DEAN FOODS CO/ - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

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)

[DEAN FOODS LOGO]

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DELAWARE 75-2559681
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) 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)

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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 [ ]

As of August 9, 2002 the number of shares outstanding of each class of
common stock was:

Common Stock, par value $.01 90,434,356

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TABLE OF CONTENTS

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

See notes to condensed consolidated financial statements.

3

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

See notes to condensed consolidated financial statements.

4

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

See notes to condensed consolidated financial statements.

5

DEAN FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002

1. GENERAL

Basis of Presentation -- The unaudited condensed consolidated financial
statements contained in this 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, 2001. 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 generally accepted accounting principles have been
omitted. Our results of operations for the period ended June 30, 2002 may not be
indicative of our operating results for the full year. The consolidated
financial statements contained in this report should be read in conjunction with
our 2001 consolidated financial statements contained in our Annual Report on
Form 10-K as filed with the Securities and Exchange Commission on April 1, 2002.

On April 23, 2002, we effected a two-for-one split of our common stock.
Pursuant to the split, all shareholders of record as of April 8, 2002 received
one additional share of common stock for each share held on that date. All share
numbers contained in our condensed consolidated financial statements, and in
these notes, have been adjusted for all periods to reflect the stock split, as
if it had already occurred.

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

Recently Issued Accounting Standards -- The Emerging Issues Task Force
(the "Task Force") of the Financial Accounting Standards Board ("FASB") has
reached a consensus on Issue No. 00-14, "Accounting for Certain Sales
Incentives," which became effective for us in the first quarter of 2002. This
Issue addresses the recognition, measurement and income statement classification
of sales incentives that have the effect of reducing the price of a product or
service to a customer at the point of sale. Our historical practice for
recording sales incentives within the scope of this Issue, which has been to
record estimated coupon expense based on historical coupon redemption
experience, is consistent with the requirements of this Issue. Therefore, our
adoption of this Issue has no impact on our consolidated financial statements.

The Task Force has also reached a consensus on Issue No. 00-25, "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products." We adopted this Issue in the first quarter of 2002. Under
this Issue, certain consideration paid to our customers (such as slotting fees)
is required to be classified as a reduction of revenue, rather than recorded as
an expense. Adoption of this Issue required us to reduce reported revenue and
selling and distribution expense for the second quarter and for the first six
months of 2001 by $9.5 million and $18.8 million, respectively. There was no
change, however, in reported net income.

In June 2001, FASB issued Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 addresses financial accounting and reporting
for business combinations. Under the new standard, all business combinations
entered into after June 30, 2001 are required to be accounted for by the
purchase method. We have applied, and will continue to apply, the provisions of
SFAS No. 141 to all business combinations completed after June 30, 2001. SFAS
No. 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets. We adopted SFAS No. 142 in the first quarter of 2002.
SFAS No. 142 requires that goodwill no

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longer be amortized, but instead requires a transitional goodwill impairment
assessment and annual impairment tests thereafter. Effective June 30, 2002, we
completed the first phase of the transitional goodwill impairment assessment,
which indicated that the goodwill related to our Puerto Rico reporting unit is
impaired. Prior to December 31, 2002, we will determine the amount of the
impairment, and record the impairment in our income statement as the cumulative
effect of a change in accounting principle retroactive to the first quarter of
2002. We currently have approximately $67 million recorded as goodwill related
to our Puerto Rico reporting unit. Therefore, the maximum transitional goodwill
impairment we will recognize as a result of the adoption of SFAS No. 142 will be
approximately $67 million. SFAS No. 142 also requires that recognized intangible
assets be amortized over their respective estimated useful lives. As part of the
adoption, we have re-assessed the useful lives and residual values of all
recognized intangible assets. Any recognized intangible asset determined to have
an indefinite useful life was tested for impairment in accordance with the
standard. These impairment tests were completed during the first quarter of
2002, and resulted in a charge of $47.3 million, net of an income tax benefit of
$29.0 million, which was recorded during the first quarter of 2002 as a change
in accounting principle. The impairment related to certain trademarks in our
Dairy Group and Morningstar/White Wave segments. The fair value of these
trademarks was determined using a present value technique.

In June 2001, FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which the associated legal obligation for the liability is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset and
amortized over the useful life of the asset. SFAS No. 143 will become effective
for us in fiscal year 2003. We are currently evaluating the impact of adopting
this pronouncement on our consolidated financial statements.

FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" in August 2001 and it became effective for us in the first
quarter of 2002. SFAS No. 144, which supercedes SFAS No. 121, provides a single,
comprehensive accounting model for impairment and disposal of long-lived assets
and discontinued operations. Our adoption of this standard did not have a
material impact on our consolidated financial statements.

SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections," was issued in
April 2002 and is applicable to fiscal years beginning after May 15, 2002. One
of the provisions of this technical statement is the rescission of SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt," whereby any gain or
loss on the early extinguishment of debt that was classified as an extraordinary
item in prior periods in accordance with SFAS No. 4, which does not meet the
criteria of an extraordinary item as defined by APB Opinion 30, must be
reclassified. Adoption of this standard will require us to reclassify
extraordinary losses previously reported from the early extinguishment of debt
as a component of "other expense". For the year ended December 31, 2001, we
recorded an extraordinary loss of $4.3 million, net of an income tax benefit of
$3.0 million in connection with the early extinguishment of debt.

In June 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The statement requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred, and is effective for exit or disposal activities that are
initiated after December 31, 2002. We are currently evaluating the impact of
adopting this pronouncement on our consolidated financial statements.

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2. ACQUISITIONS AND DIVESTITURES

Acquisition of Dean Foods Company -- On December 21, 2001, we completed
our acquisition of Dean Foods Company ("Old Dean"). As a result of this
transaction, Old Dean was merged with and into our wholly-owned subsidiary,
Blackhawk Acquisition Corp. Blackhawk Acquisition Corp. survived the merger and
immediately changed its name to Dean Holding Company. Immediately after
completion of the merger, we changed our name to Dean Foods Company. As a result
of the merger, each share of common stock of Old Dean was converted into 0.858
shares of our common stock and the right to receive $21.00 in cash. The
aggregate purchase price recorded was $1.7 billion, including $756.8 million of
cash paid to Old Dean stockholders, common stock valued at $739.4 million and
estimated transaction costs of $55.7 million. The value of the approximately 31
million common shares issued was determined based on the average market price of
our common stock during the period from April 2 through April 10, 2001 (the
acquisition was announced on April 5, 2001). In addition, each of the options to
purchase Old Dean's common stock outstanding on December 21, 2001 was converted
into an option to purchase 1.504 shares of our stock. As discussed in Note 6,
the holders of these options had the right, during the ninety day period
following the acquisition, to surrender their stock options to us, in lieu of
exercise, in exchange for a cash payment. We paid $17.7 million for stock option
surrenders during the first six months of 2002.

We decided to acquire Old Dean for the above-described consideration
after considering a number of factors, including:

o The acquisition would result in us becoming the first truly national
dairy and specialty foods company with the geographic reach, management
depth and product mix necessary to meet the needs of large customers,
who can especially benefit from the added services, convenience and
value that a national dairy company can provide;

o Combining our business would enable us to reduce our costs by pursuing
economies of scale in purchasing, product development and
manufacturing, and by eliminating duplicative costs; and

o Increasing our scale would provide us with greater resources to invest
in marketing and innovation.

Also on December 21, 2001, in connection with our acquisition of Old
Dean, we purchased Dairy Farmers of America's ("DFA") 33.8% stake in our Dairy
Group for consideration consisting of: (1) approximately $145.4 million in cash,
(2) a contingent promissory note in the original principal amount of $40
million, and (3) the operations of eleven plants (including seven of our plants
and four of Old Dean's plants) located in nine states where we and Old Dean had
overlapping operations. As additional consideration, we amended a milk supply
agreement with DFA to provide that if we do not, within a specified period
following the completion of our acquisition of Old Dean, offer DFA the right to
supply raw milk to certain of the Old Dean dairy plants, we could be required to
pay liquidated damages of up to $47.0 million. See Note 10 for further
discussion of these contingent obligations. As a result of this transaction, we
now own 100% of our Dairy Group.

In connection with our acquisition of Old Dean, we entered into a new
credit facility and expanded our receivables-backed loan facility. See Note 5.
We used the proceeds from the credit facility and receivables-backed loan
facility to fund the cash portion of the merger consideration and the
acquisition of DFA's minority interest, to refinance certain indebtedness and to
pay certain transaction costs.

Old Dean's operations and the acquisition of DFA's minority interest
(and related divestitures) are reflected in our consolidated financial
statements after December 21, 2001.

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We have not completed a final allocation of the purchase price to the
fair values of assets and liabilities of Old Dean and the related business
integration plans. We expect that the ultimate purchase price allocation may
include additional adjustments to the fair values of depreciable tangible
assets, identifiable intangible assets (some of which will have indefinite
lives) and the carrying values of certain liabilities. Accordingly, to the
extent that such assessments indicate that the fair value of the assets and
liabilities differ from their preliminary purchase price allocations, such
difference would adjust the amounts allocated to those assets and liabilities
and would change the amounts allocated to goodwill.

The unaudited results of operations on a pro forma basis for the three-
and six-month periods ended June 30, 2001 as if the acquisition of Old Dean, and
the purchase of DFA's minority interest (including the divestiture of the 11
plants transferred in partial consideration of that interest) had occurred as of
the beginning of 2001 are as follows:

Acquisition of White Wave -- On May 9, 2002, we acquired the 64% equity
interest in White Wave, Inc. that we did not already own. White Wave, based in
Boulder, Colorado, is the maker of Silk(R) soymilk and other soy-based products,
and had sales of approximately $125 million during the 12 months ended March 31,
2002. Prior to May 9, we owned approximately 36.0% of White Wave, as a result of
certain investments made by Old Dean beginning in 1999. We purchased the
remaining 64% equity interest for a total price of approximately $189.0 million.
Existing management of White Wave will remain in place. We have agreed to pay
White Wave's management team an incentive bonus based on achieving certain sales
growth targets by March 2004. The bonus amount will vary depending on the level
of two-year cumulative sales White Wave achieves by the end of March 2004, and
is anticipated to range between $30.0 million and $40.0 million. Amounts
expected to be payable under the bonus plan are expensed each quarter based on
White Wave's performance during the quarter. See Note 10. For financial
reporting purposes, White Wave's financial results are aggregated with
Morningstar Foods' financial results.

Acquisition of Marie's -- On May 17, 2002, we bought the assets of
Marie's Quality Foods, Marie's Dressings, Inc. and Marie's Associates, makers of
Marie's(R) brand dips and dressings in the western United States for an
aggregate purchase price of approximately $23.0 million. Prior to the
acquisition, we licensed the Marie's brand to Marie's Quality Foods and Marie's
Dressings, Inc. for use in connection with the manufacture and sale of dips and
dressings in the western United States. As a result of this acquisition, our
Morningstar/White Wave segment is now the sole owner, manufacturer and marketer
of Marie's brand products nationwide.

Divestitures of DFC Transportation and Boiled Peanut Business -- On
January 4, 2002, we completed the sale of the stock of DFC Transportation
Company, which was a part of our Specialty Foods segment. On February 7, 2002,
we completed the sale of the assets related to the boiled peanut business of
Dean Specialty Foods Company, a part of our Specialty Foods segment.

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3. INVENTORIES

Approximately $72.4 million and $131.7 million of our inventory was
accounted for under the last-in, first-out (LIFO) method of accounting at June
30, 2002 and December 31, 2001, respectively. There was no material excess of
current cost over the stated value of last-in, first-out inventories at either
date.

4. GOODWILL AND OTHER INTANGIBLE ASSETS

On January 1, 2002, we adopted SFAS No. 142, which requires, among
other things, that goodwill no longer be amortized, and that recognized
intangible assets be amortized over their respective useful lives. As required
by SFAS No. 142, our results for the second quarter and first half of 2001 have
not been restated. The following sets forth a reconciliation of net income and
earnings per share information for the three- and six-month periods ended June
30, 2002 and 2001, eliminating goodwill amortization and amortizing recognized
intangible assets over their useful lives. We expect to complete our goodwill
impairment analysis by December 31, 2002. See Note 1.

The changes in the carrying amount of goodwill for the six months ended
June 30, 2002 are as follows:

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The gross carrying amount and accumulated amortization of our
intangible assets other than goodwill as of June 30, 2002 and December 31, 2001
are as follows:

Amortization expense on intangible assets for the three months ended
June 30, 2002 and 2001 was $1.1 million and $2.0 million respectively, and $3.0
million and $4.1 million for the six months ended June 30, 2002 and 2001,
respectively. Estimated aggregate intangible asset amortization expense for the
next five years is as follows:

2003 $5.2 million
2004 $4.2 million
2005 $3.2 million
2006 $2.4 million
2007 $1.8 million

5. LONG-TERM DEBT

Senior Credit Facility -- Simultaneously with the completion of our
acquisition of Old Dean, we obtained a new $2.7 billion credit facility with a
syndicate of lenders, which replaced our then existing credit facilities. The
senior credit facility provides an $800.0 million revolving line of credit, a
Tranche A $900.0 million term loan and a Tranche B $1.0 billion term loan. At
closing, we borrowed $1.9 billion under this facility's term loans. At June 30,
2002 there were outstanding borrowings of $1.914 billion under this facility, in
addition to $56.6 million of issued but undrawn letters of credit.

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

11

o a base rate equal to the higher of the Federal Funds rate plus 50
basis points or the prime rate, plus a margin that varies from 25 to
150 basis points, depending on our leverage ratio (which is the
ratio of defined indebtedness to EBITDA), or

o the London Interbank Offering Rate ("LIBOR") computed as LIBOR
divided by the product of one minus the Eurodollar Reserve
Percentage, plus a margin that varies from 150 to 275 basis points,
depending on our leverage ratio.

On April 30, 2002, we entered into an amendment to our credit facility
pursuant to which the interest rate for amounts outstanding under the Tranche B
term loan was lowered by 50 basis points, to the following, at our option:

o a base rate equal to the higher of the Federal Funds rate plus 50
basis points or the prime rate, plus a margin that varies from 75 to
150 basis points, depending on our leverage ratio, or

o LIBOR divided by the product of one minus the Eurodollar Reserve
Percentage, plus a margin that varies from 200 to 275 basis points,
depending on our leverage ratio.

Prior to the effective date of the amendment, the margin for Tranche B
base rate borrowings was a range of 125 to 200 basis points and the margin for
Tranche B LIBOR borrowings was a range of 250 to 325 basis points.

The blended interest rate in effect on borrowings under the senior
credit facility, including the applicable interest rate margin, was 4.11% at
June 30, 2002. However, we have interest rate swap agreements in place that
hedge $925.0 million of our borrowings under this facility at an average rate of
5.95%, plus the applicable interest rate margin. Interest is payable quarterly
or at the end of the applicable interest period.

Scheduled principal payments on the Tranche A $900.0 million term loan
are due in the following installments:

o $16.87 million quarterly from March 31, 2002 through December 31,
2002;

o $33.75 million quarterly from March 31, 2003 through December 31,
2004;

o $39.38 million quarterly from March 31, 2005 through December 31,
2005;

o $45.0 million quarterly from March 31, 2006 through December 31,
2006;

o $56.25 million quarterly from March 31, 2007 through June 30, 2007;
and

o A final payment of $112.5 million on July 15, 2007.

Scheduled principal payments on the Tranche B $1.0 billion term loan
are due in the following installments:

o $1.25 million quarterly from March 31, 2002 through December 31,
2002;

o $2.5 million quarterly from March 31, 2003 through December 31,
2007;

o A payment of $472.5 million on March 31, 2008; and

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o A final payment of $472.5 million on July 15, 2008.

No principal payments are due on the $800.0 million revolving line of
credit until maturity on July 15, 2007.

The credit agreement also requires mandatory principal prepayments in
certain circumstances including without limitation: (1) upon the occurrence of
certain asset dispositions not in the ordinary course of business, (2) upon the
occurrence of certain debt and equity issuances when our leverage ratio is
greater than 3.0 to 1.0, and (3) beginning in 2003, annually when our leverage
ratio is greater than 3.0 to 1.0. As of June 30, 2002, our leverage ratio was
3.4 to 1.0.

In consideration for the revolving commitments, we pay a commitment fee
on unused amounts of the senior credit facility that ranges from 37.5 to 50
basis points, based on our leverage ratio.

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

Our leverage ratio must be less than or equal to:

Our interest coverage ratio must be greater than or equal to 3.00 to
1.00.

Our consolidated net worth must be greater than or equal to $1.2
billion, as increased each quarter (beginning with the quarter ended March 31,
2002) by an amount equal to 50% of our consolidated net income for the quarter,
plus 75% of the amount by which stockholders' equity is increased by certain
equity issuances. As of June 30, 2002, the minimum net worth requirement was
$1.239 billion.

Our credit agreement permits us to complete acquisitions that meet the
following conditions: (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 total cash consideration is
not greater than $100 million (which amount will be increased to $300 million
when our leverage ratio is less than 3.0 to 1.0), (3) we acquire at least 51% of
the acquired entity, and (4) the transaction is approved by the Board of
Directors or shareholders, as appropriate, of the target. All other acquisitions
must be approved in advance by the required lenders.

Our credit agreement also permits us to repurchase stock under our open
market share repurchase program, provided that, until our leverage ratio is less
than 3.0 to 1.0, total Restricted Payments (as defined in the agreement, which
definition includes stock repurchases) cannot exceed $50 million per year, plus
the amount of payments required to be made on our outstanding convertible
preferred securities during that year.

The facility also contains limitations on liens, investments, the
incurrence of additional indebtedness and acquisitions, and prohibits certain
dispositions of property and restricts certain payments, including dividends.
The credit facility is secured by liens on substantially all of our domestic

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assets (including the assets of our subsidiaries, but excluding the capital
stock of Old Dean's subsidiaries, and the real property owned by Old Dean and
its subsidiaries).

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

We are currently in compliance with all covenants contained in the
credit agreement.

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

o $96.2 million ($100 million face value), at 6.75% interest, maturing
in 2005;

o $250.5 million ($250 million face value), at 8.15% interest,
maturing in 2007;

o $183.5 million ($200 million face value), at 6.625% interest,
maturing in 2009; and

o $125.0 million ($150 million face value), at 6.9% interest, maturing
in 2017.

These notes were issued by Old Dean. The related indentures do not
contain financial covenants but they do contain certain restrictions including a
prohibition against Old Dean and its subsidiaries granting liens on their
respective real estate interests and a prohibition against Old Dean granting
liens on the stock of its subsidiaries. The indentures also place certain
restrictions on Old Dean's ability to divest assets not in the ordinary course
of business.

Receivables-Backed Loan -- We have entered into a $400.0 million
receivables securitization facility pursuant to which certain of our
subsidiaries sell their accounts receivable to two wholly-owned special purpose
entities intended to be bankruptcy-remote. The special purpose entities then
transfer the receivables to two third party asset-backed commercial paper
conduits sponsored by major financial institutions. The assets and liabilities
of these special purpose entities are fully reflected on our balance sheet, and
the securitization is treated as a borrowing for accounting purposes. During the
first six months of 2002, we made net payments of $60.7 million on this facility
leaving an outstanding balance of $339.3 million at June 30, 2002.

The receivables-backed loan bears interest at a variable rate based on
the commercial paper yield as defined in the agreement.

Foreign Subsidiary Term Loan -- In connection with our acquisition of
Leche Celta in February 2000, our Spanish subsidiary obtained a 7 billion peseta
(as of June 30, 2002, approximately $41.5 million) non-recourse term loan from a
Spanish lender, all of which was borrowed at closing and used to finance a
portion of the purchase price. The loan, which is secured by the stock of Leche
Celta, will expire on February 21, 2007, bears interest at a variable rate based
on the ratio of Leche Celta's debt to EBITDA (as defined in the corresponding
loan agreement), and requires semi-annual principal payments.

Other Lines of Credit -- Leche Celta, our Spanish subsidiary, is our
only subsidiary with its own lines of credit separate from the credit facilities
described above. Leche Celta's primary line of credit, which is in the principal
amount of 2.5 billion pesetas (as of June 30, 2002 approximately $14.8 million),
was obtained on July 12, 2000, bears interest at a variable interest rate based
on the ratio of Leche Celta's

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debt to EBITDA (as defined in the corresponding loan agreement), is secured by
our stock in Leche Celta and will expire in June 2007. Leche Celta also utilizes
other local commercial lines of credit. At June 30, 2002, a total of $13.4
million was drawn on these lines of credit.

Industrial Development Revenue Bonds -- Certain of our subsidiaries
have revenue bonds outstanding, some of which require nominal annual sinking
fund redemptions. Typically, these bonds are secured by irrevocable letters of
credit issued by financial institutions, along with first mortgages on the
related real property and equipment. Interest on these bonds is due semiannually
at interest rates that vary based on market conditions.

Other Subsidiary Debt -- Other subsidiary debt includes various
promissory notes for the purchase of property, plant, and equipment and capital
lease obligations. The various promissory notes payable provide for interest at
varying rates and are payable in monthly installments of principal and interest
until maturity, when the remaining principal balances are due. Capital lease
obligations represent machinery and equipment financing obligations which are
payable in monthly installments of principal and interest and are collateralized
by the related assets financed.

Letters of Credit -- At June 30, 2002 there were $56.6 million of
issued but undrawn letters of credit secured by our senior credit facility. In
addition to the letters of credit secured by our credit facility, an additional
$64.0 million of letters of credit were outstanding at June 30, 2002. These
letters of credit were required by various utilities and government entities for
performance and insurance guarantees.

Interest Rate Agreements -- We have interest rate swap agreements in
place that have been designated as cash flow hedges against variable interest
rate exposure on a portion of our debt, with the objective of minimizing our
interest rate risk and stabilizing cash flows.

These swap agreements provide hedges for loans under our senior credit
facility by limiting or fixing the LIBOR interest rates specified in the senior
credit facility at the interest rates noted below until the indicated expiration
dates of these interest rate swap agreements.

The following table summarizes our various interest rate agreements in
effect as of June 30, 2002 and December 31, 2001:

In March and June of 2002, we entered into forward starting swaps that
begin in December 2002 with a notional amount of $750.0 million and fixed
interest rates of 4.005% to 5.315%. These swaps have been designated as hedges
against interest rate exposure on loans under our senior credit facility and
under one of our subsidiary's term loans.

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

These swaps are required to be recorded as an asset or liability on our
consolidated balance sheet at fair value, with an offset to other comprehensive
income to the extent the hedge is effective. Derivative

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gains and losses included in other comprehensive income are reclassified into
earnings as the underlying transaction occurs. Any ineffectiveness in our hedges
is recorded as an adjustment to interest expense.

As of June 30, 2002, our derivative liability totaled $48.3 million on
our consolidated balance sheet including approximately $32.8 million recorded as
a component of accounts payable and accrued expenses and $15.5 million recorded
as a component of other long-term liabilities. There was no hedge
ineffectiveness, as determined in accordance with SFAS No. 133, for the quarter
or the six months ended June 30, 2002. Approximately $5.8 million and $11.5
million of losses (net of taxes) were reclassified to interest expense from
other comprehensive income during the quarter and the six months ended June 30,
2002, respectively. We estimate that approximately $20.6 million of net
derivative losses (net of income taxes) included in other comprehensive income
will be reclassified into earnings within the next 12 months. These losses will
partially offset the lower 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 since the counterparties to our interest rate swap agreements are major
financial institutions.

6. STOCKHOLDERS' EQUITY

The following table summarizes activity during the first two quarters
of 2002 under our stock-based compensation programs:

- ----------

(1) Options to purchase Old Dean stock outstanding at the time of the
acquisition were automatically converted into options to purchase our
stock. Upon conversion, those options represented options to purchase a
total of approximately 5.4 million shares of our common stock.

(2) Options vest as follows: one-third on the first anniversary of the grant
date, one-third on the second anniversary of the grant date, and one-third
on the third anniversary of the grant date.

(3) The acquisition of Old Dean triggered certain "change in control" rights
contained in the Old Dean option agreements, which consisted of the right
to surrender the options to us, in lieu of exercise, in exchange for cash,
provided the options were surrendered prior to March 21, 2002. Options to
purchase approximately 1.6 million shares were surrendered.

We issued 1,876 shares of restricted stock during the first quarter of 2002
and 2,968 shares of restricted stock during the second quarter of 2002. All
shares of restricted stock were granted to independent directors as compensation
for services rendered as directors during the immediately preceding quarter.
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.

16

7. COMPREHENSIVE INCOME

Comprehensive income consists of net income plus all other changes in
equity from non-owner sources. Consolidated comprehensive income was $75.5
million and $84.2 million for the three-months and six-months ended June 30,
2002. The amounts of income tax (expense) benefit allocated to each component of
other comprehensive income during the six months ended June 30, 2002 are
included below.

8. PLANT CLOSING COSTS

Plant Closing Costs -- As part of an overall integration and cost
reduction program, we recorded plant closing costs during the first quarter of
2002 in the amount of $1.2 million related to the closing of our Port Huron,
Michigan, Dairy Group plant during the fourth quarter of 2001.

During the second quarter of 2002, we recorded plant closing costs in
the amount of $6.7 million related to the closing of one plant in Puerto Rico,
one Dairy Group plant in Bennington, Vermont, and one Dairy Group distribution
facility in Winchester, Virginia.

The principal components of the cost reduction plans included within
this program include the following:

o Workforce reductions as a result of plant closings, plant
rationalizations and consolidation of administrative
functions. To date, we have identified 303 employees, who were
primarily plant employees associated with the plant closings
and rationalization, for termination pursuant to the plans.
Costs are charged to our earnings in the period that the plan
is established in detail and employee severance and benefits
are appropriately communicated. As of June 30, 2002, 298
employees had been terminated under the program;

o Shutdown costs, including those costs that are necessary to
prepare plant facilities for re-sale or closure;

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

o 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 building, land and equipment at the
facilities which are being sold and were written down to their
estimated fair value. The effects of suspending depreciation
on the buildings and equipment related to the closed
facilities were not significant. The carrying value of closed
facilities held for sale at June 30, 2002 was approximately

17

$8.5 million. We are marketing these properties for sale.
Divestitures of closed facilities has not resulted in
significant modifications to the estimate of fair value.

Activity with respect to plant closing costs for 2002 to date is
summarized below:

There have not been significant adjustments to any plan included within
our integration and cost reduction program, and the majority of future cash
requirements to reduce the liabilities under the plans are expected to be
completed within one year.

Acquired facility closing costs -- As part of our purchase price
allocations, we accrue costs from time to time pursuant to plans to exit certain
activities and operations of acquired businesses in order to rationalize
production and reduce costs and inefficiencies.

We have implemented a plan to close several plants and the Old Dean
administrative offices in connection with our acquisition of Old Dean. We will
continue to finalize and implement our initial integration and rationalization
plan and expect to refine our estimate of amounts in our purchase price
allocations associated with this plan.

The principal components of the plan include the following:

o Workforce reductions as a result of plant closings, plant
rationalizations and consolidation of administrative functions and
offices, resulting in an overall reduction of 677 plant and
administrative personnel which have been identified for termination to
date. The costs incurred are charged against our acquisition liabilities
for these costs. As of June 30, 2002, 183 employees identified for
termination had not yet been terminated;

o Shutdown costs, including those costs that are necessary to clean and
prepare the plant facilities for re-sale or closure; and

o Costs incurred after shutdown such as lease obligations or termination
costs, utilities and property taxes after shutdown of the plant or
administrative office.

Activity with respect to these acquisition liabilities during the first six
months of 2002 are summarized below:

18

9. SHIPPING AND HANDLING FEES

Our shipping and handling costs are included in both cost of sales and
selling and distribution expense, depending on the nature of such costs.
Shipping and handling costs included in cost of sales reflect the cost of
shipping products to customers through third party carriers, inventory warehouse
costs and product loading and handling costs. Shipping and handling costs
included in selling and distribution expense consist primarily of route delivery
costs for both company-owned delivery routes and independent distributor routes,
to the extent that such independent distributors are paid a delivery fee.
Shipping and handling costs that were recorded as a component of selling and
distribution expense were approximately $240.1 million and $477.7 million during
the second quarter and first half of 2002, respectively, compared to $162.0
million and $322.6 million during the second quarter and first six months,
respectively, of 2001.

10. COMMITMENTS AND CONTINGENCIES

Guaranty of Certain Indebtedness of Consolidated Container Company --
We own a 43.1% interest in Consolidated Container Company ("CCC"), the nation's
largest manufacturer of rigid plastic containers and our primary supplier of
plastic bottles and bottle components. During 2001, as a result of various
operational difficulties, CCC became unable to comply with the financial
covenants in its credit facility. In February 2002, CCC's lenders agreed to
restructure the credit agreement to modify the financial covenants, subject to
the agreement of CCC's primary shareholders to guarantee certain of CCC's debt.
Because CCC is an important and valued supplier of ours, and in order to protect
our interest in CCC, we agreed to provide a limited guaranty. The guaranty,
which expires on January 5, 2003, is limited in amount to the lesser of (1) 49%
of the principal, interest and fees of CCC's "Tranche 3" revolver, and (2) $10
million. CCC's "Tranche 3" revolver can only be drawn upon by CCC when its
Tranche 1 and Tranche 2 revolvers are fully drawn. If CCC draws on the Tranche 3
revolver, no voluntary pre-payments may be made on the Tranche 1 and 2 revolvers
until the Tranche 3 revolver is fully re-paid. Our guaranty cannot be drawn upon
until the Tranche 3 loan is due and payable (whether at its January 5, 2003
maturity or by acceleration), and no more than one demand for payment may be
made by the banks. We have entered into an agreement with Alan Bernon (who is a
member of our Board of Directors) and his brother, Peter Bernon, who
collectively own 6% of CCC, pursuant to which, collectively, they have agreed to
reimburse us for 12% of any amounts paid by us under the guaranty.

Contingent Obligations Related to Milk Supply Arrangements and Divested
Operations -- On December 21, 2001, in connection with our acquisition of Old
Dean, we purchased Dairy Farmers of America's ("DFA") 33.8% stake in our Dairy
Group for consideration consisting of (1) approximately $145.4 million in cash,
(2) a contingent promissory note in the original principal amount of $40.0
million, and (3) the operations of 11 plants located in nine states where we and
Old Dean had overlapping operations (which plants were actually transferred to
National Dairy Holdings, L.P., as assignee of DFA). As additional consideration,
we amended a milk supply agreement with DFA to provide that if we do not, within
a certain period of time after the completion of the Old Dean acquisition, offer
DFA the right to supply raw milk to certain of the Old Dean dairy plants, we
could be required to pay liquidated damages of up to $47.0 million.
Specifically, the liquidated damages to DFA provision provides that:

o If we have not offered DFA the right to supply all of our raw milk
requirements for certain of Old Dean's plants by either (i) the end of
the 18th full month after December 21, 2001, or (ii) with respect to
certain other plants, the end of the 6th full calendar month following
the expiration of milk supply agreements in existence at those plants
on December 21, 2001, or

19

o If DFA is prohibited from supplying those plants because of an
injunction, restraining order or otherwise as a result of or arising
from a milk supply contract to which we are party,

we must pay DFA liquidated damages determined and paid on a plant-by-plant
basis, based generally on the amount of raw milk used by that plant. Liquidated
damages would be payable in arrears in equal, quarterly installments over a
5-year period, without interest. If we are required to pay any such liquidated
damages, the principal amount of the $40.0 million contingent promissory note
will be reduced by an amount equal to 25% of the liquidated damages paid.

The contingent promissory note is designed to ensure that DFA, one of
our primary suppliers of raw milk, has the opportunity to continue to supply raw
milk to certain of our plants until 2021, or be paid for the loss of that
business. The contingent promissory note has a 20-year term and bears interest
based on the consumer price index. Interest will not be paid in cash. Instead,
interest will be added to the principal amount of the note annually, up to a
maximum principal amount of $96.0 million. We may prepay the note in whole or in
part at any time, without penalty. The note will only become payable if we ever
materially breach or terminate one of our milk supply agreements with DFA
without renewal or replacement. Otherwise, the note will expire at the end of 20
years, without any obligation to pay any portion of the principal or interest.

We retained certain liabilities of the businesses of the 11 plants
divested to National Dairy Holdings, where those liabilities were deemed to be
"non-ordinary course" liabilities. We also have the obligation to indemnify
National Dairy Holdings for any damages incurred by it in connection with those
retained liabilities, or in connection with any breach of the divestiture
agreement. We do not expect any liability that we may have for these retained
liabilities, or any indemnification liability, to be material. We believe we
have created adequate reserves for any such potential liability.

Leases -- We lease certain property, plant and equipment used in our
operations under both capital and operating lease agreements. Such leases, which
are primarily for machinery, equipment and vehicles, have lease terms ranging
from 1 to 20 years. Certain of the operating lease agreements require the
payment of additional rentals for maintenance, along with additional rentals
based on miles driven or units produced.

Contingent Obligations Related to White Wave Acquisition -- On May 9,
2001, we completed the acquisition of White Wave, Inc. In connection with the
acquisition, we established a Performance Bonus Plan pursuant to which we agreed
to pay performance bonuses to certain employees of White Wave if certain
performance targets are achieved. Specifically, we agreed that if the cumulative
net sales (as defined in the plan) of White Wave equal or exceed $382.5 million
during the period beginning April 1, 2002 and ending March 31, 2004 (the
"Incentive Period") and White Wave does not exceed the budgetary restrictions
set forth in the plan by more than $1 million during the Incentive Period, we
will pay employee bonuses as follows:

o If cumulative net sales during the Incentive Period are between $382.5
million and $450.0 million, the bonus paid will scale ratably (meaning
$129,630 for each $1 million of net sales) between $26.025 million and
$35.0 million; and

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

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

20

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

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

Key employees of White Wave are also entitled to receive certain
payments if they are terminated without cause (or as a result of death or
incapacity) during the Incentive Period.

Litigation, Investigations and Audits -- We and our subsidiaries are
parties, in the ordinary course of business, to certain other claims,
litigation, audits and investigations. We believe we have created adequate
reserves for any liability we may incur in connection with any such currently
pending or threatened matter. In our opinion, the settlement of any such
currently pending or threatened matter is not expected to have a material
adverse impact on our financial position, results of operations or cash flows.

11. BUSINESS AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

We currently have three reportable segments: Dairy Group,
Morningstar/White Wave and Specialty Foods. Our Dairy Group segment manufactures
and distributes fluid milk, ice cream and novelties, half-and-half, whipping
cream, sour cream, cottage cheese, yogurt and dips, as well as fruit juices,
flavored drinks and bottled water. Our Morningstar/White Wave segment
manufactures dairy and non-dairy coffee creamers, whipping cream and pre-whipped
toppings, dips and dressings, cultured dairy products, and specialty products
such as lactose-reduced milk and extended shelf-life flavored milks and
milk-based beverages, soymilk and other soy products.

We obtained Specialty Foods as part of our acquisition of Old Dean on
December 21, 2001. Specialty Foods processes and markets pickles, powdered
products such as non-dairy coffee creamers, and sauces and puddings.

Neither our Puerto Rico nor our Spanish operations meet the definition
of a reportable segment. Therefore, they are both reported in the
"Corporate/Other" line.

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
2001 consolidated financial statements contained in our 2001 Annual Report on
Form 10-K. We evaluate performance based on operating profit not including
non-recurring gains and losses and foreign exchange gains and losses.

We do not allocate income taxes, management fees or unusual items to
segments. In addition, there are no significant non-cash items other than
depreciation and amortization in reported segment income.

- ----------

(1) Operating income includes plant closing costs of $5.3 million in the second
quarter of 2002 and $6.5 million and $0.8 million in the first six months of
2002 and 2001, respectively.

(2) Operating income includes plant closing costs of $1.4 million in the second
quarter and first six months of 2002.

Geographic information for the three-month and six-month periods ended
June 30:

We have no single customer within any segment which represents greater
than ten percent of our consolidated revenues.

22

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

We currently have three reportable segments: Dairy Group,
Morningstar/White Wave and Specialty Foods. Our Dairy Group segment manufactures
and sells fluid milk, ice cream and novelties, half-and-half, whipping cream,
sour cream, cottage cheese, yogurt and dips, as well as fruit juices, flavored
drinks and bottled water. Our Morningstar/White Wave segment consists of our
Morningstar Foods division and, as of May 9, 2002, our White Wave, Inc.
subsidiary. It manufactures and sells dairy and non-dairy coffee creamers,
whipping cream and pre-whipped toppings, dips and dressings, cultured dairy
products, specialty products such as lactose-reduced milks and extended
shelf-life milks and milk-based beverages, soymilks and other soy products.
Specialty Foods manufactures and sells pickles, powdered products such as
non-dairy coffee creamers, and sauces and puddings. We also have operations in
Puerto Rico and Spain that are aggregated in our segment discussions into the
"Corporate/Other" category.

RESULTS OF OPERATIONS

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

Note: We completed our acquisition of the former Dean Foods Company ("Old Dean")
on December 21, 2001. We obtained our Specialty Foods segment as part of our
acquisition of Old Dean. More complete segment data can be found in Note 11 to
our condensed consolidated financial statements. Effective January 1, 2002, we
adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which eliminates
the amortization of goodwill and certain other intangible assets. As a result of
the acquisition of Old Dean and the adoption of SFAS No. 142, comparisons with
the first two quarters of 2001 are less meaningful than they would be otherwise.
Where appropriate, we have provided comparisons eliminating the amortization of
goodwill and amortizing our recognized intangible assets over their useful
lives. See Notes 1 and 4 to our condensed consolidated financial statements for
more information regarding SFAS 142.

SECOND QUARTER 2002 COMPARED TO SECOND QUARTER 2001

Net Sales -- Net sales increased $0.83 billion, or 55%, to $2.35
billion during the second quarter of 2002, from $1.52 billion in the second
quarter of 2001.

23

Net sales for the Dairy Group increased $558.6 million, or 45%, in the
second quarter of 2002. The acquisition of Old Dean (net of the plants divested
as part of the transaction) contributed approximately $635 million to the
Dairy Group's second quarter sales. That increase was offset primarily by the
effects of decreased raw milk costs compared to the prior year second quarter,
and also by lower ice cream volumes. In general, we change the prices that we
charge our customers for our products on a monthly basis, as the costs of our
raw materials fluctuate. Therefore, sales generally decrease as raw material
prices decrease. The average monthly price for Class I raw skim milk decreased
approximately 11% in the second quarter of 2002 from the same period in 2001, to
$6.99 per hundredweight from $7.88 per hundredweight. The average monthly price
for Class I butterfat decreased approximately 32% in the same periods, to $1.29
per pound from $1.89 per pound. We process Class I raw skim milk and butterfat
into fluid milk products. Average monthly prices for Class II butterfat, which
we use for products such as cottage cheese, creams, ice cream and sour cream,
decreased approximately 43% in the second quarter of 2002 compared to 2001, to
$1.19 per pound to $2.10 per pound. The Dairy Group's fluid milk volumes during
the second quarter of 2002 were relatively flat compared to the second quarter
of 2001, while ice cream volumes during the second quarter of 2002 were down
approximately 9% compared to the second quarter of 2001. Our ice cream products
are sold under private labels and local brands, and we lost sales during the
quarter to stronger premium branded products, which are promoted more
aggressively than our products. Cooler than average temperatures in the early
part of the summer also contributed to decreased ice cream volumes during the
second quarter of 2002.

Net sales for Morningstar/White Wave increased $84.9 million or 47%, in
the second quarter of 2002, compared to the year earlier period. We estimate
that the acquisition of Old Dean added approximately $75 million of sales at
our Morningstar/White Wave segment during the second quarter of 2002; although
precise measurement of the impact of the Old Dean acquisition on
Morningstar/White Wave's sales is no longer possible because Old Dean's NRP
group has now been fully integrated into Morningstar from an accounting
standpoint, and is no longer accounted for separately. The acquisition of White
Wave contributed approximately $24 million in the second quarter of 2002.
These gains were offset by (i) lower raw milk and butterfat prices, (ii) lower
cultured dairy product volumes, and (iii) the previously-announced phase-out of
the Lactaid, Nestle Quik and Nestle Coffeemate co-packing businesses. Sales of
Morningstar/White Wave's strategic brands, which include Hershey's(R) flavored
milks, International Delight(R) coffee creamers, Silk(R) soy products, SunSoy(R)
soymilk, Folger's Jakada(R) milk and coffee beverage, Dairy Ease(R) lactose-free
milk and Marie's(R) dips and dressings and Dean's dips, totaled approximately
$105 million during the second quarter of 2002. Strategic brand volumes were up
over 20% in the second quarter of 2002 compared to the second quarter of 2001
(including the effect of brands acquired in both periods).

Our Specialty Foods segment reported net sales of $177.4 million in the
second quarter of 2002.

Cost of Sales -- Our cost of sales ratio was 74.0% in the second
quarter of 2002 compared to 76.7% in the same period of 2001. The cost of sales
ratio for the Dairy Group decreased to 74.4% in the second quarter of 2002 from
77.2% in the second quarter of 2001 due primarily to lower raw milk costs and
also to realized merger synergies. The cost of sales ratio for Morningstar/White
Wave decreased to 66.8% in the second quarter of 2002 from 70.7% in the same
period of 2001, due primarily to lower butterfat costs in the second quarter of
2002 compared to the year earlier period and also to realized merger synergies.
Specialty Foods' cost of sales ratio was 74.0% in the second quarter of 2002.

Operating Costs and Expenses -- Our operating expense ratio was 18.4%
in the second quarter of 2002 compared to 16.5% in the second quarter of 2001.
These ratios were affected by our adoption of SFAS 142 on January 1, 2002.
Excluding 2001 amortization, our operating expense ratio would have been 15.7%
in 2001, as compared to 18.4% in 2002.

The operating expense ratio at the Dairy Group was 17.9% in the second
quarter of 2002 compared to 16.7% in the same period last year. Excluding
approximately $9.9 million of amortization in the second quarter of 2001,

24

the Dairy Group's operating expense ratio would have been 15.9% in 2001,
compared to 17.9% in 2002. The increase in 2002 was due to plant closing costs
of $6.7 million as well as higher selling and marketing expenses incurred in
support of our regional Dairy Group brands.

The operating expense ratio at Morningstar/White Wave was 21.6% in the
second quarter of 2002 compared to 15.4% in the second quarter of 2001.
Excluding approximately $1.8 million of amortization in the second quarter of
2001, the operating expense ratio would have been 14.4% in 2001, compared to
21.6% in 2002. This increase was caused by (i) higher selling and marketing
expenses related to the introduction of new products and additional promotions
of existing products, (ii) the addition of White Wave, which has higher selling
and marketing costs, and (iii) higher distribution expenses due primarily to the
acquisition of White Wave.

The increase in 2002 was partly caused by corporate office expenses,
which increased approximately $14.0 million in the second quarter of 2002
compared to 2001 as a result of the acquisition of Old Dean.

The operating expense ratio for Specialty Foods was 11.7% in the second
quarter of 2002.

Operating Income -- Operating income in the second quarter of 2002 was
$178.4 million, an increase of $75.5 million from 2001 operating income of
$102.9 million. Our operating margin in the second quarter of 2002 was 7.6%
compared to 6.8% in the same period of 2001. Excluding 2001 amortization that
would have been eliminated had SFAS 142 been in effect last year, our operating
income would have increased $62.8 million in the second quarter of 2002 and our
operating margin would have been 7.6% in both years.

The Dairy Group's operating margin, after excluding amortization
expense from the second quarter of 2001, increased to 7.6% in the second quarter
of 2002 from 6.9% in the second quarter of 2001. This increase was primarily due
to lower raw milk costs during 2002 and to realized synergies from our
acquisition of Old Dean, partly offset by higher spending on regional brands.
The operating margin for our Morningstar/White Wave segment, again excluding
amortization expense from the second quarter of 2001, declined to 11.7% in the
second quarter of 2002 from 14.8% in 2001. This decrease was due primarily to
higher distribution, selling and marketing expenses, offset by certain realized
merger synergies.

Specialty Foods' operating margin was 14.3% in the second quarter of
2002.

Other (Income) Expense -- Total other expense increased by $27.1
million in the second quarter of 2002 compared to 2001. Interest expense
increased to $52.3 million in the second quarter of 2002 from $25.9 million in
2001. This increase was the result of higher debt used to finance the
acquisitions of Old Dean and White Wave. Financing charges on preferred
securities were $8.4 million in both years.

Income from investments in unconsolidated affiliates increased to $1.4
million in the second quarter of 2002 from $1.2 million in the same period of
2001. The income in 2002 primarily related to our 36.0% interest in White Wave
through May 9, 2002. On May 9, 2002 we acquired the remaining equity interest in
White Wave and began consolidating White Wave's results with our financial
results. Our income in 2001 related primarily to our 43.1% minority interest in
Consolidated Container Company ("CCC"). In the fourth quarter of 2001 we
concluded that our investment in CCC was impaired and that the impairment was
not temporary, and as a result we wrote off our remaining investment in CCC.

Income Taxes -- Income tax expense was recorded at an effective rate of
38.1% in the second quarter of 2002 compared to 37.1% in 2001. Our tax rate
varies as the mix of earnings contributed by our various business units changes,
and as tax savings initiatives are adopted.

25

Minority Interest -- Minority interest in earnings decreased
significantly to $7.0 thousand in the second quarter of 2002 from $9.4 million
in the second quarter of 2001. In 2002, management of a subsidiary of our
Specialty Foods segment owned a small minority interest in that subsidiary. In
2001, Dairy Farmers of America owned a 33.8% minority interest in our Dairy
Group. On December 21, 2001, in connection with our acquisition of Old Dean, we
purchased the 33.8% stake that was owned by Dairy Farmers of America. See Note 2
to our condensed consolidated financial statements.

FIRST SIX MONTHS OF 2002 COMPARED TO FIRST SIX MONTHS OF 2001

Net Sales -- Net sales increased 55% to $4.63 billion during the first
six months of 2002 from $2.98 billion in the first six months of 2001.

Net sales for the Dairy Group increased 47%, or $1.14 billion, in the
first half of 2002 compared to the first half of 2001. The acquisition of Old
Dean contributed a net increase of approximately $1.24 billion to the Dairy
Group. That increase was offset primarily by the effects of decreased raw milk
costs compared to the first half of the prior year, and also by lower ice cream
volumes. The average monthly price for Class I raw skim milk decreased
approximately 10% in the first half of 2002 from the same period in 2001, to
$7.07 per hundredweight from $7.88 per hundredweight. The average monthly price
for Class I butterfat decreased approximately 20% in the same periods, to $1.35
per pound from $1.70 per pound. We process Class I raw skim milk and butterfat
into fluid milk products. Average monthly prices for Class II butterfat, which
we use for products such as cottage cheese, creams, ice cream and sour cream,
decreased approximately 27% in the first six months of 2002 compared to 2001, to
$1.30 per pound from $1.79 per pound.

Net sales for Morningstar/White Wave increased 45%, or $156.7 million
in the first half of 2002, compared to the year earlier period. We estimate that
the acquisition of Old Dean added approximately $161 million of sales at our
Morningstar/White Wave segment during the first half of 2002; although precise
measurement of the impact of the acquisition of Old Dean on Morningstar/White
Wave's sales is no longer possible because Old Dean's NRP segment has now been
fully integrated into Morningstar from an accounting standpoint, and is no
longer accounted for separately. The acquisition of White Wave contributed
approximately $24 million in the first half of 2002. These gains were offset by
(i) lower raw milk and butterfat costs, (ii) cultured dairy product volume
declines and (iii) the previously announced phase-out of the Lactaid(R),
Nestle Nesquik(R) and Nestle Coffeemate(R) a co-packing businesses.

Our Specialty Foods segment reported net sales of $338.6 million in the
first six months of 2002.

Cost of Sales -- Our cost of sales ratio was 74.8% in the first six
months of 2002 compared to 76.5% in the same period of 2001. The cost of sales
ratio for the Dairy Group decreased to 74.8% in the first half of 2002 from
76.9% in the first half of 2001 due primarily to lower raw milk costs. The cost
of sales ratio for Morningstar/White Wave decreased slightly to 70.2% in the
first six months of 2002 from 70.3% in the same period of 2001. This decrease in
2002 was due to lower butterfat costs, largely offset by higher sales incentives
and the addition of Old Dean's operations which have higher costs of sales.
Specialty Foods cost of sales ratio was 74.9% in the first half of 2002.

Operating Costs and Expenses -- Our operating expense ratio was 18.1%
in the first half of 2002 compared to 17.2% in the same period of 2001. These
ratios were affected by our implementation of SFAS 142 on January 1, 2002.
Excluding 2001 amortization, our operating expense ratio would have been 16.4%
in 2001.

The operating expense ratio at the Dairy Group was 17.8% in the first
half of 2002 compared to 17.2% in the same period last year. Excluding
approximately $19.7 million of amortization in the first half of 2001, the Dairy
Group's

26

operating expense ratio would have been 16.4% in 2001. The increase in 2002 was
due to plant closing costs of $7.9 million in 2002 compared to only $0.8 million
in 2001, as well as higher selling and marketing expenses incurred in support of
our regional brands.

The operating expense ratio at Morningstar/White Wave was 19.1% in the
first six months of 2002 compared to 16.4% in the first half of 2001. Excluding
approximately $3.6 million of amortization in the first half of 2001, the
operating expense ratio would have been 15.3% in 2001. This increase was caused
by higher distribution, selling and marketing expenses related to the
introduction of new products and increased spending on promotions of existing
products, and to the addition of White Wave, which has a higher operating
expense ratio.

The operating expense ratio for Specialty Foods was 11.5% in the first
six months of 2002.

Operating Income -- Operating income in the first half of 2002 was
$326.7 million, an increase of $139.9 million from 2001 operating income of
$186.8 million. Our operating margin in the first half of 2002 was 7.1% compared
to 6.3% in the same period of 2001. Excluding 2001 amortization that would have
been eliminated had SFAS 142 been in effect last year, our operating income
would have increased $114.6 million in the first half of 2002 and our operating
margin would have been 7.1% both years.

The Dairy Group's operating margin, excluding amortization expense from
the first half of 2001, increased to 7.4% in the first six months of 2002 from
6.6% in the same period of 2001. This increase was primarily due to lower raw
milk costs during 2002 and to realized synergies from our acquisition of Old
Dean, partly offset by higher spending on regional brands. The operating
margin for our Morningstar/White Wave segment, again excluding amortization
expense from the first half of 2001, declined to 10.7% in the first half of 2002
from 14.4% in 2001. This decrease was due to the planned phase-out of the
Lactaid, Nestle Quik and Nestle Coffeemate co-packing businesses, higher
selling, distribution and marketing expense, and the addition of Old Dean's
operations which have higher costs of sales, offset by certain realized merger
synergies.

Specialty Foods' operating margin was 13.6% in the first half of 2002.

Other (Income) Expense -- Total other expense increased by $52.0
million in the first six months of 2002 compared to 2001. Interest expense
increased to $104.2 million in the first half of 2002 from $53.2 million in
2001. This increase was the result of higher debt used primarily to finance the
acquisition of Old Dean. Financing charges on preferred securities were $16.8
million in both years.

Income from investments in unconsolidated affiliates declined to $1.8
million in the first half of 2002 from $2.9 million in the same period of 2001.
The income in 2002 primarily related to our 36.0% interest in White Wave through
May 9, 2002. On May 9, 2002 we acquired the remaining equity interest in White
Wave and began consolidating White Wave's results with our financial results.
Our income in 2001 related primarily to our 43.1% minority interest in
Consolidated Container Company ("CCC"). In the fourth quarter of 2001 we
concluded that our investment in CCC was impaired and that the impairment was
not temporary, and as a result we wrote off our remaining investment in CCC.

Income Taxes -- Income tax expense was recorded at an effective rate of
37.9% in the first half of 2002 compared to 37.5% in 2001. Our tax rate varies
as the mix of earnings contributed by our various business units changes, and as
tax savings initiatives are adopted.

Minority Interest -- Minority interest in earnings decreased
significantly to $16.0 thousand in the first six months of 2002 from $16.3
million in the same period of 2001. In 2002, management of a subsidiary of our

27

Specialty Foods segment owned a small minority interest in that subsidiary. In
2001, Dairy Farmers of America owned a 33.8% minority interest in our Dairy
Group. On December 21, 2001, in connection with our acquisition of Old Dean, we
purchased the 33.8% stake that was owned by Dairy Farmers of America. See Note 2
to our condensed consolidated financial statements.

Cumulative Effect of Accounting Change -- As part of our adoption of
SFAS 142 on January 1, 2002 we wrote down the value of certain trademarks which
our analysis indicated were impaired, and recorded a charge during the first
quarter of 2002 of $47.3 million, net of an income tax benefit of $29.0 million.
Effective January 1, 2001 we adopted Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities (as
amended). Our adoption of this accounting standard resulted in the recognition
of $1.4 million, net of an income tax benefit of $1.5 million and minority
interest benefit of $0.7 million, as a charge to earnings.

RECENT DEVELOPMENTS

License Agreement with Land O'Lakes

On July 31, 2002, we entered into a license agreement with Land
O'Lakes, pursuant to which we acquired a perpetual license to use the Land
O'Lakes(R) brand nationally on a broad range of fluid milk, juices and cultured
dairy products, including ice cream, sour cream, creams and creamers, and on
certain other value-added products, such as aseptic dairy products and extended
shelf-life products, including soy beverages. The royalty structure varies by
product type from 0% to 3%. We are also required to sell minimum volumes of
certain Land O'Lakes branded value-added products. Our rights to use the Land
O'Lakes brand on the licensed products are exclusive, subject to limited rights
previously granted to a third party dairy processor to use the Land O'Lakes
brand on certain dairy products in specified distribution channels in parts of
the United States through 2005. As a result of our new arrangement with Land
O'Lakes, we are entitled to receive all royalties paid by such third party
processor on Land O'Lakes branded products. We are also entitled to include
sales by such dairy processor in our minimum sales requirements. In August 2002,
we intend to launch Land O'Lakes(R) Dairy Ease(R) lactose-free milk, which will
be the first new product that we will launch under the new Land O'Lakes license
agreement. Our prior joint venture with Land O'Lakes (called Dairy Marketing
Alliance), in which we owned a 50% interest, was dissolved in connection with
the new arrangement.

Acquisition of Marie's

We acquired the Marie's(R) brand as a result of our acquisition of Old
Dean in December 2001. Old Dean had licensed the Marie's brand to Marie's
Quality Foods and Marie's Dressings, Inc. for use in connection with the
manufacture and sale of dips and dressings in the western United States. On May
17, 2002, we acquired the assets of those licensees, including the licenses. See
Note 2 to our condensed consolidated financial statements. As a result of this
acquisition, we are now the sole owner, manufacturer and marketer of Marie's
brand products nationwide.

Acquisition of White Wave

In May 2002, we completed the acquisition of the 64% equity interest in
White Wave, Inc. which we did not already own. White Wave, based in Boulder,
Colorado, is the maker of Silk(R) soymilk and other soy-based products, and had
sales of approximately $125 million during the twelve months ended March 31,
2002. Prior to May 9, we owned approximately 36.0% of White Wave, as a result of
certain investments made by Old Dean beginning in 1999. We purchased the
remaining equity interests for a total price of approximately $189.0 million.
Existing management of White Wave will remain in place. We have agreed to pay
White Wave's management team an incentive bonus based on achieving certain sales
growth targets by March 2004. The bonus amount will vary depending on the level
of two-year cumulative sales White Wave achieves by March 2004, and is
anticipated to range between $30 million and $40 million. See Note 10 to our
condensed consolidated financial statements. For financial reporting purposes,
White Wave's financial results are now aggregated with Morningstar Foods'
financial results.

28

Integration and Rationalization Activities

As a result of our acquisition of Old Dean in December 2001, we expect
to achieve annual cost-savings of at least $100 million in 2002, increasing to
up to $150 million per year by the end of 2004. Our current synergy expectations
are significantly higher than our initial annual synergy estimate of $60 million
in 2002, increasing to $120 million per year by the end of 2004. The increase in
our estimate has resulted from certain merger synergies being realized more
quickly than we had anticipated, and in some cases in greater amounts than we
had expected. We realized approximately $28 million and $50 million in merger
synergies during the second quarter and first six months of 2002, respectively,
including such items as purchasing savings, headcount reduction savings, pension
elimination savings, new business, manufacturing synergies and various
depreciation savings. As part of our integration activities, we have closed, or
announced the closure of, 9 facilities since completion of the Old Dean
acquisition and reduced (or intend to reduce) our workforce accordingly.
Facilities that have been closed, or identified for closing, include:

Part of our strategy as a result of the Old Dean acquisition is to
divest certain non-core assets. Since the completion of the Old Dean
acquisition, we have sold two small non-core businesses that we acquired as part
of Old Dean's Specialty Foods division, including a transportation business and
Old Dean's boiled peanut business.

Sworn Statements Regarding Financial Statements

On August 8, 2002, our Chief Executive Officer and Chief Financial
Officer filed sworn statements with the Securities and Exchange Commission
("SEC") regarding the integrity of our financial statements, as required by SEC
Order No. 4-460. The statements were signed in the form mandated by the SEC
without exception.

Stock Split

On February 21, 2002, our Board of Directors declared a two-for-one
split of our common stock, which entitled shareholders of record on April 8,
2002 to receive one additional share of common stock for each share held on that
date. The new shares were issued after the market closed on April 23, 2002. As a
result of the split, the total number of shares of our common stock outstanding
increased from approximately 45 million to approximately 90 million. All of the
share numbers in this Quarterly Report on Form 10-Q have been adjusted for all
periods to reflect the stock split, as if it had already occurred.

Launch of Folger's(R) Jakada(TM)

In the first quarter of 2002, we launched Folger's Jakada, a new
single-serve coffee and milk-based beverage. Pursuant to our licensing agreement
with Procter & Gamble, we produce, promote and distribute Folger's Jakada and
Procter & Gamble shares in revenue generated from all Folger's Jakada sales
while retaining rights to the Folger's trademark.

Adoption of Certain Recently Issued Accounting Pronouncements

We adopted EITF Issue Nos. 00-14 and 00-25, as well as SFAS Nos. 142
and 144 in the first quarter of 2002. See Note 1 to our condensed consolidated
financial statements and "--Known Trends and Uncertainties."

29

LIQUIDITY AND CAPITAL RESOURCES

HISTORICAL CASH FLOW

Cash flow provided by operating activities was $293.4 million in the
first six months of 2002 compared to $133.2 million in the first six months of
2001. This increase was primarily due to changes in working capital components
which improved by $124.8 million and higher earnings in 2002 after adjusting for
the cumulative accounting change, which was a non-cash item.

Net cash used in investing activities was $301.9 million in the first
six months of 2002 compared to $70.1 million in the first six months of 2001. We
spent $91.5 million during the first six months of 2002 for capital
expenditures, which were funded using cash flow from operations. We also spent
approximately $214.9 million in the first six months of 2002 primarily on the
acquisitions of White Wave, Marie's and stock option surrenders related to our
acquisition of Old Dean. See Notes 2 and 6 to our condensed consolidated
financial statements.

CURRENT DEBT OBLIGATIONS

Effective December 21, 2001, in connection with our acquisition of Old
Dean, we replaced our former credit facilities with a new $2.7 billion credit
facility provided by a syndicate of lenders. This facility provides us with a
revolving line of credit of up to $800.0 million and two term loans in the
amounts of $900.0 million and $1.0 billion, respectively. Both term loans were
fully funded upon closing of the Old Dean acquisition. The senior credit
facility contains various financial and other restrictive covenants and requires
that we maintain certain financial ratios, including a leverage ratio (computed
as the ratio of the aggregate outstanding principal amount of defined
indebtedness to EBITDA) and an interest coverage ratio (computed as the ratio of
EBITDA to interest expense). In addition, this facility requires that we
maintain a minimum level of net worth (as defined by the agreement). The
agreement contains standard default triggers, including without limitation:
failure to maintain compliance with the financial and other covenants contained
in the agreement, default on certain of our other debt, a change in control and
certain other material adverse changes in our business. The agreement does not
contain any default triggers based on our debt rating. See Note 5 to our
condensed consolidated financial statements for more detailed information
regarding the terms of our credit agreement, including interest rates, principal
payment schedules and mandatory prepayment provisions.

At June 30, 2002 we had outstanding borrowings of $1.914 billion under
our senior credit facility. In addition, $56.6 million of letters of credit
secured by the credit facility were issued but undrawn. As of June 30, 2002,
approximately $692.7 million was available for future borrowings under the
revolver, subject to satisfaction of certain conditions contained in the loan
agreement. We are currently in compliance with all covenants contained in our
credit agreement.

We also have a $400.0 million receivables securitization facility.
During the first six months of 2002 we made net payments of $60.7 million on
this facility and at June 30, 2002 had a balance of $339.3 million outstanding.
See Note 5 to our condensed consolidated financial statements for more
information about our receivables securitization facility.

In addition, certain of Old Dean's indebtedness remains outstanding
after the acquisition, including $700.0 million of outstanding indebtedness
under certain senior notes, approximately $21.7 million of industrial
development revenue bonds, and certain capital lease obligations. See Note 5 to
our condensed consolidated financial statements.

In addition to the letters of credit secured by our credit facility, we
had at June 30, 2002 approximately $64.0 million of letters of credit that were
issued but undrawn. These letters of credit were required by various utilities
and government entities for performance and insurance guarantees.

30

The table below summarizes our obligations for indebtedness and lease
obligations at June 30, 2002 (dollars in thousands):

- ----------

(1) Represents face value of notes.

We do have certain other commitments and contingent obligations. Please
see Note 10 to our condensed consolidated financial statements for a description
of these commitments and contingent obligations.

We do not have any ownership interests or relationships with any
special-purpose entities (or "bankruptcy remote" entities), other than our
ownership of the special purpose entities formed to facilitate our receivables
securitization program and our mandatorily redeemable preferred securities. The
assets and liabilities of those entities are fully reflected on our balance
sheet. We have no other significant off-balance sheet arrangements, special
purpose entities, financing partnerships or guaranties, nor any debt or equity
triggers based on our stock price or credit rating.

PREFERRED SECURITIES

On March 24, 1998, we issued $600.0 million of company-obligated 5.5%
mandatorily redeemable convertible preferred securities of a Delaware business
trust in a private placement to "qualified institutional buyers" under Rule 144A
under the Securities Act of 1933. The 5.5% preferred securities, which are
recorded net of related fees and expenses, mature 30 years from the date of
issue. Holders of these securities are entitled to receive preferential
cumulative cash distributions at an annual rate of 5.5% of their liquidation
preference of $50 each. These distributions are payable quarterly in arrears on
January 1, April 1, July 1 and October 1 of each year. These trust issued
preferred securities are convertible at the option of the holders into an
aggregate of approximately 15.3 million shares of our common stock, subject to
adjustment in certain circumstances, at a conversion price of $39.125. These
preferred securities are also redeemable, at our option, at any time after April
2, 2001 at specified amounts and are mandatorily redeemable at their liquidation
preference amount of $50 per share at maturity or upon occurrence of certain
specified events.

31

FUTURE CAPITAL REQUIREMENTS

During 2002, we intend to invest a total of approximately $250.0
million in capital expenditures primarily for our existing manufacturing
facilities and distribution capabilities. We intend to fund these expenditures
using cash flow from operations. Of this amount, we intend to spend it as
follows:

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

In the future, we may pursue additional acquisitions that are
compatible with our core business strategy. Any such acquisitions will be funded
through cash flows from operations or borrowings under our credit facility. If
necessary, we believe that we have the ability to secure additional financing
for our future capital requirements.

CRITICAL ACCOUNTING POLICIES

"Critical accounting policies" are those that are both most important
to the portrayal of a company's financial condition and results, and that
require management's most difficult, subjective or complex judgments. In many
cases the accounting treatment of a particular transaction is specifically
dictated by generally accepted accounting principles with no need for the
application of our judgment. In certain circumstances, however, the preparation
of our financial statements in conformity with generally accepted accounting
principles requires us to use our judgment to make certain estimates and
assumptions. These estimates affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. We have identified the policies described below as
our critical accounting policies. For a detailed discussion of these and other
accounting policies see Note 1 to our 2001 consolidated financial statements
contained in our Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission on April 1, 2002.

Revenue Recognition and Accounts Receivable -- Revenue is recognized
when persuasive evidence of an arrangement exists, the price is fixed or
determinable, the product has been shipped to the customer and there is a
reasonable assurance of collection of the sales proceeds. Revenue is reduced by
sales incentives that are estimated based on our historical experience. We
provide credit terms to customers generally ranging up to 30 days, perform
ongoing credit evaluation of our customers and maintain allowances for potential
credit losses based on historical experience.

Insurance Accruals -- We retain selected levels of property and
casualty risks, primarily related to employee health care, workers' compensation
claims and other casualty losses. Many of these potential losses are covered
under conventional insurance programs with third party carriers with high
deductible limits. In other areas, we are self-insured with stop-loss coverages.
Accrued liabilities for incurred but not reported losses related to these
retained risks are calculated based upon loss development factors provided by
our external insurance brokers and actuaries. The loss development factors are
subject to change based upon actual history and expected trends in costs, among
other factors.

32

Valuation of Long-Lived and Intangible Assets and Goodwill -- We
adopted SFAS 142 effective January 1, 2002 and as a result, goodwill is no
longer amortized. In lieu of amortization, we are required to perform a
transitional impairment assessment of our goodwill in 2002 and annual impairment
tests thereafter. SFAS No. 142 also requires that recognized intangible assets
be amortized over their respective estimated useful lives. As part of the
adoption, we have reassessed the useful lives of all intangible assets. Any
recognized intangible asset determined to have an indefinite useful life is not
amortized, but instead tested for impairment in accordance with the standard.
For more information regarding the values assigned to our intangible assets and
to goodwill, see Note 1 and Note 4 to our condensed consolidated financial
statements.

Purchase Price Allocation -- We allocate the cost of acquisitions to
the assets acquired and liabilities assumed. All identifiable assets acquired,
including identifiable intangibles, and liabilities assumed are assigned a
portion of the cost of the acquired company, normally equal to their fair values
at the date of acquisition. The excess of the cost of the acquired company over
the sum of the amounts assigned to identifiable assets acquired less liabilities
assumed is recorded as goodwill. We record the initial purchase price allocation
based on evaluation of information and estimates available at the date of the
financial statements. As final information regarding fair value of assets
acquired and liabilities assumed is evaluated and estimates are refined,
appropriate adjustments are made to the purchase price allocation. To the extent
that such adjustments indicate that the fair value of assets and liabilities
differ from their preliminary purchase price allocations, such difference would
adjust the amounts allocated to those assets and liabilities and would change
the amounts allocated to goodwill. The final purchase price allocation includes
the consideration of a number of factors to determine the fair value of
individual assets acquired and liabilities assumed including quoted market
prices, forecast of expected cash flows, net realizable values, estimates of the
present value of required payments and determination of remaining useful lives.
For significant acquisitions, we utilize valuation specialists and appraisers to
assist in the determination of the fair value of long-lived assets, including
identifiable intangibles.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Emerging Issues Task Force (the "Task Force") of the Financial
Accounting Standards Board has reached a consensus on Issue No. 00-14,
"Accounting for Certain Sales Incentives," which became effective for us in the
first quarter of 2002. This Issue addresses the recognition, measurement and
income statement classification of sales incentives that have the effect of
reducing the price of a product or service to a customer at the point of sale.
Our historical practice for recording sales incentives within the scope of this
Issue, which has been to record estimated coupon expense based on historical
coupon redemption experience, is consistent with the requirements of this Issue.
Therefore, our adoption of this Issue has no impact on our Condensed
Consolidated Financial Statements.

The Task Force was also reached a consensus on Issue No. 00-25, "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products." We adopted this Issue in the first quarter of 2002. Under
this Issue, certain consideration paid to our customers (such as slotting fees)
is required to be classified as a reduction of revenue, rather than recorded as
an expense. Adoption of this Issue required us to reduce reported revenue and
selling and distribution expense for the second quarter and the first six months
of 2001 by $9.5 million and $18.8 million, respectively. There was no change in
reported net income.

In June 2001, FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses
financial accounting and reporting for business combinations. Under the new
standard, all business combinations entered into after June 30, 2001 are
required to be accounted for by the purchase method. We have applied , and will
continue to apply, the provisions of SFAS No. 141 to all business combinations
completed after June 30, 2001,

33

including the acquisition of Old Dean. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets. We
adopted SFAS No. 142 in the first quarter of 2002. SFAS No. 142 requires that
goodwill no longer be amortized, but instead requires a transitional goodwill
impairment assessment and annual impairment tests thereafter. Effective June 30,
2002, we completed the first phase of the transitional goodwill impairment
assessment, which indicated that the goodwill related to our Puerto Rico
reporting unit is impaired. Prior to December 31, 2002, we will determine the
amount of the impairment, and record the impairment in our income statement as
the cumulative effect of a change in accounting principle retroactive to the
first quarter of 2002. We currently have $67 million recorded as goodwill
related to our Puerto Rico reporting unit. Therefore, the maximum transitional
goodwill impairment we will recognize as a result of the adoption of SFAS No.
142 will be $67 million. SFAS No. 142 also requires that recognized intangible
assets be amortized over their respective estimated useful lives. As part of the
adoption, we have re-assessed the useful lives and residual values of all
recognized intangible assets. Any recognized intangible asset determined to have
an indefinite useful life was tested for impairment in accordance with the
standard. These impairment tests were completed during the first quarter of
2002, and resulted in a charge of $47.3 million, net of an income tax benefit of
$29.0 million, which was recorded during the first quarter of 2002 as a change
in accounting principle. The impairment related to certain trademarks in our
Dairy Group and Morningstar/White Wave segments. The fair value of these
trademarks was determined using a present value technique. See Note 1 to our
condensed consolidated financial statements.

In June 2001, FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which the associated legal obligation for the liability is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset and
amortized over the life of the asset. SFAS No. 143 will become effective for us
in fiscal year 2003. We are currently evaluating the impact of adopting this
pronouncement on our consolidated financial statements.

FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" in August 2001 and it became effective for us beginning
January 1, 2002. SFAS No. 144, which supercedes SFAS No. 121, provides a single,
comprehensive accounting model for impairment and disposal of long-lived assets
and discontinued operations. Our adoption of this standard did not have a
material impact on our consolidated financial statements.

SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections," was issued in
April 2002 and is applicable to fiscal years beginning after May 15, 2002. One
of the provisions of this technical statement is the rescission of SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt," whereby any gain or
loss on the early extinguishment of debt that was classified as an extraordinary
item in prior periods in accordance with SFAS No. 4, which does not meet the
criteria of an extraordinary item as defined by APB Opinion 30, must be
reclassified. Adoption of this standard will require us to reclassify
extraordinary losses previously reported from the early extinguishment of debt
as a component of "other expense." For the year ended December 31, 2001, we
recorded an extraordinary loss of $4.3 million, net of an income tax benefit of
$3.0 million.

In June, 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The statement requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred, and is effective for exit or disposal activities that are
initiated after December 31, 2002. We are currently evaluating the impact of
adopting this pronouncement on our consolidated financial statements.

KNOWN TRENDS AND UNCERTAINTIES

ACQUISITIONS AND DIVESTITURES

We have announced that we intend to continue to make acquisitions in
our core businesses and, over the next several years, to divest non-core
businesses.

34

RAW MATERIAL PRICES

The primary raw materials used in our operations are raw milk and
butterfat. The prices we pay for these materials are regulated by the federal
government, and in some cases by state and other regulatory agencies. Prices of
raw milk and butterfat can be volatile. In general, we change the prices that we
charge our customers for our products on a monthly basis, as the costs of our
raw materials fluctuate. However, there can be a lag between the time of a raw
material cost increase or decrease and the effectiveness of a corresponding
price change to our customers, and in some cases we are contractually restrained
with respect to the means and timing of implementing price changes. Also, at
some point price increases do erode our volumes. These factors can cause
volatility in our earnings. Our sales and operating profit margin tend to
fluctuate with the price of our raw materials.

GOODWILL IMPAIRMENT

We adopted SFAS No. 142 in the first quarter of 2002. SFAS No. 142
requires that goodwill no longer be amortized, but instead requires a
transitional goodwill impairment assessment and annual impairment tests
thereafter. Effective June 30, 2002, we completed the first phase of the
transitional goodwill impairment assessment, which indicated that the goodwill
related to our Puerto Rico reporting unit is impaired. Prior to December 31,
2002, we will determine the amount of the impairment, and record the impairment
in our income statement as the cumulative effect of a change in accounting
principle retroactive to the first quarter of 2002. We currently have
approximately $67 million recorded as goodwill related to our Puerto Rico
reporting unit. Therefore, the maximum transitional goodwill impairment we will
recognize as a result of the adoption of SFAS No. 142 will be approximately $67
million.

INTEREST RATES

We have hedged a portion of our variable interest rate exposure by
entering into interest rate swap agreements that have the effect of "converting"
the hedged debt from variable rate debt to fixed rate debt. Approximately 40% of
our variable rate debt is currently hedged. The percentage of our total debt
that is hedged fluctuates as our debt level fluctuates. Moveover, we constantly
monitor the prevailing interest rate environment, and may increase the
percentage of our debt that is hedged if interest rates threaten to increase to
substantially higher levels, or become more volatile.

RATIONALIZATION ACTIVITIES

As part of our overall integration and cost reduction strategy, we
recorded plant closing and other non-recurring costs of $7.9 million during the
first six months of 2002 and $0.8 million in the first six months of 2001. These
charges included the following costs:

o Workforce reductions as a result of plant closings, plant
rationalizations and consolidation of administrative functions. The
costs were charged to our earnings in the period that the plan was
established in detail and employee severance and benefits had been
appropriately communicated;

o Shutdown costs, including those costs necessary to prepare the plant
facilities for re-sale or closure;

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

o Write-downs of property, plant and equipment and other assets,
primarily for asset impairments as a result of facilities no longer
used in operations. The impairments related primarily to owned
building, land and equipment at the facilities that were sold and
written down to their estimated fair value.

As part of our acquisition purchase price allocations, we accrue costs
from time to time pursuant to plans to exit certain activities and operations of
acquired businesses in order to rationalize production and reduce costs and
inefficiencies. We will continue to finalize and implement our initial
integration and

35

rationalization plan related to the Old Dean acquisition and we expect to
refine our estimate of amounts in our purchase price allocations associated with
this plan.

We do not expect any of these costs to have a material adverse impact
on our results of operations. For more information, see Note 8.

TAX RATE

Our tax rate in the first half of 2002 was approximately 37.9%. We
believe that our effective tax rate will range between approximately 37.0% to
38.0% over the next several years, as Old Dean's tax rate was higher than our
tax rate prior to the Old Dean acquisition.

See "-- Risk Factors" for a description of various other risks and
uncertainties concerning our business.

RISK FACTORS

This report contains statements about our future that are not
statements of historical fact. Most of these statements are found in this report
under the following subheadings: "Liquidity and Capital Resources," "Known
Trends and Uncertainties" and "Quantitative and Qualitative Disclosures About
Market Risk." In some cases, you can identify these statements by terminology
such as "may," "will," "should," "could," "expects," "seek to," "anticipates,"
"plans," "believes," "estimates," "intends," "predicts," "potential" or
"continue" or the negative of such terms and other comparable terminology. These
statements are only predictions, and in evaluating those statements, you should
carefully consider the risks outlined below. Actual performance or results may
differ materially and adversely.

WE MAY HAVE DIFFICULTIES MANAGING OUR GROWTH

We have expanded our operations rapidly in recent years, particularly
with the acquisition of Old Dean in December 2001. This rapid growth places a
significant demand on our management and our financial and operational
resources, which subjects us to various risks, including among others:

o inability to successfully integrate or operate acquired businesses,

o inability to retain key customers of acquired or existing businesses,
and

o inability to realize or delays in realizing expected benefits from
our increased size.

The integration of businesses we have acquired or may acquire in the
future may also require us to invest more capital than we expected or require
more time and effort by management than we expected. If we fail to effectively
manage the integration of the businesses we have acquired, particularly Old
Dean, our operations and financial results will be affected, both materially and
adversely.

OUR BRANDING EFFORTS MAY NOT SUCCEED

We have invested, and intend to continue to invest, significant
resources toward the growth of our branded, value-added portfolio of products,
particularly at our Morningstar/White Wave segment. We believe that sales of
these products could be a significant source of growth for our business.
However, the success of our efforts will depend on customer and consumer
acceptance of our branded products, of which there can be no assurance. If our
efforts do not succeed, we may not be able to continue to significantly increase
sales or profit margins.

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OUR FAILURE TO SUCCESSFULLY COMPETE COULD ADVERSELY AFFECT OUR PROSPECTS AND
FINANCIAL RESULTS

Our business is subject to significant competition based on a number of
factors. If we fail to successfully compete against our competitors, our
business will be adversely affected.

The consolidation trend is continuing in the retail grocery and
foodservice industries. As our customer base continues to consolidate, we expect
competition among us and our competitors to intensify as we compete for the
business of fewer customers. As the consolidation continues, there can be no
assurance that we will be able to keep our existing customers, or to gain new
customers. Winning new customers is particularly important to the growth of our
Dairy Group, as demand tends to be relatively flat in the dairy industry.
Moreover, as our customers become larger, they will have greater purchasing
leverage, and could force prices and margins lower than current levels.

We could also be adversely affected by any expansion of capacity by our
existing competitors or by new entrants in our markets.

CHANGES IN RAW MATERIAL AND OTHER INPUT COSTS CAN ADVERSELY AFFECT US

The most important raw materials that we use in our operations are raw
milk, butterfat and high density polyethylene resin. The prices of these
materials increase and decrease depending on supply and demand and, in some
cases, governmental regulation. Prices of raw milk, butterfat and certain other
raw materials can fluctuate widely over short periods of time. In many cases we
are able to adjust our pricing to reflect changes in raw material costs.
Volatility in the cost of our raw materials can adversely affect our
performance, however, as price changes often lag changes in costs. These lags
tend to erode our profit margins. Extremely high raw material costs can also put
downward pressure on our margins and our volumes. We were adversely affected in
2001 by raw material costs. Although raw material costs have returned to normal
levels in 2002 to date, we cannot predict future changes in raw material costs.

Because we deliver a majority of our products directly to our customers
through our "direct store delivery" system, we are a large consumer of gasoline.
Increases in fuel prices can adversely affect our results of operations. Also,
since we lost our energy supply agreement with Enron as a result of Enron's
decision to reject our discounted-rate supply agreement in its bankruptcy, we
will pay market prices for electricity in the foreseeable future. As we are a
significant consumer of electricity, any significant increase in energy prices
could adversely affect our financial performance.

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:

o 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,

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

o impose on us additional financial and operational restrictions, and

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

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

LOSS OF RIGHTS TO ANY OF OUR LICENSED BRANDS COULD ADVERSELY AFFECT US

We sell certain of our products under licensed brand names such as
Hershey's(R), Borden(R), Pet(R), Folgers(R) Jakada(TM), Land-O-Lakes(R) and
others. In some cases, we have invested, and intend to continue to invest,
significant capital in product development and marketing and advertising related
to these licensed brands. Should our rights to manufacture and sell products
under any of these names be terminated for any reason, our financial performance
and results of operations could be materially and adversely affected.

NEGATIVE PUBLICITY AND/OR SHORTAGES OF MILK SUPPLY RELATED TO MAD COW DISEASE
AND/OR FOOT AND MOUTH DISEASE COULD ADVERSELY AFFECT US

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

Foot and Mouth Disease ("FMD") is a highly contagious disease of
cattle, swine, sheep, goats, deer and other cloven-hooved animals. FMD causes
severe losses in the production of meat and milk; however, FMD does not pose a
health risk to humans. While there have been several recent occurrences of FMD
in Europe, the United States has been free of FMD since 1929. To date, we have
not seen a measurable impact on our supply of raw milk in Spain as a result of
FMD. However, should FMD become widespread in Spain, a milk supply shortage
could develop, which would affect our ability to obtain raw milk for our Spanish
operations and the price that we are required to pay for raw milk in Spain. If
we are unable to obtain a sufficient amount of raw milk to satisfy our Spanish
customers' needs, and/or if we are forced to pay a significantly higher price
for raw milk in Spain, our financial results in Spain could be materially and
adversely affected. Likewise, if there is an outbreak of FMD in the United
States, a shortage of raw milk could develop in the United States, which would
affect our ability to obtain raw milk and the price that we are required to pay
for raw milk in the United States. If we are unable to obtain a sufficient
amount of raw milk to satisfy our U.S. customers' needs and/or if we are forced
to pay a significantly higher price for raw milk in the United States, our
consolidated financial results could be materially and adversely affected.

WE COULD BE REQUIRED TO PAY SUBSTANTIAL LIQUIDATED DAMAGES TO DAIRY FARMERS OF
AMERICA, IF WE FAIL TO OFFER THEM THE RIGHT TO SUPPLY RAW MILK TO CERTAIN OF OLD
DEAN'S PLANTS

In connection with our purchase of the minority interest in our Dairy
Group, we entered into an agreement with Dairy Farmers of America ("DFA"), the
nation's largest dairy farmers' cooperative and

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our primary supplier of raw milk, pursuant to which we have agreed to pay to DFA
liquidated damages in an amount of up to $47.0 million if we fail to offer them
the right, within a specified period of time after completion of the Old Dean
acquisition, to supply raw milk to certain of Old Dean's plants. The amount of
damages to be paid, if any, would be determined on a plant-by-plant basis for
each Old Dean plant's milk supply that is not offered to DFA, based generally on
the amount of raw milk used by the plant. We would be required to pay the
liquidated damages even if we were prohibited from offering the business to DFA
by an injunction, restraining order or contractual obligation. See Note 10 to
our condensed consolidated financial statements for further information
regarding this agreement. Old Dean currently has milk supply agreements with
several raw milk suppliers other than DFA. If any such supplier believes that it
has rights to continue to supply Old Dean's plants beyond the deadline dates
contained in our agreement with DFA, and is successful in legally establishing
any such rights, we may be prohibited from offering DFA the right to supply
certain of the Old Dean plants and, therefore, be required to pay all or a
portion of the liquidated damages to DFA.

WE COULD BE REQUIRED TO SATISFY OUR PAYMENT OBLIGATIONS UNDER OUR GUARANTY OF
CONSOLIDATED CONTAINER COMPANY'S DEBT

In February 2002, we executed a limited guarantee of certain
indebtedness of Consolidated Container Company ("CCC"), in which we own a 43.1%
interest. See Note 10 to our condensed consolidated financial statements for
information concerning the terms of the guaranty. CCC has experienced various
operational difficulties in the past, which has adversely affected its financial
performance. CCC's ability to repay the guaranteed indebtedness will depend on a
variety of factors, including its ability to successfully implement its business
plan, of which there can be no assurance.

WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS

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

o product contamination or spoilage,

o product tampering, and

o other adulteration of food products.

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

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

o product withdrawals,

o product recalls,

o negative publicity,

o temporary plant closings, and

o substantial costs of compliance or remediation.

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

POOR WEATHER CAN ADVERSELY AFFECT US

Our Specialty Foods segment purchases cucumbers under seasonal grower
contracts with a variety of growers located near our plants. Bad weather in one
of the growing areas can damage or destroy the crop in that area. If we are not
able to buy cucumbers from one of our local growers due to bad weather, we are
forced to purchase cucumbers from non-local sources at substantially higher
prices, which can have an adverse affect on Specialty Foods' results of
operations.

Our White Wave operating unit is also sensitive to adverse weather due
its reliance on soy beans. Finally, prices of other raw materials, such as raw
milk and butterfat, can be adversely affected by adverse weather.

LOSS OF OR INABILITY TO ATTRACT KEY PERSONNEL COULD ADVERSELY AFFECT OUR
BUSINESS

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

CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
COULD DETER TAKEOVER ATTEMPTS

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

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

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

o permit directors to be removed only for cause, and

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

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

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

WE ARE SUBJECT TO ENVIRONMENTAL REGULATIONS

We, like others in similar businesses, are subject to a variety of
federal, foreign, state and local environmental laws and regulations including,
but not limited to, those regulating waste water and storm water, air emissions,
storage tanks and hazardous materials. We believe that we are in material

40

compliance with these laws and regulations. Future developments, including
increasingly stringent regulations, could require us to make currently
unforeseen environmental expenditures.

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 swaps have been designated as hedges against variable interest
rate exposure on loans under our senior credit facility. The following table
summarizes our various interest rate swap agreements in effect at June 30, 2002
and at December 31, 2001:

These swap agreements provide hedges for loans under our credit
facility by limiting or fixing the LIBOR interest rates specified in the credit
facility at the interest rates noted above until the indicated expiration dates
of these interest rate derivative agreements.

We have also entered into interest rate swap agreements that provide
hedges for loans under Leche Celta's term loan. See Note 5 to our condensed
consolidated financial statements. The following table summarizes these
agreements:

We are exposed to market risk under these arrangements due to the
possibility of interest rates on our credit facilities falling below the rates
on our interest rate derivative agreements. We incurred $5.8 million and $11.5
million of additional interest expense, net of income taxes, during the second
quarter and the first half of 2002, respectively as a result of interest rates
on our variable rate debt falling below the agreed-upon interest rate on our
existing swap agreements. Credit risk under these arrangements is remote since
the counterparties to our interest rate derivative agreements are major
financial institutions.

A majority of our debt obligations are currently at variable rates. We
have performed a sensitivity analysis assuming a hypothetical 10% adverse
movement in interest rates. As of June 30, 2002, 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

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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 British pound and the
euro. At this time, we believe that potential losses due to foreign currency
fluctuations would not have a material impact on our consolidated financial
position, results of operations or operating cash flow.

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PART II - OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On May 30, 2002, we held our annual meeting of stockholders. At the
annual meeting, we submitted the following matters to a vote of our
stockholders:

o the re-elections of Tom C. Davis, Stephen L. Green, John R. Muse, P.
Eugene Pender and J. Christopher Reyes as members of our Board of
Directors, and

o the ratification of our Board of Directors' selection of Deloitte &
Touche LLP as our independent auditor for fiscal year 2002.

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

o Re-election of directors:

Tom C. Davis 39,572,407 votes for 221,719 votes withheld
Stephen L. Green 39,559,905 votes for 234,221 votes withheld
John R. Muse 39,571,842 votes for 222,284 votes withheld
P. Eugene Pender 39,549,173 votes for 244,953 votes withheld
J. Christopher Reyes 39,562,040 votes for 232,096 votes withheld

o Ratification of our selection of Deloitte & Touche LLP as our
independent auditor:

38,251,630 votes for 1,508,066 votes against; 34,430 abstentions

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

See attached Exhibit Index.

(b) Reports on Form 8-K and 8-K/A

o Current Report on Form 8-K dated April 17, 2002 regarding the retirement
of Howard Dean; and

o Current Report on Form 8-K dated August 9, 2002 regarding the sworn
statements filed by our Chief Executive Officer and Chief Financial
Officer with the Securities and Exchange Commission.

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SIGNATURES

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

DEAN FOODS COMPANY

/s/ Barry A. Fromberg
-------------------------------------------
Barry A. Fromberg Executive Vice President,
Chief Financial Officer (Principal
Accounting Officer)

Date: August 14, 2002

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EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION

11 Statement re computation of per share earnings.