and expenses:
	Selling and distribution			408.8		16.5			386.4		15.4			813.6		16.3			774.3		15.5
	General and administrative			98.7		4.0			97.2		3.9			201.0		4.0			189.0		3.8
	Amortization of intangibles			1.5		0.1			1.5		—			2.9		0.1			3.2		—
	Facility closing and reorganization costs			3.0		0.1			2.4		—			7.4		0.2			8.8		0.2
		Total operating costs and expenses		512.0		20.7			487.5		19.3			1,024.9		20.6			975.3		19.5
Total operating income			$	171.3		6.9	%	$	159.7		6.4	%	$	309.4		6.2	%	$	283.2		5.7	%

Quarter Ended June 30, 2006 Compared to Quarter Ended June 30, 2005 — Consolidated Results

      Net Sales — Consolidated net sales decreased approximately $37.2 million to $2.48 billion during the second quarter of 2006 from $2.52 billion in the second quarter of 2005. Net sales by segment are shown in the table below.

		Quarter Ended June 30
						$ Increase/			% Increase/
		2006		2005		(Decrease)			(Decrease)
		(Dollars in millions)
Dairy Group		$	2,170.7	$	2,227.6	$	(56.9	)		(2.6	)%
WhiteWave Foods Company			307.2		287.5		19.7			6.8
	Total	$	2,477.9	$	2,515.1	$	(37.2	)		(1.5	)%

      Net sales decreased primarily due to the effects of lower selling prices in our Dairy Group resulting from the pass-through of lower Class I raw skim milk and butterfat costs. This decrease was partly offset by fluid dairy volume growth in our Dairy Group segment and higher selling prices in response to higher commodity costs and overall volume increases at WhiteWave Foods Company. See “— Results by Segment” for more information.

      Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs; labor costs; and plant and equipment costs, including costs to operate and maintain our coolers and freezers. In addition, our Dairy Group includes costs associated with transporting finished products from our manufacturing facilities to our own distribution facilities. Our cost of sales as a percentage of net sales decreased to 72.4% in the second quarter of 2006

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compared to 74.3% in the second quarter of 2005 primarily due to lower raw milk costs in our Dairy Group segment in the second quarter of 2006.

      Operating Costs and Expenses — Our operating expenses increased approximately $24.5 million during the second quarter of 2006 as compared to the same period in the prior year. Our operating expense as a percentage of net sales was 20.7% in the second quarter of 2006 compared to 19.3% during the second quarter of 2005. Operating expenses increased primarily due to an increase in distribution costs of $20.4 million resulting from higher fuel prices and increased volumes, as well as, higher marketing expenses at WhiteWave Foods Company. See “— Results by Segment” for more information.

      Operating Income — Operating income during the second quarter of 2006 was $171.3 million, an increase of $11.6 million from the second quarter of 2005 operating income of $159.7 million. Our operating margin in the second quarter of 2006 was 6.9% compared to 6.4% in the second quarter of 2005. Our operating margin increased primarily as a result of lower raw milk costs.

      Other (Income) Expense — Total other expense increased to $48.7 million in the second quarter of 2006 compared to $38.4 million in the second quarter of 2005. Interest expense increased to $48.8 million in the second quarter of 2006 from $38.6 million in the second quarter of 2005 primarily due to higher average debt balances, higher interest rates and the senior notes offering completed in the second quarter of 2006.

      Income Taxes — Income tax expense was recorded at an effective rate of 39.0% in both the second quarter of 2006 and the second quarter of 2005. Our tax rate in the second quarter of 2006 was impacted by the reclassification of our Iberian operations as discontinued operations and an adjustment to deferred taxes related to a revision in the State of Texas Franchise Tax law enacted during the quarter. In addition, our tax rate varies as the mix of earnings contributed by our various business units changes.

Quarter Ended June 30, 2006 Compared to Quarter Ended June 30, 2005 — Results by Segment

Dairy Group —

      The key performance indicators of our Dairy Group are sales volumes, gross profit and operating income.

	Quarter Ended June 30
	2006					2005
	Dollars		Percent			Dollars		Percent
	(Dollars in millions)
Net sales	$	2,170.7		100.0	%	$	2,227.6		100.0	%
Cost of sales		1,592.9		73.4			1,681.5		75.5
Gross profit		577.8		26.6			546.1		24.5
Operating costs and expenses		397.3		18.3			374.7		16.8
Total segment operating income	$	180.5		8.3	%	$	171.4		7.7	%

      The Dairy Group’s net sales decreased approximately $56.9 million, or 2.6%, in the second quarter of 2006 versus the second quarter of 2005. The change in net sales from the second quarter of 2005 to the second quarter of 2006 was due to the following:

		Dollars			Percent
		(Dollars in millions)
2005 Net sales		$	2,227.6
	Volume		43.6			2.0	%
	Pricing and product mix		(100.5	)		(4.6	)
2006 Net sales		$	2,170.7			(2.6	)%

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      The Dairy Group’s net sales decreased primarily due to the effects of lower selling prices resulting from the pass-through of lower Class I raw skim milk and butterfat costs. In general, we change the prices that we charge our customers for fluid dairy products on a monthly basis, as the costs of our raw materials fluctuate. Class I raw skim milk prices were approximately 21% lower in the second quarter of 2006 compared to the second quarter of 2005. The following table sets forth the average monthly component prices of the Class I “mover” and average monthly Class II minimum prices for raw skim milk and butterfat for the second quarter of 2006 compared to the second quarter of 2005:

	Quarter Ended June 30*
	2006			2005			% Change
Class I raw skim milk mover(3)	$	6.83	(1)	$	8.69	(1)		(21	)%
Class I butterfat mover(3)		1.26	(2)		1.66	(2)		(24	)
Class II raw skim milk minimum(4)		7.03	(1)		7.63	(1)		(8	)
Class II butterfat minimum(4)		1.25	(2)		1.62	(2)		(23	)

*    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 locations. Our actual cost also includes producer premiums, procurement costs and other related charges that vary by location and vendor. Please see “Part I — Item 1. Business — Government Regulation — Milk Industry Regulation” in our Annual Report on Form 10-K for 2005, and “— Known Trends and Uncertainties — Prices of Raw Milk and Other Inputs” in this Quarterly Report for a more complete description of raw milk pricing.

(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 and creamers, ice cream and sour cream.

      These price decreases were partly offset by fluid milk volume increases during the second quarter of 2006. Fluid milk volumes (which represented approximately 67% of the Dairy Group’s sales volume during the quarter) increased approximately 2.1%. We believe the increase in volumes is a result of the superior value and service that we are able to offer our customers as the largest dairy processor in the nation.

      The Dairy Group’s cost of sales as a percentage of net sales decreased to 73.4% in the second quarter of 2006 compared to 75.5% in the second quarter of 2005 primarily due to the decrease in raw milk costs compared to the prior year. This decrease was partly offset by higher resin costs of approximately $3 million during the second quarter of 2006 compared to the second quarter of 2005. Resin is the primary component used in our plastic bottles.

      The Dairy Group’s operating expenses increased approximately $22.6 million to $397.3 million during the second quarter of 2006 compared to $374.7 in the second quarter of 2005, primarily due to a $19.1 million increase in distribution costs. Distribution costs increased as a result of higher fuel prices of approximately $7 million and increased deliveries in our DSD system due to the addition of certain customers and the acquisition of several small distributors.

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WhiteWave Foods Company —

      The key performance indicators of WhiteWave Foods Company are sales dollars, gross profit and operating income.

	Quarter Ended June 30
	2006					2005
	Dollars		Percent			Dollars		Percent
	(Dollars in millions)
Net sales	$	307.2		100.0	%	$	287.5		100.0	%
Cost of sales		201.3		65.5			185.9		64.6
Gross profit		105.9		34.5			101.6		35.4
Operating costs and expenses		75.9		24.7			73.0		25.4
Total segment operating income	$	30.0		9.8	%	$	28.6		10.0	%

      WhiteWave Foods Company’s net sales increased by $19.7 million, or 6.8%, in the second quarter of 2006 versus the second quarter of 2005. The change in net sales from the second quarter of 2005 to the second quarter of 2006 was due to the following:

		Dollars		Percent
		(Dollars in millions)
2005 Net sales		$	287.5
	Volume		6.9		2.4	%
	Pricing and product mix		12.8		4.4
2006 Net sales		$	307.2		6.8	%

      The increase in net sales was primarily due to increased prices in response to higher raw material costs. Volumes increased approximately 2.4% related to the growth of our key brands, particularly Silk and Horizon Organic. Our overall volume growth was significantly impacted by the elimination of certain product offerings in late 2005 and early 2006. Excluding the impact of the elimination of these product offerings, sales volumes grew approximately 7.5% in the second quarter of 2006.

      Cost of sales as a percentage of net sales for WhiteWave Foods Company increased to 65.5% in the second quarter of 2006 from 64.6% in the second quarter of 2005. Cost of goods sold dollars increased approximately $15.4 million primarily due to higher commodity costs, including organic raw milk and sugar, as well as, higher sales volumes. These increases were partly offset by efficiencies we achieved throughout our supply chain including our continued increase of in-house production versus the utilization of third party co-packers.

      Operating expenses increased approximately $2.9 million in the second quarter of 2006 compared to the same period in the prior year primarily due to higher marketing expenses. The increase in marketing expenses primarily relates to our rollout of an updated marketing campaign for Silk^® soymilk in the second quarter of 2006. In addition, distribution costs increased approximately $1.3 million primarily due to higher fuel costs.

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Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005 — Consolidated Results

      Net Sales — Consolidated net sales were consistent at $4.99 billion during the first six months of 2006 and the first six months of 2005. Net sales by segment are shown in the table below.

		Six Months Ended June 30
						$ Increase/			% Increase/
		2006		2005		(Decrease)			(Decrease)
		(Dollars in millions)
Dairy Group		$	4,372.8	$	4,420.7	$	(47.9	)		(1.1	)%
WhiteWave Foods Company			614.1		569.0		45.1			7.9
	Total	$	4,986.9	$	4,989.7	$	(2.8	)		(0.1	)%

      Net sales decreased approximately $2.8 million during the first six months of 2006 compared to the same period in the prior year primarily due to the pass-through of lower Class I raw skim milk costs in our Dairy Group. These price decreases were partly offset by higher pricing at WhiteWave Foods Company in response to higher commodity costs, as well as increased volumes in both segments. See “— Results by Segment” for more information.

      Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs, labor costs, and plant and equipment costs, including costs to operate and maintain our coolers and freezers. In addition, our Dairy Group includes costs associated with transporting finished products from our manufacturing facilities to our own distribution facilities. Our cost of sales as a percentage of net sales decreased to 73.2% in the first six months of 2006 compared to 74.8% in the first six months of 2005 primarily due to lower raw milk costs in our Dairy Group segment and the continued impact of supply chain efficiencies and product rationalization at WhiteWave Foods Company.

      Operating Costs and Expenses — Our operating expenses increased $49.6 million during the first six months of 2006 as compared to the same period in the prior year. Our operating expense as a percentage of net sales was 20.6% in the first six months of 2006 compared to 19.5% during the first six months of 2005. Operating expenses increased primarily due to an (1) increase in distribution costs of $35.4 million related to higher fuel costs and increased volumes; (2) corporate expenses that were approximately $6 million higher primarily related to professional fees in connection with the ongoing cost saving initiatives in our Dairy Group and higher health care costs and (3) increased marketing expenses at WhiteWave Foods Company.

      Operating Income — Our operating margin in the first six months of 2006 was 6.2% compared to 5.7% in the first six months of 2005. Operating income during the first six months of 2006 was $309.4 million, an increase of $26.2 million from operating income of $283.2 million during the first six months of 2005. Operating income increased primarily due to lower raw milk costs in our Dairy Group segment. See “— Results by Segment” for more information.

      Other (Income) Expense — Total other expense increased to $96.3 million in the first six months of 2006 compared to $77.6 million in the first six months of 2005. Interest expense increased to $96.3 million in the first six months of 2006 from $77.8 million in the first six months of 2005 primarily due to higher average debt balances and higher interest rates.

      Income Taxes — Income tax expense was recorded at an effective rate of 39.2% in the first six months of 2006 compared to 39.4% in the first six months of 2005. Our tax rate in the first six months of 2006 was impacted by the reclassification of our Iberian operations as discontinued operations and an adjustment to deferred taxes related to a revision in the State of Texas Franchise Tax law enacted during the second quarter. In addition, our tax rate varies as the mix of earnings contributed by our various business units changes.

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Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005 — Results by Segment

Dairy Group —

      The key performance indicators of our Dairy Group are sales volumes, gross profit and operating income.

	Six Months Ended June 30
	2006					2005
	Dollars		Percent			Dollars		Percent
	(Dollars in millions)
Net sales	$	4,372.8		100.0	%	$	4,420.7		100.0	%
Cost of sales		3,252.9		74.4			3,353.0		75.8
Gross profit		1,119.9		25.6			1,067.7		24.2
Operating costs and expenses		786.7		18.0			747.3		16.9
Total segment operating income	$	333.2		7.6	%	$	320.4		7.3	%

      The Dairy Group’s net sales decreased approximately $47.9 million, or 1.1%, in the first six months of 2006 versus the first six months of 2005. The change in net sales from the first six months of 2005 to the first six months of 2006 was due to the following:

		Dollars			Percent
		(Dollars in millions)
2005 Net sales		$	4,420.7
	Volume		112.2			2.5	%
	Pricing and product mix		(160.1	)		(3.6	)
2006 Net sales		$	4,372.8			(1.1	)%

      The Dairy Group’s net sales decreased primarily due to the effects of lower selling prices resulting from the pass-through of lower Class I raw skim milk and butterfat costs. In general, we change the prices that we charge our customers for fluid dairy products on a monthly basis, as the costs of our raw materials fluctuate. Class I raw skim milk prices were approximately 15% lower in the first six months of 2006 compared to the first six months of 2005. The following table sets forth the average monthly component prices of the Class I “mover” and average monthly Class II minimum prices for raw skim milk and butterfat for the first six months of 2006 compared to the same period in 2005:

	Six Months Ended June 30*
	2006			2005			% Change
Class I raw skim milk mover(3)	$	7.56	(1)	$	8.89	(1)		(15	)%
Class I butterfat mover(3)		1.35	(2)		1.76	(2)		(23	)
Class II raw skim milk minimum(4)		7.53	(1)		7.48	(1)		1
Class II butterfat minimum(4)		1.31	(2)		1.69	(2)		(22	)

* 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 locations. Our actual cost also includes producer premiums, procurement costs and other related charges that vary by location and vendor. Please see “Part I — Item 1. Business — Government Regulation — Milk Industry Regulation” in our Annual Report on Form 10-K for 2005, and “— Known Trends and Uncertainties — Prices of Raw Milk and Other Inputs” in this Quarterly Report for a more complete description of raw milk pricing.

(1)	Prices are per hundredweight.
(2)	Prices are per pound.

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(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 and creamers, ice cream and sour cream.

      The Dairy Group’s sales volumes increased by 2.5% during the first six months of 2006 compared to the first six months of 2005. Fluid milk volumes (which represented approximately 69% of the Dairy Group’s sales volume during the first six months of 2006) increased approximately 2.8% during the first six months of 2006 compared to the same period in the prior year. We believe the increase in volumes is a result of the superior value and service that we are able to offer our customers as the largest dairy processor in the nation.

      The Dairy Group’s cost of sales as a percentage of net sales decreased to 74.4% in the first six months of 2006 compared to 75.8% in the first six months of 2005. Cost of sales dollars decreased $100.1 million primarily due to lower raw milk costs in the first six months of 2006 compared to the same period in the prior year. This decrease was partly offset by higher resin costs which increased by approximately $7 million. Resin is the primary component used in our plastic bottles.

      The Dairy Group’s operating expense as a percentage of net sales increased to 18.0% in the first six months of 2006 from 16.9% in the first six months of 2005. Operating expense dollars increased approximately $39.4 million during the first six months of 2006 compared to the first six months of 2005, primarily due to an increase in distribution costs. Total distribution costs increased $33.7 million primarily as a result of higher fuel prices which impacted distribution costs by approximately $13 million, increased deliveries in our DSD system due to the addition of certain customers and the acquisition of several small distributors in 2006.

WhiteWave Foods Company —

      The key performance indicators of WhiteWave Foods Company are sales dollars, gross profit and operating income.

	Six Months Ended June 30
	2006					2005
	Dollars		Percent			Dollars		Percent
	(Dollars in millions)
Net sales	$	614.1		100.0	%	$	569.0		100.0	%
Cost of sales		399.1		65.0			377.3		66.3
Gross profit		215.0		35.0			191.7		33.7
Operating costs and expenses		158.9		25.9			150.5		26.5
Total segment operating income	$	56.1		9.1	%	$	41.2		7.2	%

      WhiteWave Foods Company’s net sales increased by $45.1 million, or 7.9%, in the first six months of 2006 versus the first six months of 2005. The change in net sales from the first six months of 2005 to the first six months of 2006 was due to the following:

		Dollars		Percent
		(Dollars in millions)
2005 Net sales		$	569.0
	Volume		18.2		3.2	%
	Pricing and product mix		26.9		4.7
2006 Net sales		$	614.1		7.9	%

      The increase in net sales was primarily due to higher pricing in response to increased commodity costs and increased volumes related to the growth of our brands, particularly Silk and Horizon Organic. Our overall volume growth was significantly impacted by the elimination of certain product offerings in late 2005 and early 2006. Excluding the impact of the elimination of these product offerings, sales volumes grew approximately 8.8% in the first six months of 2006.

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      Cost of sales as a percentage of net sales for WhiteWave Foods Company decreased to 65.0% in the first six months of 2006 from 66.3% in the first six months of 2005. Cost of goods sold dollars increased $21.8 million primarily due to increased volumes and higher organic raw milk and sugar costs. These increases were partly offset by our supply chain initiatives and product rationalization, which has resulted in increased efficiencies.

      Operating expenses increased approximately $8.4 million in the first six months of 2006 compared to the same period in the prior year primarily due to higher marketing expenses related to a new marketing campaign for Silk^® soymilk and higher fuel costs.

Liquidity and Capital Resources

Historical Cash Flow

      During the first six months of 2006, we met our working capital needs with cash flow from operations.

      Net cash provided by operating activities from continuing operations was $264.6 million for the first six months of 2006 as contrasted to $333.0 million for the same period in 2005, a decrease of $68.4 million. Net cash provided by operating activities was primarily impacted by changes in operating assets and liabilities, which declined approximately $117.8 million in the first six months of 2006 compared to the first six months of the prior year. The decline primarily relates to changes in working capital balances, lower raw milk costs, payment of annual employee bonuses, a payment made in settlement of contractual obligations under a co-pack agreement entered into prior to our acquisition of an entity and changes in estimated tax payments due in 2006.

      Net cash used in investing activities from continuing operations was $121.1 million in the first six months of 2006 compared to $126.6 million in the first six months of 2005, a decrease of $5.5 million. Our capital expenditures totaled $113.6 million in the first six months of 2006 compared to $130.6 in the first six months of 2005. We used approximately $11.0 million for acquisitions in the first six months of 2006 compared to $1.3 million in the first six months of 2005.

      We repaid a net amount of $26.0 million of debt in the first six months of 2006.

Current Debt Obligations

      The table below summarizes our obligations for indebtedness and purchase and lease obligations at June 30, 2006. See Note 5 to our Condensed Consolidated Financial Statements for additional information regarding our indebtedness.

		Payments Due by Period
Indebtedness, Purchase &				7/1/06-		7/1/07-		7/1/08-		7/1/09-		7/1/10-
Lease Obligations		Total		6/30/07		6/30/08		6/30/09		6/30/10		6/30/11		Thereafter
		(In millions)
Senior credit facility		$	1,799.3	$	168.8	$	225.0	$	843.7	$	561.8	$	—	$	—
Dean Foods senior notes(1)			500.0		—		—		—		—		—		500.0
Subsidiary senior notes(1)			600.0		—		250.0		200.0		—		—		150.0
Receivables-backed facility			493.2		—		—		493.2		—		—		—
Capital lease obligations and other(2)			76.5		65.6		4.4		2.9		2.1		0.9		0.6
Purchase obligations(3)			487.0		266.6		71.1		35.5		20.0		11.3		82.5
Operating leases			470.5		100.9		89.4		77.7		64.2		50.2		88.1
Interest payments(4)			961.3		242.8		212.7		166.8		56.0		45.4		237.6
	Total	$	5,387.8	$	844.7	$	852.6	$	1,819.8	$	704.1	$	107.8	$	1,058.8

(1)	Represents face value.
(2)	Includes our Iberian operations’ lines of credit and other debt obligations. These amounts are included in liabilities of discontinued operations on the Condensed Consolidated Balance Sheet.

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(3)	Primarily represents commitments to purchase minimum quantities of raw materials used in our production processes, including organic soybeans and organic raw milk. We enter into these contracts from time to time in an effort to ensure a sufficient supply of raw ingredients. In addition, we have contractual obligations to purchase various services that are part of our production process.
(4)	Includes fixed rate interest obligations, as well as interest on our variable rate debt based on the rates and balances in effect at June 30, 2006. Interest that may be due in the future on the variable rate portion of our senior credit facility and receivables backed-facility will vary based on the interest rate in effect at the time and the borrowings outstanding at the time.

Other Long-Term Liabilities

      We offer pension benefits 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 providing non-contributory 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 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 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.

      We expect to contribute approximately $25.8 million to the pension plans and approximately $2.6 million to the postretirement health plans in 2006.

Other Commitments and Contingencies

      On December 21, 2001, in connection with our acquisition of Legacy Dean, we issued a contingent, 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 facilities 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 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 we make under this note, if any, will be expensed as incurred.

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

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

•  certain lease obligations, which require us to guarantee the minimum value of the leased asset at the end of the lease; and

•  selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses.

      See Note 11 to our Condensed Consolidated Financial Statements for more information about our commitments and contingent obligations.

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Future Capital Requirements

      During 2006, we intend to invest a total of approximately $250 million in capital expenditures primarily for our existing manufacturing facilities and distribution capabilities. We intend to fund these expenditures using cash flow from operations.

      In 2006, we expect cash interest to be approximately $190 million to $200 million based on current debt levels and cash taxes to be approximately $75 million to $80 million. We expect that cash flow from operations will be sufficient to meet our requirements for our existing businesses for the foreseeable future. As of August 4, 2006, approximately $1.13 billion was available for future borrowings under our senior credit facility.

Known Trends and Uncertainties

Prices of Raw Milk and Other Inputs

      Dairy Group — The primary raw material used in our Dairy Group is raw milk (which contains both raw skim milk and butterfat). The federal government and certain state governments set minimum prices for raw milk, and those prices are set on a monthly basis. The regulated minimum prices differ based on how the raw milk is utilized. Raw milk processed into fluid milk is priced at the Class I price, and raw milk processed into products such as cottage cheese, creams and creamers, ice cream and sour cream is priced at the Class II price. 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 milk costs, 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 our raw milk costs can be linked to the change in federal minimum prices.

      Because our Class II products typically have a higher fat content than that contained in raw milk, we also purchase bulk cream for use in some of our Class II products. Bulk cream is typically purchased based on a multiple of the AA butter price on the Chicago Mercantile Exchange (“CME”).

      Another significant raw material used by our Dairy Group is resin, which is used to make plastic bottles. We purchase approximately 27 million pounds of resin and bottles per month. Resin is a petroleum-based product, and the price of resin is subject to fluctuations based on changes in crude oil prices. Our Dairy Group purchases approximately 4 million gallons of diesel fuel per month to operate our extensive direct store delivery system. In general, our Dairy Group changes the prices that it charges for Class I dairy products on a monthly basis, as the costs of raw milk, packaging, fuel and other materials fluctuate. Prices for some Class II products are also changed monthly while others are changed from time to time as circumstances warrant. However, there can be a lag between the time of a raw material cost increase or decrease and a corresponding price change to our customers, especially in the case of Class II butterfat because Class II butterfat prices for each month are not announced by the government until after the end of that month. Also, in some cases we are competitively or contractually constrained with the means and timing of implementing price changes. These factors can cause volatility in our earnings. Our sales and operating profit margin fluctuate with the price of our raw materials and other inputs.

      During the first six months of 2006, Class I raw skim milk and butterfat prices declined. We expect raw skim milk and butterfat prices to increase in the second half of 2006. However, these prices are difficult to predict, and we change our forecasts frequently based on current market activity.

      During the first six months of 2006, the prices of resin and fuel have continued to increase. As resin supplies have from time to time been insufficient to meet demand, we are undertaking all reasonable measures in an attempt to secure an adequate resin supply; however, there can be no assurance that we will always be successful in our attempts. We expect prices of both resin and diesel fuel to remain high throughout the remainder of 2006.

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      WhiteWave Foods Company — A significant raw material used to manufacture products sold by WhiteWave Foods Company is organic soybeans. We have entered into supply agreements for organic soybeans, which we believe will meet our needs for 2006. Generally, these agreements provide for pricing at fixed levels. However, should our need for organic soybeans exceed the quantity that we have under contract, or if the suppliers do not perform under the contracts, we may have difficulty obtaining sufficient supply, and the price we could be required to pay could be significantly higher.

      Significant raw materials used in our products include organic raw milk and sugar. Organic raw milk is not readily available and the growth of our organic dairy business depends on us being able to procure sufficient quantities of organic raw milk in time to meet our needs. We obtain our supply of organic raw milk by entering into one to two year agreements with farmers pursuant to which the farmers agree to sell us specified quantities of organic raw milk for fixed prices for the duration of the agreement. We also source approximately 20% of our organic raw milk supply from our own farms. The industry-wide demand for organic raw milk has exceeded supply, resulting in our inability to fully meet customer demand. As a result, at times we are forced to limit quantities we ship to our customers. While we are not currently on allocation, we expect supply to be tight for the foreseeable future. Also, as our contracts with farmers expire, we may have to renew at higher prices as a result of increased competition for organic raw milk supply. The increase in the demand for organic milk combined with competitive activity and a limited supply has put significant upward pressure on organic milk costs. We also have experienced an increase in sugar costs during the first six months of 2006 and expect these costs to remain high during the remainder of the year.

Competitive Environment

      There has been significant consolidation in the retail grocery industry in recent years, and this trend is continuing. As our customer base consolidates, we expect competition to intensify as we compete for the business of fewer customers. There can be no assurance that we will be able to keep our existing customers, or gain new customers. There are several large regional grocery chains that have captive dairy operations. As the consolidation of the grocery industry continues, we could lose sales if any one or more of our existing customers were to be sold to a chain with captive dairy operations.

      Many of our retail customers have become increasingly price sensitive in the current intensely competitive environment. Over the past few years, we have been subject to a number of competitive bidding situations in our Dairy Group, which reduced our profitability on sales to several customers. We expect this trend to continue. In bidding situations, we may lose certain customers altogether. The 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, and most of the contracts that we do have are generally terminable at will by the customer.

      Both the difficult economic environment and the increased competitive environment at the retail level have caused competition to become increasingly intense at the processor level. We expect this trend to continue for the foreseeable future.

Tax Rate

      Our tax rate was 39.2% for the first six months of 2006 and 39.4% for the first six months of 2005. Our tax rate decreased from 2005 to 2006 primarily as a result of the mix of business and the impact of FAS 123(R). The tax benefit related to certain stock options exercised in the first six months of 2006 exceeded the benefit in 2005. The decrease in our tax rate was partly offset by an adjustment to deferred taxes related to a revision in the State of Texas Franchise Tax law enacted during the second quarter of 2006. Because of the impact of adoption of FAS 123(R), the acceleration of stock units and the anticipated mix of business, we expect our effective tax rate for the full year 2006 to be approximately 39.0%.

      See “Part II — Item 1A — Risk Factors” for a description of various other risks and uncertainties concerning our business.

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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.

      The following table summarizes our various interest rate swap agreements at both June 30, 2006 and December 31, 2005:

Fixed Interest Rates	Expiration Date		Notional Amounts
			(In millions)
3.65% to 6.78%		December 2006	$	625
4.81% to 4.84%		December 2007		500
4.07% to 4.27%		December 2010		500

      We are exposed to market risk under these arrangements due to the possibility of interest rates on our senior credit facility falling below the rates on our interest rate derivative agreements. We recorded $1.9 million of interest income, net of taxes, during the first six months of 2006 as a result of interest rates on our variable rate debt rising above 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 June 30, 2006, 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 and British pound. We have performed a sensitivity analysis assuming a hypothetical 10% adverse movement in foreign currency exchange rates. As of June 30, 2006, the analysis indicated that such foreign currency exchange rate change would not have a material effect on our financial position, results of operations or cash flows.

Butterfat

      Our Dairy Group utilizes a significant amount of butterfat to produce Class II products. This butterfat is acquired through the purchase of raw milk and bulk cream. Butterfat acquired in raw milk is priced based on the Class II butterfat price in federal orders, which is announced near the end of the applicable month. The Class II butterfat price can generally be tied to the pricing of AA butter traded on the Chicago Mercantile Exchange (“CME”). The cost of butterfat acquired in bulk cream is typically based on a multiple of the AA butter price on the CME. From time to time, we purchase butter futures and butter inventory in an effort to better manage our butterfat cost in Class II products. Futures contracts are marked to market in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” and physical inventory is valued at the lower of cost or market. We are exposed to market risk under these arrangements if the cost of butter falls below the cost that we have agreed to pay in a futures contract or that we actually paid for the physical inventory and we are unable to pass on the difference to our customers. At this time we believe that potential losses due to butterfat hedging activities would not have a material impact on our consolidated financial position, results of operations or operating cash flow.

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Item 4. Controls and Procedures

Controls Evaluation and Related CEO and CFO Certifications

      We conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (“Disclosure Controls”) as of 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 control over financial reporting will prevent all errors 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.

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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 as of the end of the period covered by this quarterly report, our Disclosure Controls were effective at the reasonable assurance level. In the first six months of 2006, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II — Other Information

Item 1. Legal Proceedings

      We are not party to, nor are our properties the subject of, any material pending legal proceedings. However, we are parties from time to time to certain claims, litigation, audits and investigations. We believe that we have established adequate reserves to satisfy any potential liability we may have under all such claims, litigations, audits and investigations that are currently pending. 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.

Item 1A.     Risk Factors

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

Reorganization of Our WhiteWave Foods Company Segment Could Temporarily Adversely Affect the Performance of the Segment

      In 2004, we began the process of consolidating the operations of the three operating units that comprise our WhiteWave Foods Company segment into a single business. We are building a vertically integrated branded business with a focused product portfolio, efficient manufacturing processes and an optimal distribution system. During 2005, we appointed a new President of WhiteWave Foods, which was a key step in the development of a consolidated leadership team for the organization. We also completed the consolidation of the sales, marketing and research and development organization and the supply chain integration is in process. We consolidated most product manufacturing into five primary facilities, three of which were transferred from our Dairy Group in 2005, and we narrowed our network of co-packers. In 2006, we will continue to focus on streamlining our product portfolio, focusing on the most profitable opportunities and on continuing to optimize our supply chain. We are currently in the initial stages of implementing the SAP platform across WhiteWave Foods Company, which we expect will enable us to more effectively and efficiently manage our supply chain and business processes. Our failure to successfully manage this process could cause us to incur unexpected costs or to lose customers or sales, which could have a material adverse effect on our financial results.

Reorganization of our Dairy Group Segment Could Temporarily Adversely Affect the Performance of the Segment

      During the first quarter of 2006, we started the process of realigning our Dairy Group segment in order to further streamline our organization, improve efficiency within our operations and better meet the needs of our customers. Effective January 1, 2006, we transitioned from five operating regions to three operating regions. We are currently focused on reorganizing our purchasing and other administrative functions to better leverage our scale, which we expect will enable us to more effectively and efficiently manage our business processes. Furthermore, we are in the process of consolidating our information technology systems, including the implementation of standard accounting and distribution software packages. Our failure to successfully manage this process could cause us to incur unexpected costs, which could have a material adverse effect on our financial results.

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Recent Successes of Our Products Could Attract Increased Competitive Activity, Which Could Impede Our Growth Rate and Cost Us Sales and, in the Case of Organic Products, Put Pressure on the Availability of Raw Materials

      Our Silk soymilk and Horizon Organic organic food and beverage products have leading market shares in their categories and have benefited in many cases from being the first to introduce products in their categories. As soy and organic products continue to gain in popularity with consumers, we expect our products in these categories to continue to attract competitors. Many large food and beverage companies have substantially more resources than we do, and they may be able to market their soy and organic products more successfully than us, which could cause our growth rate in these categories to be slower than our forecast and could cause us to lose sales. The increase in popularity of soy and organic milks is also attracting private label competitors who sell their products at a lower price. The success of private label brands could adversely affect our sales and profitability. Finally, there is a limited supply of organic raw materials in the United States, especially organic soybeans and organic raw milk. New entrants into our markets can reduce available supply and drive up costs. Even without new entrants, our own growth can put pressure on the availability and price of organic raw materials.

      Our International Delight coffee creamer competes intensely with Nestlé CoffeeMate business, and our Hershey’s milks and milkshakes compete intensely with Nestlé Nesquik. Nestle has significantly greater resources than we do, which allows them to promote their products more aggressively. Our failure to successfully compete with Nestle could have a material adverse effect on the sales and profitability of our International Delight and/or our Hershey’s businesses.

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

      Raw skim milk is the most significant raw material that we use in our Dairy Group. Organic raw milk, organic soy beans and sugar are significant inputs utilized by WhiteWave Foods Company. The prices of these materials increase and decrease based on supply and demand, and in some cases, governmental regulation. Weather also affects the availability and pricing of these inputs. 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 as price changes often lag changes in costs. These lags tend to erode our profit margins. Furthermore, cost increases may exceed the price increases we are able to pass along to our customers. Extremely high raw material costs also can put downward pressure on our margins and our volumes. Although we cannot predict future changes in raw material costs, we do expect raw material prices to increase throughout 2006.

      Because our Dairy Group delivers the majority of its products directly to customers through its “direct store delivery” system, we are a large consumer of fuel. Similarly, our WhiteWave Foods business is impacted by the costs of petroleum-based products through the use of common carriers in delivering their products. The Dairy Group utilizes a significant amount of resin, which is the primary component used in our plastic bottles. Recently, the prices of resin and fuel have increased dramatically and resin supplies have from time to time been insufficient to meet demand. Increases in fuel and resin prices can adversely affect our results of operations. In addition, a disruption in our ability to secure an adequate resin supply could adversely affect our operations.

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

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

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

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

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.

      The interest rate on our debt is based on our debt rating, as issued by Standard & Poor’s and Moody’s. We have no ability to control the ratings issued by Standard & Poor’s and Moody’s. A downgrade in our debt rating could cause our interest rate to increase, which could adversely affect our ability to achieve our targeted profitability level, as well as our cash flow.

      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 net income. If we do not comply with the financial and other restrictive covenants under our credit facilities, we may default under them. Upon default, our lenders could accelerate the indebtedness under the facilities, foreclose against their collateral or seek other remedies, which would jeopardize our ability to continue our current operations.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

      The following table summarizes the repurchase of our common stock during 2006:

								Maximum
								Number (or
								Approximate
						Total Number of		Dollar Value) of
						Shares (or Units)		Shares (or Units)
						Purchased as Part		that May Yet be
		Total Number of		Average Price		of Publicly		Purchased Under
		Shares (or Units)		Paid Per		Announced Plans		the Plans or
Period		Purchased(1)		Share(2)		or Programs		Programs(3)
January 2006			—	$	—		—	$	—
February 2006			400,000		38.37		70,382,766		3.2 million
March 2006			—		—		—		—
April 2006			—		—		—		—
May 2006			2,050,800		36.25		72,433,566		228.8 million
June 2006			1,286,400		35.69		73,719,966		182.9 million
	Total		3,737,200		36.29		73,719,966		182.9 million

(1)	Stock repurchases during the three months ended June 30, 2006 were made pursuant to the stock repurchase program approved by our Board of Directors on November 2, 2005 and May 3, 2006, which allowed for the repurchase of an additional $600 million in stock.
(2)	Excludes fees and commissions paid on stock repurchases.
(3)	Amount represents maximum amount authorized for share repurchases. The amount can be increased by actions of our Board of Directors.

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

      On May 19, 2006, we held our annual meeting of stockholders. At the annual meeting, we submitted the following matters to a vote of our stockholders:

•  The re-elections of Lewis M. Collens, Janet Hill, Hector M. Nevares, Pete Schenkel and Jim L. Turner as members of our Board of Directors, and

•  The ratification of our Board of Directors’ selection of Deloitte & Touche LLP as our independent auditor for fiscal year 2006, and

•  A proposal from the Office of the Comptroller of New York City, as the custodian and trustee of the New York City Employees’ Retirement System, the New York City Teachers’ Retirement System, the New York City Police Pension Fund and the New York City Fire Department Pension Fund and custodian of the New York City Board of Education Retirement System.

      At the annual meeting, the stockholders re-elected the directors named above and ratified the selection of Deloitte & Touche LLP as our independent auditor. The stockholder proposal was rejected.

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      The vote of the stockholders with respect to each such matter was as follows:

			Votes		Votes
Nominee/Proposal	Votes For		Withheld		Against		Abstain
Lewis M. Collens		120,347,369		872,647		—		—
Janet Hill		120,296,994		923,022		—		—
Hector M. Nevares		119,087,354		2,132,662		—		—
Pete Schenkel		116,441,643		4,778,373		—		—
Jim L. Turner		120,372,068		847,948		—		—
Selection of auditors		119,750,991		—		1,406,638		62,387
Stockholder proposal		31,711,959		—		61,870,549		16,383,671

Item 6. Exhibits

      (a) Exhibits

1	.1	Underwriting Agreement, dated May 11, 2006, among the Company, the subsidiary guarantors named therein and Citigroup Global Markets Inc., on behalf of itself and as representative of the several underwriters listed in Schedule II thereto (incorporated by reference from our Current Report on Form 8-K dated May 17, 2006 (File No. 1-12755))
4	.1	Indenture, dated as of May 15, 2006, between the Company, the subsidiary guarantors listed therein and The Bank of New York Trust Company, N.A., as trustee (incorporated by reference from our Current Report on Form 8-K dated May 19, 2006 (File No. 1-12755))
4	.2	Supplemental Indenture No. 1, dated as of May 17, 2006, between the Company, the subsidiary guarantors listed therein and The Bank of New York Trust Company, N.A., as trustee (incorporated by reference from our Current Report on Form 8-K dated May 19, 2006 (File No. 1-12755))
10	.1	Change in Control Agreement — Jack F. Callahan, Jr.
10	.2	Proprietary Information, Inventions and Non-Compete Agreement — Jack F. Callahan, Jr.
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

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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/ Ronald L. McCrummen

Ronald L. McCrummen

Senior Vice President and Chief Accounting Officer

August 9, 2006

-51- EX-10.1 2 d38110exv10w1.htm CHANGE IN CONTROL AGREEMENT

CHANGE IN CONTROL AGREEMENT

     THIS CHANGE IN CONTROL AGREEMENT (this “Agreement”) is entered into effective as of the 9th day of May, 2006, by and between DEAN FOODS COMPANY, a Delaware corporation (together with its subsidiaries, the “Company”), and JACK CALLAHAN (the “Executive”).

RECITALS

     A. The Board of Directors of the Company (the “Board”) has determined that the interests of the Company will be advanced by providing the key executives of the Company with certain benefits in the event of the termination of employment of any such executive in connection with or following a Change in Control (as hereinafter defined).

     B. The Board believes that such benefits will enable the Company to continue to attract and retain competent and qualified executives, will assure continuity and cooperation of management and will encourage such executives to diligently perform their duties without personal financial concerns, thereby enhancing shareholder value and ensuring a smooth transition.

     C. The Executive is a key executive of the Company.

AGREEMENTS

     NOW, THEREFORE, for good and valuable consideration, including the mutual covenants set forth herein, the parties hereto agree as follows:

     1. Definitions. The following terms shall have the following meanings for purposes of this Agreement.

     “Affiliate” means any entity controlled by, controlling or under common control with, a person or entity.

     “Annual Pay” means the sum of (i) an amount equal to the annual base salary rate payable to the Executive by the Company at the time of termination of his or her employment plus (ii) an amount equal to the target bonus established for the Executive for the Company’s fiscal year in which his or her termination of employment occurs.

     “Cause” means the Executive’s (i) willful and intentional material breach of this Agreement, (ii) willful and intentional misconduct or gross negligence in the performance of, or willful neglect of, the Executive’s duties, which has caused material injury (monetary or otherwise) to the Company, or (iii) conviction of, or plea of nolo contendere to, a felony; provided, however, that no act or omission shall constitute “Cause” for purposes of this Agreement unless the Board or the Chairman of the Board provides to the Executive (a) written

notice clearly and fully describing the particular acts or omissions which the Board or the Chairman of the Board reasonably believes in good faith constitutes “Cause” and (b) an opportunity, within thirty (30) days following his or her receipt of such notice, to meet in person with the Board or the Chairman of the Board to explain or defend the alleged acts or omissions relied upon by the Board and, to the extent practicable, to cure such acts or omissions. Further, no act or omission shall be considered as “willful” or “intentional” if the Executive reasonably believed such acts or omissions were in the best interests of the Company.

     “Change in Control” means (1) any “person” (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), but specifically excluding the Company, any wholly-owned subsidiary of the Company and/or any employee benefit plan maintained by the Company or any wholly-owned subsidiary of the Company) becomes the “beneficial owner” (as determined pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company’s then outstanding securities; or (2) individuals who currently serve on the Board, or whose election to the Board or nomination for election to the Board was approved by a vote of at least two-thirds (2/3) of the directors who either currently serve on the Board, or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (3) the Company or any subsidiary of the Company shall merge with or consolidate into any other corporation, other than a merger or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding immediately thereafter securities representing more than sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity (or its ultimate parent, if applicable) outstanding immediately after such merger or consolidation; or (4) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, or such a plan is commenced.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Confidential Information” means all information, whether oral or written, previously or hereafter developed, acquired or used by the Company or its subsidiaries and relating to the business of the Company and its subsidiaries that is not generally known to others in the Company’s area of business, including without limitation trade secrets, methods or practices developed by the Company or any of its subsidiaries, financial results or plans, customer or client lists, personnel information, information relating to negotiations with clients or prospective clients, proprietary software, databases, programming or data transmission methods, or copyrighted materials (including without limitation, brochures, layouts, letters, art work, copy, photographs or illustrations). It is expressly understood that the foregoing list shall be illustrative only and is not intended to be an exclusive or exhaustive list of “Confidential Information.”

     “Good Reason” means any of the following events occurring, without the Executive’s prior written consent specifically referring to this Agreement, within two (2) years following a Change in Control:

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     (1) (A) Any reduction in the amount of the Executive’s Annual Pay, (B) any reduction in the amount of Executive’s other incentive compensation opportunities, or (C) any significant reduction in the aggregate value of the Executive’s benefits as in effect from time to time (unless in the case of either B or C, such reduction is pursuant to a general change in compensation or benefits applicable to all similarly situated employees of the Company and its Affiliates);

     (2) (A) the removal of the Executive from the Executive’s position as Executive Vice President and Chief Financial Officer of the ultimate parent of the business of the Company or (B) any other significant reduction in the nature or status of the Executive’s duties or responsibilities;

     (3) transfer of the Executive’s principal place of employment to a metropolitan area other than that of the Executive’s place of employment immediately prior to the Change in Control; or

     (4) failure by the Company to obtain the assumption agreement referred to in Section 7 of this Agreement prior to the effectiveness of any succession referred to therein, unless the purchaser, successor or assignee referred to therein is bound to perform this Agreement by operation of law.

     “Termination Pay” means a payment made by the Company to the Executive pursuant to Section 2(a)(ii) or Section 2(b)(ii) hereof.

     2. Benefits.

          (a) Involuntary or Constructive Termination. In the event that the Executive’s employment with the Company or its successor is terminated by the Company or its successor without Cause or by the Executive for Good Reason in connection with or within two years after a Change in Control, the Executive shall be entitled to the following payments and other benefits:

               (i) The Company shall pay to the Executive a cash payment in an amount equal to the sum of (A) the Executive’s accrued and unpaid salary as of his or her date of termination of employment, plus (B) his or her accrued and unpaid bonus, if any, for the Company’s prior fiscal year, plus (C) an amount equal to the greater of the following, paid on a pro rata basis for the portion of the year between January 1 and the date of the Executive’s termination of employment: (x) Executive’s target bonus for the year of termination, or (y) the actual bonus to which the Executive would be entitled in the year of termination, plus (D) reimbursement for all expenses reasonably and necessarily incurred by the Executive (in accordance with Company policy) prior to termination in connection with the business of the Company. This amount shall be paid on the date of the Executive’s termination of employment.

               (ii) The Company shall pay to the Executive a cash payment in an amount equal to three (3) times the Executive’s Annual Pay. This amount shall be paid by the Company in accordance with Section 2(e) hereof.

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               (iii) The Company shall pay to the Executive a cash payment in an amount equal to the sum of (A) the Executive’s unvested account balance under the Company’s 401(k) plan, and (B) three (3) times the amount of the most recent matching contribution that the Company paid into the Executive’s 401(k) account. This amount shall be paid as soon as administratively practicable after the date of the Executive’s termination of employment.

               (iv) The Executive and his or her eligible dependents shall be entitled for a period of two (2) years following his or her date of termination of employment to continued coverage, on the same basis as similarly situated active employees, under the Company’s group health, dental, long-term disability and life insurance plans as in effect from time to time (but not any other welfare benefit plans or any retirement plans); provided that coverage under any particular benefit plan shall expire with respect to the period after the Executive becomes covered under another employer’s plan providing for a similar type of benefit. In the event the Company is unable to provide such coverage on account of any limitations under the terms of any applicable contract with an insurance carrier or third party administrator, the Company shall pay the Executive an amount equal to the cost of such coverage.

               (v) The Company shall pay all costs and expenses, up to a maximum of $50,000, related to outplacement services for the Executive, the provider of which shall be selected by the Executive in his or her sole discretion. This amount shall be paid directly to the provider of such services.

          (b) Voluntary Termination. If, at any time during the 13^th month after a Change in Control, the Executive voluntarily terminates his or her employment with the Company for any reason, the Executive shall be entitled to receive the same payments and benefits as set forth in Sections 2(a)(i) through 2(a)(v) hereof.

          (c) Accelerated Vesting. All of the Executive’s unvested awards under the Company’s stock award plans shall automatically and immediately vest in full upon the occurrence of a Change in Control.

          (d) No Duplication; Other Severance Pay. There shall be no duplication of severance pay in any manner. In this regard, the Executive shall not be entitled to Termination Pay hereunder for more than one position with the Company and its Affiliates. If the Executive is entitled to any notice or payment in lieu of any notice of termination of employment required by Federal, state or local law, including but not limited to the Worker Adjustment and Retraining Notification Act, the severance compensation to which the Executive would otherwise be entitled under this Agreement shall be reduced by the amount of any such payment in lieu of notice. If Executive is entitled to any severance or termination payments under any employment or other agreement (other than stock award agreements) with the Company or any of its Affiliates, the severance compensation to which Executive would otherwise be entitled under this Agreement shall be reduced by the amount of such payment. Except as set forth above, the foregoing payments and benefits shall be in addition to and not in lieu of any payments or benefits to which the Executive and his or her dependents may otherwise be entitled to under the Company’s compensation and employee benefit plans. Nothing herein shall be deemed to restrict the right of

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the Company from amending or terminating any such plan in a manner generally applicable to similarly situated active employees of the Company and its Affiliates, in which event the Executive shall be entitled to participate on the same basis (including payment of applicable contributions) as similarly situated active executives of the Company and its Affiliates.

          (e) Mutual Release. Termination Pay shall be conditioned upon the execution by the Executive and the Company of a valid mutual release to be prepared by the Company pursuant to which the Executive and the Company shall each mutually release each other, to the maximum extent permitted by law, from any and all claims either party may have against the other that relate to or arise out of the employment or termination of employment of the Executive, except such claims arising under this Agreement, any employee benefit plan, or any other written plan or agreement (a “Mutual Release”). The full amount of Termination Pay shall be paid in a lump sum in cash to the Executive within ten (10) days following receipt by the Company of a Mutual Release which is properly executed by the Executive; provided, however, that in the event applicable law allows the Executive to revoke the Mutual Release for a period of time, and the Mutual Release is not revoked during such period, the full amount of Termination Pay shall be paid to the Executive following the expiration of such period.

     3. Excise Taxes.

          (a) Gross-Up Payment. Anything in this Agreement to the contrary notwithstanding and except as set forth below, if it is determined that any payment or distribution (a “Payment”) by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 3) including, without limitation, vesting of options, would be subject to the excise tax imposed by Section 4999 of the Code, or if any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount sufficient to pay all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment.

          (b) Calculation of Gross-Up Payment. Subject to the provisions of paragraph (c) of this Section 3, all determinations required to be made under this Section 3, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be used in arriving at such determination, shall be made by a certified public accounting firm selected by the Company and reasonably acceptable to the Executive (the “Accounting Firm”), which shall be retained to provide detailed supporting calculations both to the Company and the Executive. If the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Executive shall have the right to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be paid solely by the Company. Any Gross-

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Up Payment, as determined pursuant to this Section 3, shall be paid by the Company to the Executive within five (5) days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which should have been made will not have been made by the Company (“Underpayment’’), consistent with the calculations required to be made hereunder. If the Company exhausts its remedies pursuant to paragraph (c) of this Section 3 and the Executive thereafter is required to pay an Excise Tax in an amount that exceeds the Gross-Up Payment received by the Executive the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

          (c) Contested Taxes. The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would result in an Underpayment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid or appealed. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

               (i) give the Company any information reasonably requested by the Company relating to such claim,

               (ii) take such action in connection with contesting such claims as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

               (iii) cooperate with the Company in good faith in order to effectively contest such claim, and

               (iv) permit the Company to participate in any proceedings relating to such claim;

     provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals,

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proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to the amount of the Gross-Up Payment, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

          (d) Refunds. If, after the receipt by the Executive of an amount advanced by the Company pursuant to this Section 3, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).

     4. Certain Covenants by the Executive.

          (a) Covenant Not to Compete or Solicit. In consideration of the payments to be made to the Executive pursuant to this Agreement, the Executive hereby agrees that, during the term of his or her employment with the Company or any of its Affiliates and for a period of two years thereafter, he or she will not, directly or indirectly, individually or on behalf of any person or entity other than the Company or any of its Affiliates:

               (i) Become associated with (as defined below) any company or business (other than the Company or any Affiliate of the Company) engaged primarily in the manufacture, distribution, sale or marketing of any of the Relevant Products (as defined below) in any geographical area in which the Company or any of its Affiliates operates;

               (ii) Approach, consult, solicit business from, or contact or otherwise communicate, directly or indirectly, in any way with any Customer (as defined below) in an attempt to (1) divert business from, or interfere with any business relationship of the Company or any of its Affiliates, or (2) convince any Customer to change or alter any of such Customer’s existing or prospective contractual terms and conditions with the Company or any of its Affiliates; or

               (iii) Solicit, induce, recruit or encourage, either directly or indirectly, any employee of the Company or any of its Affiliates to leave his or her employment with the Company or any of its Affiliates, or employ or offer to employ any employee of the Company or

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any of its Affiliates. For the purposes of this section, an employee of the Company or any of its Affiliates shall be deemed to be an employee of the Company or any such Affiliate while employed by the Company or such Affiliate and for a period of 60 days thereafter.

     For purposes of this Agreement, the following terms shall have the meanings indicated:

     “associated with” means to become involved or act as an owner, partner, stockholder, investor, joint venturer, lender, director, manager, officer, employee, consultant, independent contractor, representative or agent.

     “Customer” means all persons or entities who purchased any Relevant Product from the Company or any of its Affiliates during the term of the Executive’s employment with the Company or any such Affiliate.

     “Relevant Product(s)” means (i) milk and milk-based beverages, (ii) creams and creamers, (iii) ice cream and ice cream novelties, (iv) ice cream mix, and (v) cultured dairy products.

     Notwithstanding the foregoing, (1) the restrictions of this Section 4(a) shall terminate immediately if the Executive’s employment with the Company or any of its Affiliates is terminated by the Company or such Affiliate without Cause, and (2) the Executive is not prohibited from owning, either of record or beneficially, not more than five percent (5%) of the shares or other equity of any publicly traded company. The provisions of this Section 4(a) are not intended to override, supercede, reduce, modify or affect in any manner any other non-competition or non-solicitation agreement between the Executive and the Company or any of its Affiliates. Any such covenant or agreement shall remain in full force and effect in accordance with its terms. The Company will be entitled to injunctive and other relief to prevent or enjoin any violation of the provisions of this Agreement.

          (b) Protection of Confidential Information. The Executive agrees that he or she will not at any time during or following his or her employment by the Company, without the Company’s prior written consent, divulge any Confidential Information to any other person or entity or use any Confidential Information for his or her own benefit. Upon termination of employment, for any reason whatsoever, regardless of whether either party may be at fault, the Executive will return to the Company all physical Confidential Information in the Executive’s possession.

          (c) Nondisclosure of Agreement. The Executive agrees, at all times during his or her employment by the Company, not to disclose or discuss in any manner (whether to individuals inside or outside the Company), the existence or terms of, this Agreement without the prior written consent of the Company, except to the extent required by law.

          (d) Nondisparagement. The Executive and the Company agree that, for so long as the Executive remains employed by the Company, and for a period of two years following the termination of the Executive’s employment, neither the Executive nor the Company will make or authorize any public statement, whether orally or in writing, that

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disparages the other party hereto with respect to such other party’s business interests or practices; provided, that neither party shall be restricted in connection with statements made in context of any litigation, arbitration or similar proceeding involving the other party hereto.

          (e) Extent of Restrictions. The Executive acknowledges that he or she has given careful consideration to the restraints imposed by this Section 4 and he or she fully agrees that the restrictions contained in this Section 4 correctly set forth the understanding of the parties at the time this Agreement is entered into, are reasonable and necessary to protect the legitimate interests of the Company, and that any violation will cause substantial injury to the Company. In the event of any such violation, the Company shall be entitled, in addition to any other remedy, to preliminary or permanent injunctive relief. If any court having jurisdiction shall find that any part of the restrictions set forth in this Agreement are unreasonable in any respect, it is the intent of the parties that the restrictions set forth herein shall not be terminated, but that this Agreement shall remain in full force and effect to the extent (as to time periods and other relevant factors) that the court shall find reasonable.

     5. Tax Withholding. All payments to the Executive under this Agreement will be subject to the withholding of all applicable employment and income taxes.

     6. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect.

     7. Successors . This Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company. The Company will require any successor to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place.

     8. Entire Agreement. By executing this Agreement, the Executive agrees that any and all agreements executed between the Company (or any subsidiary of the Company or any predecessor of the Company or any subsidiary of the Company) and the Executive prior to the date hereof regarding benefits resulting from a Change in Control are hereby nullified and cancelled in their entirety, and this Agreement shall substitute for and fully replace any such prior agreements. This Agreement shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof. This Agreement may not be modified in any manner except by a written instrument signed by both the Company and the Executive.

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     9. Notices . Any notice required under this Agreement shall be in writing and shall be delivered by certified mail return receipt requested to each of the parties as follows:

To the Executive:

Jack Callahan
89 Logan Road
New Canaan, CT 06840

To the Company:

DEAN FOODS COMPANY
2515 McKinney Avenue, Suite 1200, LB 30
Dallas, Texas 75201
Attn.: General Counsel
Tel.: 214-303-3400
Fax: 214-303-3499

     10. Governing Law . The provisions of this Agreement shall be construed in accordance of the laws of the State of Delaware, except to the extent preempted by ERISA or other federal laws, as applicable, without reference to the conflicts of laws provisions thereof.

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     IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement as of the date and year first above written.

DEAN FOODS COMPANY
/s/ Michelle Goolsby
Name:	MICHELLE GOOLSBY
Title:	EVP & General Counsel
/s/ JACK F. CALLAHAN JR.
JACK F. CALLAHAN JR.

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EX-10.1

exv10w1

EX-10.2

PROPRIETARY INFORMATION, INVENTIONS AND NON-COMPETE AGREEMENT

          THIS PROPRIETARY INFORMATION, INVENTIONS AND NON-COMPETE AGREEMENT (this “Agreement”), dated as of the 9^th day of May, 2006, between Dean Foods Company, a Delaware corporation (“the Company”), having its principal place of business at 2515 McKinney Avenue, Suite 1200, Dallas, Texas 75201, and Jack Callahan (“Employee”).

          WHEREAS, the Company has offered Employee employment as Executive Vice President and Chief Financial Officer of the Company; a position which will result in Employee acquiring substantial knowledge of the operations and practices of the business of the Company;

          WHEREAS, the Company desires to prevent any competitive business from securing or utilizing the services of Employee, to the extent and for the period of Employee’s employment and for a reasonable period thereafter; and

          WHEREAS, as a condition to the employment of Employee, the Company has required that Employee enter into this Agreement.

          NOW, THEREFORE, it is agreed as follows:

          1. Acknowledgments. Employee acknowledges that (i) the Company is engaged in a continuous program of research, development, and production respecting its business throughout the United States and Canada (the foregoing, together with any other businesses in which the Company engages, from the date hereof to the date of the termination of Employee’s employment with the Company, is hereinafter referred to as the “Company Business”); (ii) Employee’s services to the Company will be unique and have significant value to the Company, and Employee may make new contributions and inventions of value to the Company; (iii) Employee’s work for the Company allows Employee access to trade secrets of, and confidential information concerning, Company; (iv) the Company Business is national and international in scope; (v) the Company would not have agreed to employ Employee but for the agreements and covenants contained in this Agreement; and (vi) the agreements and covenants contained in this Agreement are necessary and essential to protect the business, goodwill, and customer relationships that the Company has expended significant resources to develop.

          2. Ownership of Works. The Company shall own all rights, including all trade secrets and copyrights, in and to all discoveries, developments, designs, improvements, inventions, formulas, processes, techniques, know-how and data, whether patentable under patent or registerable under copyright or similar statutes or reduced to practice and all documentation thereof created by Employee, during the time Employee is employed by the Company, whether created during or outside normal business hours or on the Company premises or at some other location and that: (i) directly relate to or are derived from the Company Business; and (ii) result from or are derived from any task or work assigned to Employee or work performed by Employee for the Company (collectively, “Works”). To the

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extent that any Works do not qualify as works made for hire under U.S. copyright law, this Agreement shall constitute an irrevocable assignment by Employee to the Company of the ownership of, and rights of copyright in, Works. Employee agrees to give the Company or its designees all assistance reasonably required to protect such rights.

          3. Inventions. If Employee individually or jointly makes, conceives of, or reduces to practice any invention, technique, recipe, process, improvement, modification, development, documentation, data, design, idea, discovery, trademark, trade secret, formula, process, or other know-how, whether patentable or not, in the course of performing services for the Company, that directly relates to the Company Business (collectively, “Inventions”), Employee will and hereby does assign to the Company Employee’s entire right, title and interest in and to such Inventions. Employee agrees that all Inventions shall be the sole property of the Company and its assigns, and the Company and its assigns shall be the sole owner of all patents, copyrights, and other rights in connection therewith. Employee will disclose any such Inventions (to the extent Employee knows such inventions are “Inventions” as defined herein) to an officer of the Company and will, upon request, promptly sign a specific assignment of title to the Company and do anything else reasonably necessary without additional compensation to enable the Company to secure patent, trade secret, or any other proprietary rights in the United States or foreign countries. Employee agrees to execute any documents deemed necessary or advisable by the Company to effect the terms of this paragraph. Employee agrees that after termination of employment with the Company Employee shall not use any Inventions, except in furtherance of the Company Business and except to the extent such Inventions are in the public domain through no fault of Employee.

          4. Non-Disclosure. Employee recognizes that the Company competes in a highly competitive field and that the Company possesses and will continue to possess information of commercial value that relates to the Company Business, including but not limited to trade secrets, technical and scientific information, financial business information, processes, recipes, formulas, data, know-how, improvements, inventions, product concepts, discoveries, developments, designs, inventions, techniques, marketing plans, strategies, forecasts, new products, blueprints, specifications, programs, ideas, customer lists, vendor lists, pricing and other structures, marketing and business strategies, budgets, projections, licenses, costs, financial data, and plans, proposals and information about the Company’s employees and/or consultants (collectively, “Proprietary Information”). Notwithstanding the foregoing, Proprietary Information shall not include information that is publicly available when received, or thereafter becomes publicly available through no fault of Employee or is otherwise disclosed by the Company to another party without obligation of confidentiality. Employee agrees that the Proprietary Information constitutes a unique and valuable asset which is essential to the Company’s business success, and that any release of Proprietary Information would be harmful to the Company and/or its customers. To protect the Company’s Proprietary Information, Employee agrees that at all times, including during and after the term of Employee’s employment, Employee will not disclose to any person, firm, company, or corporation or use for Employee’s own benefit or for the benefit of any third party (except in furtherance of Company Business or affairs of the Company) any and all Proprietary Information that Employee may have acquired in the course of or as an incident to Employee’s employment with the Company. Employee further agrees to take all reasonable precautions to protect against the

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intentional, negligent, or inadvertent disclosure by Employee of the Company’s Proprietary Information to any other person or business entity, except in furtherance of the Company Business.

          5. Non-Competition. Employee understands and agrees that during Employee’s employment with the Company, Employee will be provided access to specialized information related to Company Business and trade secrets, as well as the Company’s customers and their confidential information. Employee further agrees that if this information were used in competition against the Company, the Company would experience serious harm and the competitor would have a unique advantage against the Company. Employee hereby covenants and agrees that (A) at no time during Employee’s employment with the Company and (B) at no time until the two years from the date of Employee’s termination (the “Non-Compete Period”), will Employee (i) develop, own, manage, operate, or otherwise engage in, participate in, represent in any way or be connected with, as officer, director, partner, owner, employee, agent, independent contractor, consultant, proprietor, stockholder or otherwise, any Competing Business in any geographic territory (within or outside the United States) in which the Company does business; or (ii) act in any way, directly or indirectly, on behalf of any Competing Business, with the purpose or effect of soliciting, diverting or taking away any business, customer, client, supplier, or good will of the Company.

The foregoing provisions shall not restrict Employee from (i) owning up to a 2% interest in a publicly traded company which is or engages in a Competing Business or (ii) acting as an officer, employee, agent, independent contractor or consultant to any company or business which engages in multiple lines of business, one or more of which may be a Competing Business, if Employee has no direct or indirect involvement, oversight or responsibility with respect to the unit, division, group or other area of operations which cause such company or business to be a Competing Business.

A “Competing Business” shall mean a company or business which is engaged, or intends to engage in, the manufacture, distribution, sale or marketing of any products which compete directly with the Company’s products or the Company Business.

Employee acknowledges that this covenant has a unique, substantial, and immeasurable value to the Company.

Notwithstanding the foregoing, the restrictions of this Section 5 shall terminate immediately if your employment with the Company is involuntarily terminated by the Company without “Cause.” “Cause” shall mean: (a) conviction of Employee of any crime deemed by the Company to make continued employment untenable; (b) any act of gross negligence or willful misconduct in the conduct of your employment; (c) any act of dishonesty on the part of Employee whether relating to the Company or any of its subsidiaries, its affiliates, employees, agents or otherwise; (d) failure by Employee to comply with the Dean Foods Code of Ethics, or any conduct of Employee which brings the Company or any of its affiliates into disrepute, in each case as determined by the Board of Directors.

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          6. Non-Solicitation. Employee hereby covenants and agrees that at no time during Employee’s employment with the Company and during the Non-Compete Period, will Employee (i) recruit, hire, assist or solicit, directly or indirectly, any of the Company’s employees to leave the employ of the Company or (ii) solicit any customer or prospective customer of the Company for the purpose of (1) inducing or otherwise intending to cause such customer or prospective customer to alter or end its business relationship with the Company or (2) interfering with the Company’s business relationship with such customer or prospective customer. For the purposes of this Agreement, “customer” shall mean any company that was a customer of the Company at any time during the term of Employee’s employment with the Company, and “prospective customer” shall mean any company that, to Employee’s knowledge, was actively solicited by the Company at any time during the term of Employee’s employment with the Company.

          7. Remedies. Employee acknowledges, understands, and agrees that the restrictions contained in Paragraphs 2, 3, 4, 5, and 6 of this Agreement are reasonable, fair, and equitable in scope, terms, geographic area and duration, are necessary to protect the legitimate business interests and good will of the Company, and are a material inducement to the Company to employ Employee and to enter into this Agreement, and that any breach or threatened breach of such restrictions would cause the Company substantial and irreparable harm for which there is no adequate remedy at law. Therefore, Employee agrees that in the event of any such breach, any unvested stock options, restricted stock awards or other equity grants shall be immediately canceled and all of Employee’s rights thereunder shall be immediately terminated. In addition, if the Company deems such action warranted by the particular circumstances, the Company shall be entitled to equitable relief including, but not limited to, temporary, preliminary, and permanent injunctive relief, including the issuance of a temporary restraining order, in order to secure the specific performance of this Agreement without the necessity of posting bond or security, which Employee expressly waives. Employee agrees that the rights of the Company to obtain injunctive relief shall not be considered a waiver of the Company’s rights to seek any other remedies it may have at law or in equity.

          The restrictions set forth herein shall be construed as a series of separate and severable covenants. Employee agrees that if in any proceeding, the tribunal refuses to enforce fully any covenants contained herein because such covenants cover too extensive a geographic area or too long a period of time or for any other reason whatsoever, any such covenant shall be considered divisible both as to duration and geographic area so that each month of a specified period shall be deemed a separate period of time and each county in each particular state (or such other geographic subdivision as the tribunal determines is reasonable) a separate geographic area, resulting in an intended requirement that the longest lesser period of time or the largest lesser geographic area found by such tribunal to be a reasonable restriction shall remain an effective restrictive covenant specifically enforceable against Employee. Further, the covenants contained in Paragraphs 2, 3, 4, 5, and 6 shall be construed as agreements independent of any other provision of this Agreement, and the existence of any claim or cause of action of Employee against the Company or any of its employees, agents, shareholders, directors, or officers, whether predicated on this Agreement or otherwise, shall not constitute a defense to enforcement by the Company of any of these covenants.

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          8. Return of Records. Upon termination of employment, Employee agrees to return to the Company all documents (whether electronic or written), notes, drawings, data, records, materials and other property of whatever nature received from or created for the Company, and any and all copies thereof including, but not limited to, those documents, records, and materials containing or relating to Proprietary Information. Employee agrees that all such documents that are currently in Employee’s possession or control or which may come into Employee’s possession or control in the future shall be the property of the Company.

          9. Miscellaneous.

               (a) Severability. Nothing in this Agreement shall be construed so as to require the commission of any act contrary to law and wherever there is any conflict between any provision of this Agreement and any law, statute, ordinance, order or regulation, the latter shall prevail, but in the event of any conflict, any provision of this Agreement shall be curtailed and limited only to the extent necessary to bring it within applicable legal requirements. If any provision of this Agreement should be held invalid or unenforceable, the remaining provisions shall be unaffected by the holding.

               (b) Complete Agreement. This Agreement contains the entire agreement and understanding between the parties relating to the subject matter hereof, and supersedes any prior understandings, agreements, or representations by or between the parties, written or oral, relating to the subject matter hereof. It may not be modified, except in a written document executed by both parties to this Agreement.

               (c) Other Agreements. Employee represents and warrants that Employee is not a party to or bound by the provisions of any other agreement which would prevent or impair Employee’s ability to render services to the Company and that Employee’s entering into this Agreement. The parties hereto each represent and warrant to the other party that the performance of any obligations hereunder by such party will not violate the provisions of, or cause such party to be in default under, any other agreement or contract to which such party is a party or by which such party is bound.

               (d) Paragraph Headings. The paragraph headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

               (e) Governing Law. This Agreement shall be governed by and this Agreement and any disputes or controversies related hereto shall be construed in accordance with the laws of the State of Texas, excluding any choice of law provisions that would apply the laws of any other jurisdiction.

               (f) Waiver. No delay on the part of either party in exercising any right, power, or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of either party of any right, power, or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power, or privilege hereunder.

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               (g) Assignment. This Agreement and Employee’s rights and obligations hereunder may not be assigned by Employee. The Company may, without Employee’s consent, assign its rights, together with its obligations, under this Agreement.

               (h) Period of Employment. As used herein, the period of employment includes any time in which Employee is retained by the Company as an employee, director, or consultant.

               (i) Counterparts. This Agreement may be entered into in two or more counterparts, each of which shall be deemed an original, and together shall be deemed to be one and the same instrument.

          IN WITNESS WHEREOF, the parties have executed and delivered this Proprietary Information, Inventions and Non-Compete Agreement as of the date first set forth above.

EMPLOYEE	DEAN FOODS COMPANY
/s/ JACK F. CALLAHAN JR.	By:	/s/ Michelle Goolsby
JACK F. CALLAHAN JR.		EVP & General Counsel

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EX-31.1

Exhibit 31.1

Certification

I, Gregg L. Engles, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Dean Foods Company;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of Dean Foods Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
d.	Disclosed in this 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 officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Dean Foods Company’s auditors and the audit committee of Dean Foods Company’s board of directors:

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are 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 control over financial reporting.

/s/ Gregg L. Engles

Chairman of the Board and

Chief Executive Officer

August 9, 2006

EX-31.2

Exhibit 31.2

Certification

I, Jack F. Callahan, Jr., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Dean Foods Company;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of Dean Foods Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
d.	Disclosed in this 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 officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Dean Foods Company’s auditors and the audit committee of Dean Foods Company’s board of directors:

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are 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 control over financial reporting.

/s/ Jack F. Callahan, Jr.

Executive Vice President and

Chief Financial Officer

August 9, 2006

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
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 June 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregg L. 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 L. Engles

Gregg L. Engles

Chairman of the Board and Chief Executive Officer

August 9, 2006

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

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
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 June 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jack F. Callahan, Jr., 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/ Jack F. Callahan, Jr.

Jack F. Callahan, Jr.

Executive Vice President and Chief Financial Officer

August 9, 2006

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.