DEAN FOODS CO/ - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 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 Registrant's principal executive offices)

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The aggregate market value of the Registrant's voting and non-voting common
equity stock held by non-affiliates of the Registrant at June 30, 2002, based on
the $37.16 per share closing price for the Registrant's common stock on the New
York Stock Exchange on June 30, 2002, was approximately $3.27 billion.

The number of shares of the registrant's common stock outstanding as of
March 25, 2003 was 93,007,862.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on or about May 22, 2003 (to be filed) are
incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS

GENERAL

We are the leading processor and distributor of milk and other dairy
products in the United States, and a leading manufacturer of various specialty
food products. We currently have five operating divisions, including Dairy
Group, Morningstar Foods, White Wave, Specialty Foods and International.

Our principal executive offices are located at 2515 McKinney Avenue, Suite
1200, Dallas, Texas 75201. Our telephone number is (214) 303-3400. We maintain a
worldwide web site at www.deanfoods.com. We were incorporated in Delaware in
1994.

BRIEF HISTORY

We commenced operations in 1988 through a predecessor entity. Our original
operations consisted solely of a packaged ice business.

We entered the dairy business in December 1993 when we acquired Suiza Dairy
Corporation, a regional dairy processor located in Puerto Rico. We have grown
our dairy business rapidly since then, primarily through a focused acquisition
strategy.

In April 1996, we completed our initial public offering (under our former
name: "Suiza Foods Corporation"). Initially our common stock was traded in the
Nasdaq National Market. In January 1997, we completed a second public offering.
Our common stock began trading on the New York Stock Exchange in March 1997
under the symbol "SZA." Our common stock continues to trade on the New York
Stock Exchange under our new symbol: "DF."

In August 1997, we acquired Franklin Plastics, Inc., a company engaged in
the business of manufacturing and selling plastic containers, in connection with
our acquisition of a dairy company related to Franklin Plastics. We then began
acquiring other companies in the plastic container business.

In November 1997, we bought Morningstar Foods Inc., which greatly expanded
our branded and value-added product lines. See "-- Operating
Divisions -- Morningstar/White Wave" beginning on page 8 for more information
about Morningstar Foods.

As a result of our acquisition strategy in the packaged ice industry, by
1998 we had become one of the largest manufacturers and distributors of packaged
ice in the United States. In April 1998, however, we sold our packaged ice
operations in order to focus our resources on our dairy and packaging
operations.

In 1999, we made a decision to further focus our resources on our core
dairy business. In July 1999, therefore, we sold all of our U.S. plastic
packaging operations to Consolidated Container Company in exchange for cash and
a minority interest in the purchaser, and in March and May 2000, we sold our
European packaging operations. Except for our minority interest in Consolidated
Container Company, we no longer have any investments in the packaging industry.

Effective January 1, 2000, we completed the acquisition of Southern Foods
Group, L.P., the third largest dairy processor in the United States at the time
of the acquisition. As a result of that transaction, we greatly expanded the
geographic reach of our Dairy Group and became the largest fluid dairy company
in the United States. See "-- Operating Divisions -- Dairy Group" beginning on
page 5 for more information about our Dairy Group. The Southern Foods
transaction was completed through a joint venture with Dairy Farmers of America
("DFA"), the nation's largest dairy farmers' cooperative, pursuant to which DFA
obtained a 33.8% interest in our Dairy Group.

In February 2000, we entered the European dairy industry by purchasing
Leche Celta, one of the largest dairy processors in Spain. See "-- Operating
Divisions -- International" beginning on page 11 for more information about our
international operations.

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On December 21, 2001, we completed our acquisition of Dean Foods Company
("Old Dean"). As a result, we are now one of the leading food and beverage
companies in the United States. In connection with that transaction, we
purchased the 33.8% minority interest in our Dairy Group held by DFA in exchange
for cash, the operations of 11 plants that we were required to divest in
connection with the Old Dean acquisition and certain other consideration. See
Note 2 to our Consolidated Financial Statements. Also on December 21, 2001,
immediately after we completed the acquisition of Old Dean, Old Dean changed its
name to Dean Holding Company and we changed our name from Suiza Foods
Corporation to Dean Foods Company.

DEVELOPMENTS SINCE JANUARY 1, 2002

INTEGRATION AND RATIONALIZATION ACTIVITIES

After acquiring Old Dean in December 2001, integrating Old Dean's
operations with our operations was our primary focus during 2002. Old Dean's
Dairy Group was integrated into our Dairy Group, Old Dean's National
Refrigerated Products group was integrated into our Morningstar Foods
subsidiary, and Old Dean's corporate headquarters was eliminated. As part of our
integration activities, we realigned our organizational structure and shifted
certain manufacturing operations. We also closed or announced the closure of 15
facilities and reduced (or intend to reduce) our workforce accordingly.
Facilities that have been closed or identified for closure include:

We realized merger synergies of over $100 million in 2002, including such
items as purchasing savings, headcount reduction savings, pension elimination
savings, manufacturing synergies and various depreciation savings. We also
recorded plant closing costs of approximately $19.1 million during 2002. These
charges included the following costs:

- Workforce reduction costs, which were charged against our earnings in the
period that the plan was established in detail and employee severance and
benefits had been appropriately communicated;

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

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

- Write-downs of property, plant and equipment and other assets, primarily
for asset impairments as a result of facilities 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.

ACQUISITIONS

White Wave -- In May 2002, we completed the acquisition of 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.
Prior to the acquisition, we owned approximately 36% 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 $192.8 million.
Existing management of White Wave has remained 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 currently
anticipated to range between $35 million and

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$40 million. See Note 2 and Note 20 to our Consolidated Financial Statements.
For more information about White Wave's operations, see "-- Operating
Divisions -- Morningstar/White Wave" beginning on page 8. For financial
reporting purposes, White Wave's financial results are aggregated with
Morningstar Foods' financial results.

Marie's -- We acquired the Marie's(R) brand as a result of our acquisition
of Old Dean in December 2001. When we acquired Old Dean, there were outstanding
licenses in favor of Marie's Quality Foods and Marie's Dressings, Inc.
authorizing them to use the brand 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
Consolidated Financial Statements. As a result of this acquisition, we are now
the sole owner, manufacturer and marketer of Marie's brand products nationwide.

BRANDED PRODUCT INITIATIVES

Our nationally branded products were a significant focus for us in 2002. We
invested approximately $130 million in our strategic brands during 2002, the
majority of which was spent to launch and secure distribution and trial of new
products. Our strategic brands include Silk(R) soy products and Sun Soy(R)
soymilk, International Delight(R) coffee creamers, Hershey's(R) milks and
milkshakes, Land O'Lakes(R) extended shelf-life products, Folger's(R) Jakada(R)
coffee and milk beverage, Marie's(R) dips and dressings and Dean's(R) dips. We
began tracking the growth of our strategic brands as a group during 2002. Unit
sales of our strategic brands increased by more than 25% during each quarter in
2002 (as compared to the corresponding quarter in the immediately preceding
year), on a pro forma basis as if White Wave and Old Dean had been owned for all
of 2001 and 2002. Some highlights of our 2002 branded product initiatives
included the following:

International Delight Coffee Creamers -- In the fourth quarter of 2002, we
launched a test of our International Delight coffee creamers in a newly-designed
plastic bottle, and in February 2003, we began a nationwide launch. In August
2002, we also launched Canela, the newest International Delight flavor.
Morningstar Foods now manufactures and distributes 12 flavors in the
International Delight brand family.

Silk Soymilk -- During the third quarter of 2002, we introduced an aseptic
Silk soymilk to better serve the dry grocery and foodservice channels. Also
during the third quarter, we introduced two new Silk flavors, including coffee
and unsweetened. In February 2003, White Wave entered into an agreement with
Starbucks pursuant to which, beginning in June 2003, Silk will become the
exclusive soymilk used in handcrafted beverages at all Starbucks locations
throughout North America. The Silk brand will be identified on all Starbucks
menu boards. Single-serve bottles of Silk will also be sold separately in
certain Starbucks stores.

Hershey's Milks and Milkshakes -- In October 2002, we launched Hershey's
Vanilla Cream Milkshake, adding another flavor to our existing Creamy Chocolate
and Cookies 'n Cream milkshake offerings. The product introduction is part of
Morningstar Foods' collaborative effort with Hershey Foods Corp. whereby
Morningstar manufactures, markets, sells and distributes Hershey brand name
dairy products nationally.

Land O'Lakes Dairy Ease(R) Lactose-Free Milks -- On July 31, 2002, we
entered into a licensing agreement with Land O'Lakes pursuant to which we
acquired a perpetual license to use the Land O'Lakes brand nationally on a broad
range of fluid milk, juices and 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. In
August 2002, we launched Land O'Lakes Dairy Ease lactose-free milk, our first
new product under our new Land O'Lakes license agreement.

Folger's Jakada Coffee and Milk Beverage -- In the first quarter of 2002,
we launched Folger's Jakada, a new coffee and milk beverage. The product is sold
in single-serve plastic bottles and is available in three flavors: French Roast,
Vanilla and Mocha. Pursuant to our licensing agreement with Procter & Gamble, we
produce, promote and distribute Folger's Jakada, while Procter & Gamble receives
a royalty from all Folger's Jakada sales and retains rights to the Folger's
trademark. In the first quarter of 2003, we began producing Folger's Jakada in
aseptic packaging on our "Stork" plastic bottle filler in Mt. Crawford,
Virginia. Products processed on this equipment can be stored and shipped without
refrigeration.

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DIVESTITURES

Part of our strategy since completion of the Old Dean acquisition has been
to carefully analyze our portfolio of assets and make divestitures where
appropriate in order to ensure that our financial and management resources are
closely aligned with our strategic direction. Since completion of the Old Dean
acquisition, we have sold three small non-core businesses that we acquired as
part of Old Dean's Specialty Foods division, including a contract hauling
business, a boiled peanut business and a powdered food-coating business for a
combined net purchase price of approximately $28.9 million. In addition, on
December 30, 2002, we completed the sale of our Puerto Rico dairy operations for
an adjusted purchase price of approximately $119.4 million. See Note 2 and Note
20 to our Consolidated Financial Statements.

SECURITIES REPURCHASES

In the fourth quarter of 2002, we spent approximately $101.2 million to
repurchase approximately 2.75 million shares of our common stock for an average
price of $36.78 per share, depleting the balance of our previous common stock
repurchase authorization. See Note 12 to our Consolidated Financial Statements.

Since January 1, 2003, our Board of Directors has authorized two additional
$150 million increases of our stock repurchase program. Between January 1 and
March 24, 2003, we have spent approximately $129 million to purchase an
additional 3.24 million shares of our common stock, for an average price of
$39.72 per share. Approximately $171.6 million remains available under our
current stock repurchase authorization.

On March 17, 2003, we announced a partial redemption of our trust-issued
preferred securities ("TIPES"). TIPES with an aggregate liquidation value of
$100 million will be redeemed on April 17, 2003 at a redemption price of
$51.0315 per security. Holders of TIPES that have been called for redemption
have the option to convert their TIPES into shares of our common stock instead
of receiving the cash redemption price. Approximately $500 million of TIPES will
remain outstanding following completion of this partial redemption.

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. All of the
share numbers in this Annual Report on Form 10-K have been adjusted for all
periods to reflect the stock split.

RETIREMENT OF HOWARD DEAN

On April 12, 2002, Howard Dean retired as Chairman of the Board and as a
director of our company. Mr. Dean was Chairman of the Board of Old Dean prior to
our acquisition of Old Dean, and became Chairman of our Board of Directors when
we acquired Old Dean. Gregg Engles, Chairman of our Board of Directors prior to
our acquisition of Old Dean, reassumed the role of Chairman upon Mr. Dean's
retirement.

DEVELOPMENTS RELATED TO CONSOLIDATED CONTAINER COMPANY

Since July 1999, we have owned a minority interest in Consolidated
Container Company ("CCC"), one of the nation's largest manufacturers of rigid
plastic containers and our primary supplier of plastic bottles and bottle
components. See "-- Brief History" beginning on page 1. During 2001, CCC
experienced a variety of operational difficulties, consistently poor operating
results and significant losses. We concluded that the value of our investment
was significantly impaired and that the impairment was not temporary, and in the
fourth quarter of 2001, we wrote off our minority investment in CCC in its
entirety.

By late 2001, CCC had become unable to comply with the financial covenants
in its credit agreement. CCC's lenders agreed to restructure CCC's credit
agreement to modify the financial covenants, subject to the agreement of CCC's
primary shareholders to guarantee certain of CCC's indebtedness. Because CCC is
an important and valued supplier of ours, and in order to protect our interest
in CCC, we executed a limited guarantee of up to $10 million of CCC's revolving
credit indebtedness. By late 2002, CCC was again unable to

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comply with the terms of its credit agreement. CCC's lenders agreed to again
restructure CCC's credit agreement, subject to the agreement of CCC's primary
shareholders to provide a total of $35 million of additional debt financing to
CCC. In the fourth quarter of 2002, we agreed to loan CCC $10 million of the $35
million in additional financing in exchange for cancellation of our former
guaranty and the receipt of additional equity in CCC. Vestar Capital Partners,
majority owner of CCC, loaned CCC the remaining $25 million. As a result of this
transaction, our interest in CCC was diluted to approximately 40%. See Note 4 to
our Consolidated Financial Statements for a description of the loan and of the
accounting treatment of the loan.

CURRENT BUSINESS STRATEGY

We are focused on consistently creating and maximizing shareholder value
primarily through the following strategies:

BE OUR CUSTOMERS' SUPPLIER OF CHOICE

We intend to maintain and extend our leadership position in the various
areas in which we compete, by continuing to focus on providing our customers
with excellent quality, service and price. Our Dairy Group has one of the most
extensive refrigerated "direct store delivery" systems in the United States,
with delivery routes spanning virtually the entire country. Using this system,
we have a unique capability to provide unmatched service and convenience to
customers. We hope to continue to leverage that system to grow with our
customers and increase our revenues.

INVEST IN OUR BRANDS

We believe that investing in our brands is key to growing our sales and our
profitability. We intend to spend approximately $190 million marketing our
strategic brands in 2003. In addition, during 2003 we expect to spend in excess
of $30 million marketing our regional Dairy Group brands.

RATIONALIZE OUR OPERATIONS

An important part of our strategy is the rationalization of our operations
including (i) shifting manufacturing operations between locations and
re-aligning certain delivery routes and reporting structures, (ii) selling or
closing facilities with overlapping markets or excess capacity, and (iii)
divesting non-core businesses that do not fit into our long-term business plans.
Throughout 2003, we will continue these activities in order to maximize our
efficiency, to enable us to provide our customers with the highest quality of
service, and to ensure that our resources are properly aligned with our
strategic direction.

INVEST OUR CASH

Our company generates a significant amount of cash flow from operating
activities. In addition to investing in our brands, we intend to invest our
capital where we believe returns are greatest, including acquisitions in our
core lines of business, repurchases of our securities and reductions of
indebtedness.

OPERATING DIVISIONS

DAIRY GROUP

Our Dairy Group manufactures and sells:

- fluid milk (including flavored milks and buttermilk),

- cream (including half-and-half and whipping cream),

- ice cream, ice cream novelties and ice cream mix,

- cultured products (including cottage cheese, sour cream and yogurt),

- juice, fruit flavored drinks and water,

- coffee creamers,

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- dips, and

- condensed milk.

In 2002, sales of fluid milk and cream represented approximately 74% of the
Dairy Group's sales to nonaffiliated customers, while ice cream/ice cream
novelties, cultured products and juice/fruit flavored drinks/water represented
approximately 12%, 6% and 5%, respectively.

Our Dairy Group operates its business in a generally decentralized manner
organized by geographic region, including the Northeast region, the Southeast
region, the Southwest region and the Midwest region. Our Dairy Group currently
manufactures its products in 95 plants in 33 states. For more information about
plants in the Dairy Group, see "-- Item 2. Properties" beginning on page 16.

Primarily due to the perishable nature of its products, our Dairy Group
delivers the majority of its products directly from its plants or distribution
branches to its customers in trucks that we own or lease. This form of delivery
is called a "direct store delivery" or "DSD" system. Our Dairy Group has one of
the most extensive refrigerated DSD systems in the United States, with delivery
routes spanning virtually the entire country. Using its DSD system, the Dairy
Group also acts as distributor for certain other manufacturers of refrigerated
products in certain parts of the country.

The Dairy Group sells its products primarily on a local or regional basis
through its internal sales force to a wide variety of retail customers including
grocery stores, club stores, convenience stores and mass merchandisers. The
Dairy Group also sells its products to food service customers such as
restaurants and hotels, distributors, schools and government installations. The
Dairy Group's largest customer is Wal-Mart, which accounted for approximately
10.6% of the Dairy Group's sales to unaffiliated customers in 2002. The Dairy
Group's second largest customer represented approximately 7.5% of the Dairy
Group's sales to unaffiliated customers in 2002. The balance of the Dairy
Group's customer base is diverse. The Dairy Group's sales are slightly seasonal,
with sales tending to be higher in the third and fourth quarters.

In 2002, our Dairy Group manufactured and marketed approximately two-thirds
of its dairy products under its proprietary or licensed local and regional brand
names. The remaining one-third of the Dairy Group's

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products were manufactured and sold on a private-label (or "customer brand")
basis for customers. Proprietary or licensed brands used in the Dairy Group
include the following:

The primary raw material used in our Dairy Group is raw milk. We purchase
our raw milk from independent farmers and farmers' cooperatives, typically
pursuant to contractual arrangements. Raw milk is generally readily available.
The price of raw milk is regulated in most parts of the country by the federal
government through federal market orders and price support programs. Several
states regulate raw milk pricing through their own programs. For more
information about raw milk pricing in the United States, please see
"-- Government Regulation -- Milk Industry Regulation" beginning on page 13 and
"Part II -- Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Known Trends and Uncertainties -- Prices of Raw
Milk and Cream" on page 34. The price of raw milk can fluctuate widely. Other
raw materials used by the Dairy Group, such as juice concentrates, sweeteners
and packaging supplies are generally available from numerous suppliers and we
are not dependent on any single supplier for these materials. Certain of our
Dairy Group's raw materials are purchased under long-term contracts in order to
obtain lower costs. The prices of our raw materials increase and decrease based
on supply and demand.

The dairy industry is a mature industry which has traditionally been
characterized by slow to flat growth, low profit margins, fragmentation and
excess capacity. Excess capacity resulted from the development of more efficient
manufacturing techniques, the establishment of captive dairy manufacturing
operations by large grocery retailers and little to no growth in the demand for
fresh milk products. Over the past 10 to 15 years, the dairy industry has
experienced significant consolidation. Consolidation has tended to raise
efficiency. However, consumption of fluid dairy products has generally remained
flat and has even declined in some regions of the country. Therefore, sales
growth across the industry generally remains modest and profit margins generally
remain low. Historically, the fluid dairy industry has not experienced a
significant amount of innovation in products or packaging. However, innovation
and branding have become increasingly important in

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recent years as processors seek to increase consumption, sales and margins
through product differentiation and branding.

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

Net sales in the Dairy Group to unaffiliated customers totaled $7.06
billion in 2002. For more financial information about our Dairy Group's recent
operations, see "Part II -- Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 22 and Note 22
to our Consolidated Financial Statements.

MORNINGSTAR/WHITE WAVE

Morningstar Foods manufactures and sells:

- dairy and non-dairy liquid coffee creamers,

- extended shelf-life ("ESL") milks, including flavored milks,
lactose-reduced milks and milk-based beverages,

- cultured dairy products,

- dips and dressings,

- aerosol whipped topping,

- dairy and non-dairy frozen whipped topping and frozen creamers, and

- egg substitute.

In 2002, net sales of liquid coffee creamers represented approximately 36%
of Morningstar Foods' net sales to unaffiliated customers, while ESL milks,
cultured products and dips/dressings represented approximately 31%, 10% and 9%,
respectively.

Fifty-five percent of Morningstar Foods' products were manufactured and
sold on a private-label (or "customer brand") basis for customers in 2002. The
remaining 45% were marketed under its proprietary or licensed brand names.
Except for Silk and Sun Soy, which are manufactured and sold by our White Wave
subsidiary, all of our "strategic brands" are manufactured and sold by
Morningstar Foods, including: International Delight coffee creamers, Hershey's
milks and milkshakes, Land O'Lakes ESL products, Folger's Jakada milk and coffee
beverage, Marie's dips and dressings and Dean's dips. We license the Hershey's,
Folger's and Land O'Lakes names from third parties for use on certain of our
products. Other branded products manufactured and sold by Morningstar include
Mocha Mix(R) non-dairy liquid coffee creamer, Naturally Yours(TM) sour cream,
Second Nature(R) egg substitute and Dairy Fresh(R) aerosol whipped toppings.

Because of the nature of Morningstar Foods' products most of its products
are delivered by common carrier, although some of its products are distributed
through our Dairy Group's DSD system. Morningstar Foods sells its products to a
wide variety of retail outlets, food service customers and distributors across
the United States and in a number of foreign countries through an internal sales
force and independent brokers. Morningstar Foods' largest customer represented
approximately 9.5% of its 2002 sales. The remainder of Morningstar Foods'
customer base is diverse. Sales of some of Morningstar's products are higher in
the fourth quarter.

Morningstar Foods manufactures its products in 15 plants located across the
United States. For more information about Morningstar Foods' manufacturing
plants, see "-- Item 2. Properties" beginning on page 15.

The primary raw materials used by Morningstar Foods are raw milk and bulk
cream. We purchase our raw milk from independent farmers and farmers'
cooperatives, typically pursuant to contractual arrangements. Raw milk is
generally readily available. The price of raw milk is regulated in most areas of
the country by the

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federal government through federal market orders and price support programs.
Several states regulate raw milk pricing through their own programs. For more
information about raw milk pricing in the United States, please see
"-- Government Regulation -- Milk Industry Regulation" beginning on page 13.
Most of Morningstar Foods' bulk cream requirements are supplied with excess
cream from our Dairy Group. To the extent that the Dairy Group cannot fulfill
all of Morningstar Foods' bulk cream requirements, we purchase bulk cream from
other dairy processors. Bulk cream is generally readily available and is priced
based on a multiple of the AA butter price on the Chicago Mercantile Exchange.
Prices of raw milk and bulk cream can fluctuate widely. Other raw materials used
by Morningstar Foods, such as sugar, corn syrup and packaging materials are
generally available from numerous suppliers and we are not dependent on any
single supplier for these materials. Certain of Morningstar's raw materials are
purchased under long-term contracts in order to obtain lower costs. The prices
of our raw materials increase and decrease depending on supply and demand.

Morningstar Foods competes in a number of different product markets and
competition is intense in all of its markets. For most of Morningstar's
products, competition to obtain shelf-space with retailers is based primarily on
the expected or historical sales performance of the product compared to its
competitors. Also, in some cases, Morningstar Foods pays fees to retailers to
obtain shelf-space for a particular product. Competition for consumer sales is
based on many different factors, including brand recognition, price, taste
preferences and quality. All of Morningstar Foods' products compete with other
food products and beverages for consumer sales.

For financial reporting purposes, Morningstar Foods' results are aggregated
with the results of White Wave.

White Wave manufactures and sells:

- soymilk,

- cultured soy,

- tofu (baked and raw),

- tempeh, and

- seitan.

In 2002, over 90% of White Wave's sales consisted of Silk branded soymilk
sales. In 2002, virtually all of White Wave's products were manufactured and
sold under its proprietary Silk and White Wave(R) brands, with only 1% of White
Wave's 2002 sales consisting of private label sales. Beginning in December 2002,
White Wave also assumed responsibility for our Sun Soy branded soymilk.

Soymilk and cultured soy are manufactured by blending soymilk concentrate
extracted from soybeans with certain proprietary ingredients. White Wave
produces soymilk concentrate at two facilities that are owned or leased by the
company. Due to recent rapid growth in Silk sales, both of White Wave's
extraction facilities were operating at full capacity by the end of 2002.
Therefore, in order to meet demand, White Wave purchased approximately 30% of
its 2002 soymilk concentrate requirements from third parties. In 2003, we intend
to install additional extraction operations in certain of our Morningstar Foods
plants. Silk products and Sun Soy are processed into finished products at three
company-owned plants across the country. White Wave also contracts with eight
third parties to co-pack Silk products at their plants. White Wave's tofu,
tempeh and seitan products are produced at White Wave's owned facility in
Boulder, Colorado.

Most of White Wave's products are delivered by common carrier, although
some of its products are distributed through our Dairy Group's DSD system. White
Wave sells its products to a variety of customers across the United States and
in several foreign countries, including grocery stores, natural foods stores,
club stores and convenience stores, using an internal sales force and
independent brokers. Sales to White Wave's largest customer represented
approximately 9% of White Wave's sales in 2002 since our acquisition of White
Wave in May. The balance of White Wave's customer base is diverse.

The primary raw materials used by White Wave are organic soybeans and
organic soybean concentrate. We purchase organic soybeans and organic soybean
concentrate from a number of suppliers. Organic soybeans and other raw materials
used by White Wave, such as organic sugar, flavorings and packaging materials,
are

9

generally available from several suppliers and we are not dependent on any
single supplier for these materials. Certain of White Wave's raw materials are
purchased under contracts in order to guarantee supply and to obtain lower
costs.

White Wave competes with several competitors in each of its product
markets. Competition to obtain shelf-space with retailers for a particular
product is based primarily on the expected or historical sales performance of
the product compared to its competitors. Also, in some cases, White Wave pays
fees to retailers to obtain shelf-space for a particular product. Competition
for consumer sales is based on many different factors, including brand
recognition, price, taste preferences and quality. Consumer demand for soy foods
has grown rapidly in recent years due to growing consumer confidence in the
health benefits of soy. White Wave has a leading position in the soy foods
category, and particularly the soymilk segment. However, soy foods and soymilk
compete with many other beverages and nutritional products for consumer sales.

Net sales by Morningstar/White Wave to unaffiliated customers totaled
approximately $1.06 billion in 2002 (with White Wave's 2002 sales only being
included since its acquisition in May 2002). For more information about
Morningstar/White Wave's recent financial results, see "Part II -- Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 23 and Note 22 to our Consolidated Financial
Statements.

SPECIALTY FOODS

Our Specialty Foods segment, which we acquired as part of Old Dean, offers
a diverse product mix that includes:

- pickles, relishes and peppers,

- powdered coffee creamers and other powdered products,

- aseptic sauces and puddings, and

- nutritional beverages.

Our Specialty Foods division is one of the largest pickle processors and
marketers in the United States. Its pickle, relish and pepper products are sold
nationally, primarily under various customer brands, but also under some of our
proprietary brands including Atkins(R), Cates(R), Heifetz(R), Nalley's(R),
Steinfeld (TM), Farmans(R), Paramount(R), Peter Piper(R), Roddenberry(R) and
Schwartz(R), and sold to foodservice customers, grocery store chains and club
stores and in bulk to other food processors. Approximately half of Specialty
Foods' 2002 net sales to unaffiliated customers consisted of sales of pickles,
relish and pepper products.

Specialty Foods also sells shortening powders and other high-fat powder
formulas used in baking, beverage mixes, gravies and sauces, and premium and
low-fat powdered products sold primarily under private labels to vending
operators, office beverage service companies and institutional foodservice
distributors with national distribution to restaurants, schools, health care
institutions, hotels and vending and fast-food operators. Powdered coffee
creamers are sold for private label distribution to all classes of the retail
trade and in bulk to a number of other food companies for use as an ingredient
in their food products. We believe that our Specialty Foods segment is the
largest manufacturer of powdered non-dairy coffee creamers in the United States.
Sales of powdered products represented approximately one-third of Specialty
Foods' 2002 net sales to unaffiliated customers.

Specialty Foods also manufactures aseptic cheese sauce and pudding. Aseptic
products are sterilized using a process which allows storage for prolonged
periods without refrigeration. Our cheese sauce and pudding are sold nationally,
primarily under private labels, to distributors that supply restaurants,
schools, hotels and other segments of the foodservice and grocery industries.
Specialty Foods also sells aseptic nutritional beverages in the meal supplement,
weight loss/gain and sports categories. Nutritional beverages are primarily sold
nationally, entirely under private labels, to retail grocery/drug store channels
and some foodservice distributors. We believe that we are the only producer of
nutritional beverages in the United States able to match premium branded quality
due to our aseptic capabilities coupled with our research and

10

development expertise. Sales of aseptic products represented approximately 18%
of Specialty Foods' 2002 net sales to unaffiliated customers.

Finally, Specialty Foods produces a number of specialty sauces, including
shrimp, seafood, tarter, horseradish, chili and sweet and sour sauces, and sells
them to retail grocers in the Eastern, Midwestern and Southern United States.
These products are sold under the Bennett's(R) and Hoffman House(R) brand names.

Due to their relatively long shelf-lives, Specialty Foods' products are
delivered to our customers' stores and warehouses primarily by common carrier.

Specialty Foods has a diverse customer base, with no single customer
representing more than 10% of Specialty Foods' 2002 sales. The majority of
Specialty Foods' sales are to foodservice customers.

Specialty Foods purchases cucumbers under seasonal grower contracts with a
variety of growers. We supply seeds and advise growers regarding planting
techniques. We also monitor and arrange for the control of insects, direct the
harvest and, for some crops, provide automated harvesting services. Other raw
materials used by Specialty Foods, such as corn syrup, soy bean oil, casein and
packaging materials, are generally available from numerous suppliers and we are
not dependent on any single supplier for these materials. Certain of Specialty
Foods' raw materials are purchased under long-term contracts in order to
guarantee supply and to obtain lower costs.

Specialty Foods produces its products in 11 plants located across the
United States. For more information about Specialty Foods' manufacturing plants,
see "-- Item 2. Properties" beginning on page 15.

Specialty Foods competes with several competitors in each of its product
markets. For most of Specialty Foods' products, competition to obtain
shelf-space with retailers is based on the expected or historical sales
performance of the product compared to its competitors. In some cases Specialty
Foods pays fees to retailers to obtain shelf-space for a particular product.
Competition for consumer sales is based on quality, regional taste preferences,
price and brand awareness. Specialty Foods also competes with other food and
nutritional products for consumer sales.

Specialty Foods' net sales to unaffiliated customers totaled approximately
$673.6 million in 2002. For more information about Specialty Foods' recent
financial results, see "Part II -- Item 7. Management's Discussion and Analysis
of Financial Results" beginning on page 23 and Note 22 to our Consolidated
Financial Statements.

INTERNATIONAL

Our international dairy operations consist solely of our Spanish operations
conducted through Leche Celta. Products that Leche Celta manufactures include:

- fluid milk pasteurized at ultra-high temperatures, known as "UHT" milk
(including flavored and enriched milks),

- butter,

- UHT cream, and

- cheese.

In 2002, sales of UHT fluid milk represented approximately 89% of sales,
while butter, cream and cheese comprised 9%, 1%, and 1% respectively.

Leche Celta manufactures its products in 4 plants located in the Galicia
and Cantabria regions of Spain. For more information about Leche Celta's plants,
see "-- Item 2. Properties" beginning on page 15. Leche Celta operates its
business primarily from its headquarters located in Pontedeume, Galicia.

The long shelf-life of Leche Celta's UHT fluid milk products allows
delivery by common carrier. Leche Celta sells its products through an internal
sales force to a wide variety of customers throughout Spain and Portugal,
including mainly large and mid-sized retailers. In 2002, Leche Celta
manufactured and marketed

11

approximately 60% of its products under its proprietary brands, including
Celta(R) and Campobueno(R), and the remaining 40% under private-label brands for
customers. Leche Celta's largest customer is Distribucion Internacional de
Alimentacion S.A., which accounted for approximately 18% of net sales to
unaffiliated customers in 2002. Leche Celta's second largest customer, Eroski
Sociedad Cooperativa, represented approximately 11% of net sales to unaffiliated
customers in 2002. Leche Celta's sales are slightly seasonal, with sales tending
to be lower in the third quarter.

The primary raw materials used by Leche Celta are raw milk and packaging
materials. We purchase our raw milk from farmers' cooperatives and other
intermediaries pursuant to formal and informal contractual arrangements. Raw
milk production volume is regulated by European Union quotas which sometimes
limit the availability of these raw materials to processors. The price of raw
milk is defined solely by supply and demand and can fluctuate widely. Celta
purchases its packaging materials from two leading suppliers. Packaging
materials represent a significant portion of Leche Celta's raw material costs
and are purchased under long-term contracts in order to obtain lower costs.

The Spanish fluid dairy market is characterized by relatively high per
capita consumption and the UHT "brick pack" format dominates the industry. The
combination of these factors makes Spain one of the largest UHT markets in the
world. The Spanish fluid dairy market has been characterized over the past 20
years by slow growth in the core products and faster growth for value-added
products such as nutritionally enriched milks. Private label brands comprise a
growing but still relatively small share of the Spanish market. The Spanish
fluid dairy industry is highly competitive, with leading companies investing
heavily in innovation and branding. The industry has undergone significant
consolidation in the past 5 to 10 years leading to the emergence of several
national brands, including the Celta(R) brand.

Leche Celta's net sales to unaffiliated customers totaled approximately
$199.6 million in 2002.

GOVERNMENT REGULATION

PUBLIC HEALTH

As a manufacturer and distributor of food products, we are subject to a
number of food-related regulations, including the Federal Food, Drug and
Cosmetic Act and regulations promulgated thereunder by the U.S. Food and Drug
Administration ("FDA"). This comprehensive regulatory framework governs the
manufacture (including composition and ingredients), labeling, packaging and
safety of food in the United States. The FDA:

- regulates manufacturing practices for foods through its current good
manufacturing practices regulations,

- specifies the standards of identity for certain foods, including many of
the products we sell, and

- prescribes the format and content of certain information required to
appear on food product labels.

In addition, the FDA enforces the Public Health Service Act and regulations
issued thereunder, which authorize regulatory activity necessary to prevent the
introduction, transmission or spread of communicable diseases. These regulations
require, for example, pasteurization of milk and milk products. We are also
subject to numerous other federal, state and local regulations involving such
matters as the licensing of dairy manufacturing facilities, enforcement by
government health agencies of standards for our products, inspection of our
facilities and regulation of our trade practices in connection with the sale of
food products.

We use quality control laboratories in our manufacturing facilities to test
raw ingredients. Product quality and freshness are essential to the successful
distribution of our products. To monitor product quality at our facilities, we
maintain quality control programs to test products during various processing
stages. We believe that our facilities and manufacturing practices comply with
all material government regulations.

12

EMPLOYEE SAFETY REGULATIONS

We are subject to certain safety regulations including regulations issued
pursuant to the U.S. Occupational Safety and Health Act. These regulations
require us to comply with certain manufacturing safety standards to protect our
employees from accidents. We believe that we are in material compliance with all
employee safety regulations.

ENVIRONMENTAL REGULATIONS

We are subject to various environmental regulations. Ammonia, a refrigerant
used extensively in our operations, is considered an "extremely" hazardous
substance pursuant to U.S. federal environmental laws due to its toxicity. Also,
certain of our facilities discharge biodegradable wastewater into municipal
waste treatment facilities in excess of levels permitted under local
regulations. Because of this, certain of our subsidiaries are required to pay
waste water surcharges or to construct waste water pretreatment facilities. To
date, such waste water surcharges have not had a material effect on our
Consolidated Financial Statements.

We maintain above-ground or underground petroleum storage tanks at many of
our facilities. These tanks are periodically inspected to determine compliance
with applicable regulations. We are required to make expenditures from time to
time in order to maintain compliance of these tanks. To date, such expenditures
have not had a material effect on our Consolidated Financial Statements.

We do not expect environmental compliance to have a material impact on our
capital expenditures, earnings or competitive position in the foreseeable
future.

MILK INDUSTRY REGULATION

The federal government establishes minimum prices that we must pay to
producers in regulated areas for raw milk. Raw milk contains primarily raw skim
milk, in addition to a small percentage of butterfat. The federal government
establishes separate minimum prices for raw skim milk and butterfat. Raw milk
delivered to our facilities is tested upon receipt to determine the percentage
of butterfat, and we pay producers separate prices for the raw skim milk and
butterfat based on the results of our tests.

The federal government's minimum prices are calculated by economic formula
based on supply and demand and vary depending on the processor's geographic
location and the type of product manufactured using the raw product. Federal
minimum prices change monthly. Class I butterfat and raw skim milk prices (which
are the prices we are required to pay for butterfat and raw skim milk that is
processed into fluid milk products) and Class II raw skim milk prices (which are
the prices we are required to pay for raw skim milk that is processed into
products such as cottage cheese, creams, ice cream and sour cream) for each
month are announced by the federal government by the 23rd day of the immediately
preceding month. Class II butterfat prices for each month are announced on the
5th day after the end of that month.

In addition to the federal minimum prices, we also pay producer premiums,
procurement costs and other related charges that vary by location and vendor.
Some states have opted out of the federal pricing system, and have established
their own methods of establishing minimum prices for raw milk. A very few states
also regulate the price that we can charge our retail customers for our
products.

From 1996 until its expiration in October 2001, the Northeast Dairy Compact
Commission set a minimum price for raw milk in New England independent of the
price set by the federal milk marketing orders. Under that compact, the price we
paid for raw milk in New England exceeded the price we were paying for raw milk
in other parts of the country. The Northeast Dairy compact expired by its terms
on October 31, 2001. Proposals are made from time to time to authorize
additional state compacts or to enact new laws to regulate and set minimum
levels for the price of raw milk. Proposals have also been made by various
states to set limits on the price of milk charged by milk processors to
retailers and on the price of milk charged by retailers to consumers. We do not
know whether any such legislation will be enacted by Congress or any state, or
if enacted, the extent to which any such legislation would impact our business.

13

In Spain, the government has established a quota system regulating the
amount of milk that can be sold by individual farmers and farm cooperatives,
which affects the manner in which we purchase raw milk, as well as the prices we
pay for raw milk.

EMPLOYEES

As of December 31, 2002 we had the following employees:

MINORITY HOLDINGS

We own an approximately 40% interest in Consolidated Container Company
("CCC"), one of the nation's largest manufacturers of rigid plastic containers
and our largest supplier of plastic bottles and bottle components. We have owned
a minority interest in CCC since July 1999 when we sold our U.S. plastic
packaging operations to CCC. Vestar Capital Partners controls CCC through an
approximately 55% ownership interest. The remaining approximately 5% of CCC is
owned indirectly by Alan Bernon, a member of our Board of Directors, and his
brother Peter Bernon. Pursuant to our agreements with Vestar, we control 2 of
the 7 seats on CCC's Management Committee. We have also entered into various
supply agreements with CCC pursuant to which we have agreed to purchase certain
of our requirements for plastic bottles and bottle components from CCC. In 2002,
we spent approximately $128.7 million on products purchased from CCC. In
December 2002, we agreed to make a $10 million loan to CCC. Please see Note 4 to
our Consolidated Financial Statements for more information about our investment
in and relationship with CCC. Because CCC has issued certain senior notes, CCC
files annual, quarterly and other reports with the Securities and Exchange
Commission. More information about CCC can be found on its website at
www.cccllc.com or in its filings with the Securities and Exchange Commission
available at www.sec.gov.

We own an approximately 13% interest in Horizon Organic Holding Company,
one of America's largest organic food companies. Horizon Organic Holding Company
sells a full line of branded organic products, including milk, half-and-half,
cheese, butter, yogurt, sour cream, cottage cheese and juices. Horizon Organic
Holding Company's common stock is traded on the Nasdaq National Market under the
symbol "HCOW." Pursuant to our agreement with Horizon Organic Holding Company,
we control one seat on its Board of Directors. We also have co-packing
agreements with Horizon Organic Holding Company pursuant to which we manufacture
products for Horizon Organic Holding Company and which prohibit us from
competing with Horizon Organic Holding Company in certain territories with
respect to certain types of organic dairy products. In 2002, our co-packing fees
from Horizon Organic Holding Company totaled approximately $20.7 million, and we
incurred approximately $0.8 million of expense for products purchased from them.
More information about Horizon Organic Holding Company can be found on its
website at www.horizonorganic.com or in their filings with the Securities and
Exchange Commission available at www.sec.gov. Please see Note 4 to our
Consolidated Financial Statements for more information about our investment in
Horizon Organic Holding Company.

We also own an approximately 16% interest in Momentx, Inc., the owner and
operator of dairy.com, an online vertical exchange focused on bringing farmers,
farm cooperatives, processors and manufacturers together in an electronic
marketplace for the exchange of goods and services, supply chain efficiency
tools and dairy farm optimization tools. The remaining interests in Momentx,
Inc. are owned by various other dairy processing companies, dairy cooperatives
and certain other individual investors who are not affiliated with us.

14

Pursuant to existing shareholder agreements, the founding stockholders, of which
we are one, are entitled collectively to elect four of the seven seats on
Momentx, Inc.'s Board of Directors. Gregg Engles, our Chairman of the Board and
Chief Executive Officer, is currently Chairman of the Board of Momentx, Inc. We
are also a user of dairy.com's services and in 2002 we spent approximately $0.1
million on services purchased from Momentx, Inc. Please see Note 4 to our
Consolidated Financial Statements for more information about our investment in
Momentx, Inc.

WHERE YOU CAN GET MORE INFORMATION

Our fiscal year ends on December 31. We furnish our stockholders with
annual reports containing audited financial statements and other appropriate
reports. In addition, we file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
Old Dean, which is now known as Dean Holding Company and is a wholly-owned
subsidiary of ours, also files annual, quarterly and current reports with the
Securities and Exchange Commission.

If you would like free hardcopies of our filings with the Securities and
Exchange Commission, write, call or e-mail us at:

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

You may also read and copy any reports, statements or other information
that we or Dean Holding Company file with the Securities and Exchange Commission
at the Securities and Exchange Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the Securities and Exchange
Commission. Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the operation of the Public Reference Room.

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

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

15

ITEM 2. PROPERTIES

DAIRY GROUP

Our Dairy Group currently conducts its manufacturing operations from the
following plants, most of which are owned:

Each of the Dairy Group's manufacturing plants also serves as a
distribution facility. In addition, our Dairy Group has numerous distribution
branches located across the country, some of which are owned but most of which
are leased. The Dairy Group's headquarters are located in Dallas, Texas in
leased premises.

MORNINGSTAR/WHITE WAVE

Our Morningstar/White Wave segment currently conducts its manufacturing
operations from plants in the following locations, all but 3 of which are owned:

- Tempe, Arizona*
- City of Industry, California(2)
- Gustine, California
- Woodland, California*
- Boulder, Colorado
- Jacksonville, Florida
- Thornton, Illinois
- Murray, Kentucky
- Frederick, Maryland
- Bridgeton, New Jersey
- Delhi, New York
- Arlington, Tennessee
- Sulphur Springs, Texas
- Cedar City, Utah
- Mt. Crawford, Virginia
- Madison, Wisconsin
- Richland Center, Wisconsin
- ---------------

* We have announced the closure of our Tempe, Arizona and Woodland, California
plants.

Morningstar Foods' corporate headquarters are located in leased premises in
Dallas, Texas. White Wave's corporate headquarters are located in leased
premises in Boulder, Colorado.

SPECIALTY FOODS

Specialty Foods currently conducts its manufacturing operations from plants
in the following locations, all but one of which are owned:

- LaJunta, Colorado
- New Hampton, Iowa
- Chicago, Illinois
- Dixon, Illinois
- Pecatonica, Illinois
- Plymouth, Indiana
- Benton Harbor, Michigan
- Wayland, Michigan
- Faison, North Carolina
- Portland, Oregon
- Green Bay, Wisconsin

18

Specialty Foods' headquarters are located at its plant in Green Bay,
Wisconsin.

INTERNATIONAL

Our Spanish operation currently manufactures its products from plants in
the following locations, all of which are owned:

- Pontedeume, Galicia
- Meira, Galicia
- Meruelo, Cantabria
- Escairon, Galicia

Leche Celta's headquarters are located in owned premises in Pontedeume,
Galicia.

CORPORATE

Our corporate headquarters are located in leased premises at 2515 McKinney
Avenue, Suite 1200, Dallas, Texas 75201.

ITEM 3. LEGAL PROCEEDINGS

We are not party to, nor are our properties the subject of, any material
pending legal proceedings.

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

No matter was submitted by us during the fourth quarter of 2002 to a vote
of security holders, through the solicitation of proxies or otherwise.

19

PART II

ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED MATTERS

Our common stock began trading on the Nasdaq National Market on April 17,
1996, and continued trading on the Nasdaq until March 5, 1997, when it began
trading on the New York Stock Exchange under the symbol "SZA." We changed our
trading symbol to "DF" effective December 24, 2001. The following table sets
forth the high and low sales prices of our common stock as quoted on the New
York Stock Exchange for the last two fiscal years. At March 25, 2003, there were
approximately 6,315 record holders of our common stock.

We have never declared or paid a cash dividend on our common stock. Our
current intention is to retain all earnings to cover working capital
fluctuations and to fund capital expenditures, scheduled debt repayments, equity
buybacks and acquisitions and we do not anticipate paying cash dividends on our
common stock in the foreseeable future. Moreover, our senior credit facility
contains certain restrictions on our ability to pay cash dividends. See Note 10
to our Consolidated Financial Statements for further information regarding the
terms of our senior credit facility.

Set forth below is certain information about our equity compensation plans
as of December 31, 2002. We do not have any equity compensation plans that were
not approved by our shareholders.

20

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data as of and for each of the five years
in the period ended December 31, 2002 has been derived from our audited
Consolidated Financial Statements. The selected financial data do not purport to
indicate results of operations as of any future date or for any future period.
The selected financial data should be read in conjunction with our Consolidated
Financial Statements and related Notes.

21

- ---------------

(1) For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends, "earnings" represents income before income
taxes plus fixed charges. "Fixed charges" consist of interest on all debt,
amortization of deferred financing costs and the portion of rental expense
that we believe is representative of the interest component of rent expense.
Preferred stock dividends consist of dividends, adjusted to a pre-tax basis,
on our Series A Preferred Stock, which we redeemed in 1998.

(2) Includes amounts outstanding under subsidiary lines of credit and the
current portion of long-term debt.

22

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

We are the leading processor and distributor of milk and other dairy
products in the United States and a leading manufacturer of specialty foods. We
have five operating divisions including Dairy Group, Morningstar Foods, White
Wave, Specialty Foods and International. Please see "Part I -- Item 1. Business"
beginning on page 1 for a general description of our business. In accordance
with applicable accounting rules, we currently have three reportable business
segments: Dairy Group, Morningstar/White Wave and Specialty Foods.

DEVELOPMENTS SINCE JANUARY 1, 2002

Please see "Part I -- Item 1. Business -- Developments Since January 1,
2002" for a description of recent developments.

RESULTS OF OPERATIONS

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

Important Note: We completed our acquisition of the former Dean Foods
Company ("Old Dean") on December 21, 2001. As a result, full year comparisons
between 2002 and 2001, and to some degree, between 2001 and 2000 are less
meaningful than they would be otherwise. We obtained our Specialty Foods segment
as part of our acquisition of Old Dean. Therefore, no prior year comparisons are
provided because the Specialty Foods segment was only owned for a few days in
2001. More complete segment data can be found in Note 22 to our Consolidated
Financial Statements. Also, 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 adoption of
SFAS No. 142, comparisons between 2002 and 2001 are less meaningful than they
would be otherwise. Where appropriate, we have provided comparisons eliminating
the amortization of goodwill and intangible assets with indefinite useful lives
in 2001. See Notes 1 and 7 to our Consolidated Financial Statements for more
information regarding SFAS No. 142.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

Net Sales -- Net sales increased 51% to $8.99 billion during 2002 from
$5.97 billion in 2001.

Net sales for the Dairy Group increased 40%, or $2.02 billion, in 2002
compared to 2001. The acquisition of Old Dean (net of the plants divested as
part of the transaction) contributed a net increase in sales of approximately
$2.4 billion to the Dairy Group. That increase was partly offset by the effects
of decreased raw milk costs compared to the prior year. In general, we change
the prices that we charge our customers for our

23

products on a monthly basis, as the costs of our raw materials fluctuate. The
following table sets forth the average monthly Class I "mover" and average
monthly Class II minimum prices for raw skim milk and butterfat for 2002
compared to 2001:

- ---------------

* The prices noted in this table are not the prices that we actually pay. The
federal order minimum prices at any given location for Class I raw skim milk
or Class I butterfat are based on the Class I mover prices plus a location
differential. Class II prices noted in the table are federal minimum prices,
applicable at all locations. Our actual cost also includes producer
premiums, procurement costs and related charges that vary by location and
vendor. Please see "Part I -- Item 1. Business -- Government
Regulation -- Milk Industry Regulation" beginning on page 13, and "-- Known
Trends and Uncertainties -- Prices of Raw Milk and Cream" beginning on page
34 for a more complete description of raw milk pricing.
(1) Prices are per hundredweight.

26

(2) Prices are per pound.
(3) We process Class I raw skim milk and butterfat into fluid milk products.
(4) We process Class II raw skim milk and butterfat into products such as
cottage cheese, creams, ice cream and sour cream.

Cost of Sales -- Our cost of sales ratio was 76.6% in 2001 compared to
75.5% in 2000. The cost of sales ratio for the Dairy Group increased to 77.3% in
2001 from 76.1% in 2000 and the cost of sales ratio for Morningstar Foods
increased to 69.9% in 2001 from 68.8% in 2000. These increases were due
primarily to higher raw milk costs in 2001.

Operating Costs and Expenses -- Our operating expense ratio was 17% in 2001
compared to 18% in 2000. Included in 2001 operating costs were the following
one-time items:

- A gain of $47.5 million on the divestiture of the plants transferred to
National Dairy Holdings (as assignee of Dairy Farmers of America) in
connection with the acquisition of Old Dean (which gain represented the
difference between fair value and the carrying value of the plants),

- An expense of $28.5 million resulting from a payment to Dairy Farmers of
America as consideration for modifications to our milk supply
arrangements, and

- An expense of $1.7 million resulting from the impairment in value of a
water plant in Grand Rapids, Michigan.

Included in 2000 operating expenses were litigation settlement costs of
$7.5 million.

The operating expense ratio at the Dairy Group was 16.3% in 2001 compared
to 17.7% in 2000. This decrease was due to the one-time gain of $47.5 million
included in 2001 operating expenses, the increase in net sales in 2001 and
various cost savings initiatives (most of which were temporary) implemented
during 2001 in response to a difficult operating environment. These initiatives,
which included such things as reduced travel and meeting expenses and reduced
advertising and marketing expenses, resulted in lower selling and general and
administrative costs during 2001. The operating expense ratio at Morningstar
Foods was 16.1% in 2001 versus 16.4% in 2000. Although similar cost savings
initiatives were implemented at Morningstar Foods in 2001 as were implemented at
the Dairy Group, their overall operating expense ratio remained steady due to
higher distribution and selling expenses related to the introduction of new
products.

Operating Income -- Operating income in 2001 was $385.1 million, an
increase of $26.4 million from 2000 operating income of $358.7 million. Our
operating margin in 2001 was 6.4% compared to 6.5% in 2000. The Dairy Group's
operating margin increased to 6.4% in 2001 from 6.2% in 2000. This increase was
due to the one-time gain of $47.5 million included in 2001 operating expenses
partially offset by higher raw milk costs during 2001. Morningstar Foods'
operating margin declined to 14.1% in 2001 from 14.8% in 2000. This decrease was
due to higher raw milk and bulk cream costs in 2001.

Other (Income) Expense -- Total other expense increased by $29.6 million in
2001 compared to 2000. Interest expense decreased to $96.5 million in 2001 from
$107.1 million in 2000. This decrease was the result of lower average debt
balances and lower interest rates in 2001. Financing charges on preferred
securities were $33.6 million in both years.

Income from investments in unconsolidated affiliates, related primarily to
our minority interest in Consolidated Container Company ("CCC"), was a loss of
$23.6 million in 2001 compared to income of $11.5 million in 2000. Included in
the 2001 loss was an impairment charge of $21.1 million related to the write-off
of our investment in CCC. During 2001, due to a variety of operational
difficulties, CCC consistently reported operating results that were
significantly weaker than expected, which resulted in significant losses in the
third and fourth quarters. As a result of CCC's performance in 2001, CCC became
unable to comply with the financial covenants contained in its credit facility.
Accordingly, we concluded that our investment in CCC was impaired and that the
impairment was not temporary. In the fourth quarter of 2001, we wrote off our
remaining investment in CCC.

27

Other income and expense also included $4.4 million of impairment charges
related to two other small investments.

Income Taxes -- Income tax expense was recorded at an effective rate of
36.7% in 2001 compared to 39% in 2000. This decrease was due primarily to the
favorable settlement of a contested state tax issue during 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, which was primarily the
33.8% ownership interest of Dairy Farmers of America in our Dairy Group,
increased to $31.4 million in 2001 compared to $29.9 million in 2000. 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
Consolidated Financial Statements. We now own 100% of our Dairy Group. In 2001,
we also purchased the 25% minority interest of Leche Celta. We now own 100% of
our Spanish operations.

Extraordinary Gain (Loss) -- On December 21, 2001, simultaneously with the
acquisition of Old Dean, we replaced our former credit facilities with a new
credit facility. As a result, we recognized a $4.3 million extraordinary loss,
net of an income tax benefit of $3 million, for the write-off of deferred
financing costs related to the early retirement of our former credit facilities.
See Note 10 to our Consolidated Financial Statements.

In 2000 we recognized a $5 million extraordinary gain, net of income tax
expense of $2.8 million, which included the following items related to the early
extinguishment of our previous senior credit facility:

- A $6.5 million gain, net of income tax expense of $3.6 million, for
interest rate derivatives which became unhedged and were marked to fair
market value, and

- A $1.5 million loss, net of an income tax benefit of $0.8 million, for
the write-off of deferred financing costs.

Cumulative Effect of Accounting Change -- Effective January 1, 2001 we
adopted Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (as amended). Our adoption of this
accounting standard resulted in a $1.4 million charge to earnings, net of an
income tax benefit of $1.5 million and minority interest benefit of $0.7
million.

CRITICAL ACCOUNTING POLICIES

"Critical accounting policies" are defined as those that are both most
important to the portrayal of a company's financial condition and results, and
that require our 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 Consolidated
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 Consolidated 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. See Note 1 to our Consolidated Financial
Statements for a detailed discussion of these and other accounting policies.

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 recorded by estimating expense based on existing
promotional agreements and historical experience. On our income statement for
the year ended December 31, 2002, sales were reduced by estimated incentives of
$173.6 million. A 1% change in that amount would impact our reported sales by
$1.7 million. We provide credit terms to customers generally ranging up to 30
days, perform ongoing credit evaluations of our customers and maintain
allowances for estimated credit losses based on historical experience. At
December 31, 2002, our

28

allowance for doubtful accounts was approximately $34 million, or 0.4% of sales.
Each 0.1% change in that ratio of allowance for doubtful accounts to sales would
impact net income by approximately $5.6 million.

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. At December 31, 2002 and 2001, we recorded accrued liabilities related
to these retained risks of $128.5 million and $96.1 million, respectively.

Valuation of Long-Lived Intangible Assets and Goodwill -- In January 2002,
we adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets" and as a result, we no longer amortize
goodwill and other intangibles with indefinite lives. In lieu of amortization,
we are now required to perform annual impairment tests of goodwill and
long-lived intangibles. The annual impairment tests require the use of
significant judgments and estimates.

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.

Employee Benefit Plan Costs -- We provide a range of benefits to our
employees including pension and postretirement benefits to our eligible
employees and retirees. We record annual amounts relating to these plans based
on calculations specified by generally accepted accounting principles, which
include various actuarial assumptions, such as discount rates, assumed rates of
return, compensation increases, employee turnover rates and health care cost
trend rates. We review our actuarial assumptions on an annual basis and make
modifications to the assumptions based on current rates and trends when it is
deemed appropriate. As required by generally accepted accounting principles, the
effect of the modifications is generally recorded and amortized over future
periods. Different assumptions that we make could result in the recognition of
different amounts of expense over different periods of time.

One of the important assumptions in the pension expense is the expected
rate of return on plan assets. Over the life of our pension plans we expect the
plan assets to earn a return of approximately 6.75% to 8.50% depending on the
type of assets in the individual plans. A 1% reduction in the assumed rate of
return on plan assets would increase our annual pension expense by approximately
$1.25 million. In addition, a 1% increase in assumed healthcare costs trends
would increase annual post retirement medical expense by approximately $0.2
million.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, Financial Accounting Standards Board ("FASB") issued SFAS No.
143, "Accounting for Asset Retirement Obligations." This statement requires that
the fair value of a liability for an asset retirement

29

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 2003. We do not expect
the adoption of this pronouncement to 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 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 Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The statement requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred, and is effective for exit or disposal
activities that are initiated after December 31, 2002. Our adoption of this
standard will change the timing of the recognition of certain charges associated
with exit and disposal activities.

On December 31, 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 148, which is effective for
fiscal years ending after December 15, 2002, provides alternative methods of
transition for a voluntary change to the fair value-based method and requires
more prominent and more frequent disclosures in the financial statements about
the effects of stock-based compensation. At this time, we have elected not to
adopt the voluntary expense recognition provisions of SFAS No. 123.

In November 2002, FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies the
requirements of SFAS No. 5 "Accounting for Contingencies" relating to the
guarantor's accounting for and disclosures of certain guarantees issued. FIN No.
45 requires disclosures of guarantees. It also requires liability recognition
for the fair value of guarantees made after December 31, 2002. We will adopt the
liability recognition requirements of FIN No. 45 effective January 1, 2003, and
we do not expect the adoption to have a material effect on our Consolidated
Financial Statements.

In January 2003, FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 clarifies the application of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or in which equity investors do not bear the residual
economic risks. The interpretation applies to variable interest entities
("VIEs") created after January 31, 2003 and to VIEs in which an enterprise
obtains an interest after that date. It applies in the fiscal or interim period
beginning after June 15, 2003, to VIEs in which an enterprise holds a variable
interest that was acquired before February 1, 2003. We currently utilize special
purpose limited liability entities to facilitate our receivables-backed loan and
our trust-issued preferred securities. Since their formations, these entities
have been consolidated in our financial statements for financial reporting
purposes. Therefore, FIN No. 46 will have no impact on our Consolidated
Financial Statements.

30

LIQUIDITY AND CAPITAL RESOURCES

HISTORICAL CASH FLOW

During 2002, we met our working capital needs with cash flow from
operations. Net cash provided by operating activities from continuing operations
was $642.6 million for 2002 as contrasted to $305.2 million for 2001, an
increase of $337.4 million. Net cash provided by operating activities was
impacted by:

- An increase of $172.5 million in net income from continuing operations
plus non-cash items in 2002 as compared to 2001; and

- Changes in assets and liabilities which improved by $164.9 million in
2002 compared to the previous year.

Net cash used in investing activities for continuing operations was $309.1
million in 2002 compared to $1.27 billion in 2001, a decrease of $965.6 million.
We used approximately $242 million for capital expenditures and approximately
$222.1 million for acquisitions. We had cash proceeds from the divestiture of
Puerto Rico and three other small businesses in 2002 of $148.3 million.

We used approximately $87.2 million to repurchase our stock and received
approximately $75 million primarily as a result of stock option exercises and
employee stock purchases through our employee stock purchase plan. We used a net
amount of $355.3 million to repay indebtedness.

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 senior
credit facility provided by a syndicate of lenders. This facility provides us
with a revolving line of credit of up to $800 million and two term loans in the
amounts of $900 million and $1 billion, respectively. Both term loans have been
fully funded since completion of the Old Dean acquisition. The proceeds of the
term loans were used to retire our former credit facilities and Old Dean's
former credit facility, to purchase DFA's ownership stake in our Dairy Group,
and to pay certain other obligations. The senior credit facility contains
various financial and other restrictive covenants and requires that we maintain
certain financial ratios, including a leverage ratio (computed as the ratio of
the aggregate outstanding principal amount of defined indebtedness to defined
EBITDA) and an interest coverage ratio (computed as the ratio of defined EBITDA
to defined 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 and certain other
material adverse changes in our business, and a change in control. The agreement
does not contain any default triggers based on our debt rating. See Note 10 to
our Consolidated Financial Statements for further information regarding the
terms of our credit agreement, including interest rates, principal payment
schedules and mandatory prepayment provisions.

At December 31, 2002 we had outstanding borrowings of $1.83 billion under
our senior credit facility (compared to $1.9 billion at December 31, 2001) all
of which was outstanding under our two term loans. The revolving credit facility
was undrawn at December 31, 2002, except for $71.8 million of letters of credit
that were issued but undrawn. As of December 31, 2002 approximately $728.2
million was available for future borrowings under our credit facility. We are
currently in compliance with all covenants contained in our credit agreement.

In addition to our senior credit facility, we also have a $400 million
receivables-backed credit facility, which had $145 million outstanding at
December 31, 2002. See Note 10 to our Consolidated Financial Statements for more
information about our receivables-backed facility.

Other indebtedness outstanding at December 31, 2002 included $700 million
face value of outstanding indebtedness under Old Dean's senior notes, $35.7
million of term indebtedness and an $11.9 million line of credit at our Spanish
subsidiary, $21 million of industrial development revenue bonds and
approximately $29.8 million of capital lease and other obligations. See Note 10
to our Consolidated Financial Statements.

31

The table below summarizes our obligations for indebtedness and lease
obligations at December 31, 2002. Please see Note 20 to our Consolidated
Financial Statements for more detail about our lease obligations.

- ---------------

(1) Represents face value of senior notes.

In addition to the letters of credit secured by our senior credit facility,
at December 31, 2002 we had approximately $49 million of letters of credit with
three other banks that were issued but undrawn. The majority of these were
required by various utilities and government entities for performance and
insurance guarantees.

OTHER LONG-TERM LIABILITIES

We offer pension benefits through various defined benefit pension plans and
also offer certain health care and life insurance benefits to eligible employees
and their eligible dependents upon the retirement of such employees. Reported
costs of providing non-contributory defined pension benefits and other
postretirement benefits are dependent upon numerous factors, assumptions and
estimates.

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

In accordance with SFAS No. 87, "Employers' Accounting for Pensions,"
changes in pension obligations associated with these factors may not be
immediately recognized as pension costs on the income statement, but generally
are recognized in future years over the remaining average service period of plan
participants. As such, significant portions of pension costs recorded in any
period may not reflect the actual level of cash benefits provided to plan
participants. We recorded noncash expense of $9.1 million and $1.3 million
related to pensions in 2002 and 2001, respectively, in accordance with the
provisions of SFAS No. 87.

As of December 31, 2002, key assumptions of our pension plans and other
postretirement benefit plans were revised, including decreasing the expected
return on plan assets from 9% to 8.5% and decreasing the assumed discount rate
in 2002 from 7.25% to 6.75%. In selecting assumed discount rates, we considered
fixed income security yield rates for AA rated portfolios as reported by
Moody's. In selecting an assumed rate of return on plan assets, we considered
past performance and economic forecasts for the types of investments held by the
plan. Plan asset values have declined $19.7 million and $5.2 million in 2002 and
2001, respectively. Reported pension costs for our plans are expected to
increase in 2003 by approximately $2.6 million as the result of these changed
assumptions. Further, based on the current decreases in the market value of our
plan assets, we anticipate an increase in the 2003 funding requirements. Pension
cost and cash funding requirements could increase in future years if current
market conditions persist.

32

As a result of our plan asset return experience, at December 31, 2002, we
were required to recognize an additional minimum liability as prescribed by SFAS
No. 87, "Employers' Accounting for Pensions," and SFAS No. 132, "Employers'
Disclosures about Pensions and Postretirement Benefits." The additional
liability, which totaled $18.7 million ($11.5 million after-tax), was recorded
as a reduction to shareholder's equity through a charge to Other Comprehensive
Income, and did not affect net income for 2002. The charge to Other
Comprehensive Income will be reversed in future periods to the extent the fair
value of trust assets exceeds the accumulated benefit obligation. See Notes 14
and 15 to our Consolidated Financial Statements for information regarding
retirement plans and other postretirement benefits.

OTHER COMMITMENTS AND CONTINGENCIES

On December 21, 2001, in connection with our acquisition of Old Dean, we
issued a contingent, subordinated promissory note to Dairy Farmers of America
("DFA") in the original principal amount of $40 million. DFA is our primary
supplier of raw milk, and the promissory note is designed to ensure that DFA has
the opportunity to continue to supply raw milk to certain of our plants until
2021, or be paid for the loss of that business. The promissory note has a
20-year term and bears interest based on the consumer price index. Interest will
not be paid in cash, but will be added to the principal amount of the note
annually, up to a maximum principal amount of $96 million. We may prepay the
note in whole or in part at any time, without penalty. The note will only become
payable if we ever materially breach or terminate one of our milk supply
agreements with DFA without renewal or replacement. Otherwise, the note will
expire at the end of 20 years, without any obligation to pay any portion of the
principal or interest. Because this note was delivered in connection with our
acquisition of DFA's minority interest in our Dairy Group, we originally
recorded the note as part of the purchase consideration and it was reflected on
our balance sheet in "other long-term liabilities." However, we now believe that
payments we make under this note, if any, should be expensed as incurred.
Accordingly, the related purchase consideration and the note obligation have
been removed from our 2001 balance sheet.

Also in connection with our purchase of DFA's minority interest in our
Dairy Group, we agreed to pay to DFA liquidated damages in an amount of up to
$47 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 plant's milk supply that is not
offered to DFA, based generally on the amount of raw milk used by the plants.
See Note 20 to our Consolidated Financial Statements for further information
regarding this agreement. At this time, we cannot estimate the amount of damages
that we may have to pay, if any.

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

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

- certain indemnification obligations related to businesses that we have
divested.

See Note 20 to our Consolidated Financial Statements for more information
about our contingent obligations.

PREFERRED SECURITIES

On March 24, 1998, we issued $600 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

33

conversion price of $39.13. These preferred securities are also redeemable, at
our option, at any time at specified premiums and are mandatorily redeemable at
their liquidation preference amount of $50 per share at maturity or upon
occurrence of certain specified events. See Note 11 to our Consolidated
Financial Statements.

On March 17, 2003, we announced a partial redemption of our trust-issued
preferred securities ("TIPES"). TIPES with an aggregate liquidation value of
$100 million will be redeemed on April 17, 2003 at a redemption price of
$51.0315 per security. Holders of TIPES that have been called for redemption
have the option to convert their TIPES into shares of our common stock instead
of receiving the cash redemption price. Approximately $500 million of TIPES will
remain outstanding following completion of this partial redemption.

FUTURE CAPITAL REQUIREMENTS

During 2003, we intend to invest a total of approximately $300 million in
capital expenditures primarily for our existing manufacturing facilities and
distribution capabilities. We intend to fund these expenditures using cash flow
from operations. We intend to spend this amount 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. We may also repurchase our securities pursuant
to open market or privately negotiated transactions. Approximately $171.6
million was available for spending under our stock repurchase program as of
March 25, 2003. We base our decisions regarding when to repurchase securities on
a variety of factors, including primarily an analysis of the optimal use of
available capital, taking into account the market value of our securities, the
relative expected return on alternative investments and the limitations imposed
by our credit facility. See Note 10 to our Consolidated Financial Statements.
Any acquisitions or securities repurchases will be funded through cash flows
from operations or borrowings under our senior credit facility.

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

KNOWN TRENDS AND UNCERTAINTIES

ECONOMIC ENVIRONMENT

As a result of the economic downturn in this country, many of our retail
customers have experienced economic difficulty over the past year. A number of
our customers have been forced to close stores and certain others have sought
bankruptcy protection. This trend, if it continues, could have a material
adverse affect on us if a material number of our customers, or any one large
customer, were to be forced to close a significant number of stores or file for
bankruptcy protection.

PRICES OF RAW MILK AND CREAM

In our Dairy Group and Morningstar/White Wave segments, our raw milk cost
changes are based on the federal and certain state governments' minimum prices,
regional and national milk supply conditions and arrangements with our
suppliers. Generally, we pay the federal minimum prices for raw milk, plus
certain

34

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

In 2002, prices for raw milk and butter were very low. Although we cannot
predict future raw material prices with precision, we do expect prices to
increase in 2003.

In general, we change the prices that we charge our customers for our
products on a monthly basis, as the costs of our raw materials fluctuate.
However, there can be a lag between the time of a raw material cost increase or
decrease and the effectiveness of a corresponding price change to our customers,
and in some cases we are contractually or competitively 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 margins tend to fluctuate with the
price of our raw materials.

TAX RATE

Our 2002 tax rate was approximately 36.4%. However, we believe that our
effective tax rate will be approximately 38% for the next several years. Our
2002 tax rate was favorably impacted by the settlement of a contested income tax
issue.

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: "Part I -- Item 1. Business," "Part II -- Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Part II -- Item 7A. 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.

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

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

The consolidation trend is continuing in the retail grocery and foodservice
industries. As our customer base continues to consolidate, we expect competition
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
especially important to the growth of our Dairy Group, as demand tends to be
relatively flat in the dairy industry.

Many of our Dairy Group retail customers have become increasingly price
sensitive in the current economic environment and we have recently been subject
to a number of intensely competitive bidding situations in our Dairy Group. The
current competitive environment could result in margin erosion in our

35

Dairy Group, or the loss of certain customers altogether. In 2002, we lost
several key local and regional grocery customers as a result of pricing battles
with our competitors. Loss of any of our largest customers could have a material
adverse impact on our financial results. We do not have long-term contracts with
many of our largest customers.

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

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.

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

The most important raw materials that we use in our operations are raw milk
and bulk cream, and high density polyethylene resin. The prices of these
materials increase and decrease based on supply and demand, and, in some cases,
governmental regulation. Weather affects the available supply of raw milk and
cream. 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 to its reliance on soybeans. In many cases we are able to adjust our pricing
to reflect changes in raw material costs. Volatility in the cost of our raw
materials can adversely affect our performance as price changes often lag
changes in costs. These lags tend to erode our profit margins. Extremely high
raw material costs can also put downward pressure on our margins and our
volumes. Although we cannot predict future changes in raw material costs, we do
expect raw material prices to increase in 2003.

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

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" beginning on
page 31.

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

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

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

- impose on us additional financial and operational restrictions, and

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

36

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 10 to our 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), 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 HEALTH CLAIMS COULD ADVERSELY AFFECT US

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

For example, 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 perception that milk products may be affected by mad cow disease. To
date, we have not seen any measurable impact on our milk sales resulting from
concerns about mad cow disease. However, should public concerns about the safety
of milk or milk products escalate as a result of further occurrences of mad cow
disease or for any other reason, we could suffer a loss of sales, which could
have a material and adverse affect on our financial results.

WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS

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

- product contamination or spoilage,

- product tampering, and

- other adulteration of food products.

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

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

- product withdrawals,

- product recalls,

- negative publicity,

- temporary plant closings, and

- substantial costs of compliance or remediation.

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

37

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

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

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

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

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

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

- permit directors to be removed only for cause, and

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE FLUCTUATIONS

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

These swaps have been designated as cash flow hedges against variable
interest rate exposure. The following table summarizes our various interest rate
swap agreements in effect as of December 31, 2002:

38

The following table summarizes our various interest rate agreements as of
December 31, 2001:

In January 2003, we entered into forward starting swaps that begin in March
2003 with a notional amount of $400 million. These swaps all expire in December
2003 and the fixed interest rates range between 1.47% to 1.48%. These swaps have
been designated as hedges against interest rate exposure on loans under our
senior credit facility.

We have also entered into interest rate swap agreements that provide hedges
for loans under Leche Celta's term loan. See Note 10 to our Consolidated
Financial Statements. The following table summarizes these agreements as of
December 31, 2002 and 2001:

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 $24 million of
additional interest expense, net of taxes, during 2002 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 December 31, 2002 and 2001, the analysis indicated that
such interest rate movement would not have a material effect on our financial
position, results of operations or cash flows. However, actual gains and losses
in the future may differ materially from that analysis based on changes in the
timing and amount of interest rate movement and our actual exposure and hedges.

FOREIGN CURRENCY

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

39

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS

Our Consolidated Financial Statements for 2002 are included in this report
on the following pages.

40

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Dean Foods Company
Dallas, Texas

We have audited the accompanying consolidated balance sheets of Dean Foods
Company and subsidiaries (the "Company") as of December 31, 2002 and 2001, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Dean Foods Company and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for goodwill and other intangible
assets to conform to Statement of Financial Accounting Standards No. 142.

DELOITTE & TOUCHE LLP

Dallas, Texas
March 24, 2003

F-1

DEAN FOODS COMPANY

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements.

F-2

DEAN FOODS COMPANY

CONSOLIDATED STATEMENTS OF INCOME

See Notes to Consolidated Financial Statements.

F-3

DEAN FOODS COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

See Notes to Consolidated Financial Statements.

F-4

DEAN FOODS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

See Notes to Consolidated Financial Statements.

F-5

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation -- Our Consolidated Financial Statements include the
accounts of our wholly-owned and majority-owned subsidiaries. All significant
intercompany balances and transactions are eliminated in consolidation.

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

Cash Equivalents -- We consider temporary cash investments with a remaining
maturity of three months or less to be cash equivalents.

Inventories -- Inventories are stated at the lower of cost or market. Dairy
and certain specialty products are valued on the first-in, first-out ("FIFO")
method while our pickle inventories are valued using the last-in, first-out
("LIFO") method. The costs of finished goods inventories include raw materials,
direct labor and indirect production and overhead costs.

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

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

Intangible and Other Assets -- Prior to January 1, 2002, intangibles were
amortized over their related estimated useful lives as follows:

Effective January 1, 2002, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, goodwill and other intangible assets
determined to have indefinite useful lives are no longer amortized. Instead, we
will now conduct annual impairment tests on our goodwill, trademarks and other
intangible assets with indefinite lives. To determine whether an impairment
exists, we use a present value technique. Upon adoption of SFAS No. 142, we
conducted transitional impairment tests and recorded certain

F-6

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

impairments. Impairment tests are performed when circumstances indicate that the
carrying value may not be recoverable. See Note 7.

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

Minority Interest in Subsidiaries -- Minority interest in results of
operations of consolidated subsidiaries represents the minority shareholders'
share of the income or loss of various consolidated subsidiaries. The minority
interest in the consolidated balance sheet reflects the original investment by
these minority shareholders in these consolidated subsidiaries, along with their
proportional share of the earnings or losses of these subsidiaries less any cash
distributions made. At December 31, 2002, there were no outstanding minority
interests.

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

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

F-7

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- ---------------

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

(2) Calculated in accordance with the Black-Scholes option pricing model, using
the following assumptions: expected volatility of 40%, expected dividend
yield of 0%, expected option term of seven years and risk-free rates of
return as of the date of grant ranging from 4.51% to 5.19% based on the
yield of seven-year U.S. Treasury securities.

(3) Calculated in accordance with the Black-Scholes option pricing model, using
the following assumptions: expected volatility of 40%; expected dividend
yield of 0%; expected option term of four to ten years and risk-free rates
of return as of the date of grant ranging from 6.03% to 6.74% based on the
yield of seven-year U.S. Treasury securities.

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 recorded by estimating expense based on our historical
experience. We provide credit terms to customers generally ranging up to 30
days, perform ongoing credit evaluation of our customers and maintain allowances
for potential credit losses based on historical experience.

Income Taxes -- All of our wholly-owned U.S. operating subsidiaries are
included in our consolidated tax return. In addition, our proportional share of
the operations of our former majority-owned subsidiaries and certain of our
equity method affiliates, which are organized as limited liability companies or
limited partnerships, are also included in our consolidated tax return. Our
foreign subsidiaries are required to file separate income tax returns in their
local jurisdictions. Certain distributions from these subsidiaries are subject
to U.S. income taxes; however, available tax credits of these subsidiaries may
reduce or eliminate these U.S. income tax liabilities.

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

Advertising Expense -- Advertising expense is comprised of media, agency
and production expenses. Advertising expenses are charged to income during the
period incurred, except for expenses related to the development of a major
commercial or media campaign which are charged to income during the period in
which the advertisement or campaign is first presented by the media. Advertising
expenses charged to income totaled $91.1 million in 2002, $41.1 million in 2001
and $62.2 million in 2000. Additionally, prepaid advertising costs were $4.9
million and $2.1 million at December 31, 2002 and 2001, respectively.

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

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

F-8

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. All of the share numbers in our Consolidated Financial Statements have
been adjusted for all periods to reflect the stock split.

Recent Adoptions of New Accounting Pronouncements -- The Emerging Issues
Task Force's ("EITF") Issue No. 00-14, "Accounting for Certain Sales
Incentives," 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 had no impact on our Consolidated Financial Statements.

We adopted EITF Issue No. 01-09, "Accounting for Consideration Given By a
Vendor to a Customer" 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 years ended December 31, 2001 and 2000 by $33.7
million and $29.9 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.
See Note 7. SFAS No. 142 also requires that recognized intangible assets with
finite lives be amortized over their respective estimated useful lives. As part
of the adoption, we re-assessed the useful lives and residual values of all
recognized intangible assets.

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.

Recently Issued Accounting Pronouncements -- 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 became effective for us in 2003. We do not expect the adoption of this
pronouncement to 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

F-9

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. Our adoption of this standard will change the
timing of the recognition of certain charges associated with exit and disposal
activities.

On December 31, 2002 FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 148 which is effective for
fiscal years ending after December 15, 2002 provides alternative methods of
transition for a voluntary change to the fair value based method and requires
more prominent and more frequent disclosures in the financial statements about
the effects of stock-based compensation. At this time, we have elected not to
adopt the voluntary expense recognition provisions of SFAS No. 123.

In November 2002, FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies the
requirements of SFAS No. 5 "Accounting for Contingencies," relating to the
guarantor's accounting for and disclosures of certain guarantees issued. FIN No.
45 requires disclosure of guarantees. It also requires liability recognition for
the fair value of guarantees made after December 31, 2002. We will adopt the
liability recognition requirements of FIN No. 45 effective January 1, 2003, and
we do not expect the adoption to have a material effect on our Consolidated
Financial Statements.

In January 2003, FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 clarifies the application of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or in which equity investors do not bear the residual
economic risks. The interpretation applies to variable interest entities
("VIEs") created after January 31, 2003 and to VIEs in which an enterprise
obtains an interest after that date. It applies in the fiscal or interim period
beginning after June 15, 2003, to VIEs in which an enterprise holds a variable
interest that was acquired before February 1, 2003. We currently utilize special
purpose limited liability entities to facilitate our receivable-backed loan and
our trust-issued preferred securities. Since their formations, these entities
have been consolidated in our financial statements for financial reporting
purposes. Therefore, FIN No. 46 will have no impact on our Consolidated
Financial Statements.

Reclassifications -- Certain reclassifications have been made to conform
the prior years' Consolidated Financial Statements to the current year
classifications

F-10

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. ACQUISITIONS, DIVESTITURES AND DISCONTINUED OPERATIONS

General -- In total, we completed the acquisitions of 12 businesses during
2002, 2001 and 2000, which included the following acquisitions that were
significant at the time of completion:

These acquisitions and the other businesses acquired were funded with cash
flows from operations, borrowings under our credit facility, and the issuance in
2001 of 30,919,056 shares of our common stock with a fair market value of $739.4
million.

All acquisitions were accounted for using the purchase method of accounting
as of their respective acquisition dates, and accordingly, only the results of
operations of the acquired companies subsequent to their respective acquisition
dates are included in our Consolidated Financial Statements. At the acquisition
date, the purchase price was allocated to assets acquired, including
identifiable intangibles, and liabilities assumed based on their fair market
values. The excess of the total purchase prices over the fair values of the net
assets acquired represented goodwill. In connection with the acquisitions,
assets were acquired and liabilities were assumed as follows:

- ---------------

(1) An additional $15.8 million was paid in 2002 as part of the Old Dean
acquisition.

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% 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 $192.8 million.
Existing management of White Wave has remained in place after the acquisition.
We have agreed to pay White Wave's management team an incentive bonus based on
achieving certain sales growth

F-11

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 $35 million and $40 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 20. 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 $23.5 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.

Acquisition of Dean Foods Company -- On December 21, 2001, we completed our
acquisition of Dean Foods Company ("Old Dean"). Old Dean is now our wholly-owned
subsidiary. Immediately upon completion of the transaction, Old Dean changed its
name to Dean Holding Company and we changed our name to Dean Foods Company. As a
result of the transaction, 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 and common stock valued at $739.4 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 merger 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 below, 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 decided to acquire Old Dean for the above-described consideration after
considering a number of factors, including:

- 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;

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

- 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, and
(2) 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. Also in connection with the transaction, we delivered a contingent
promissory note in the original principal amount of $40 million to secure our
obligation to renew certain of our milk supply agreements with DFA until 2021,
and we agreed to a liquidated damages provision which provides 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. See Note 20 for
further discussion of these obligations. As a result of this transaction, we now
own 100% of our Dairy Group.

F-12

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with the merger, we entered into a new credit facility and
expanded our receivables-backed loan facility. 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. See Note
10.

Old Dean's operations and the acquisition of DFA's minority interest are
reflected in our Consolidated Financial Statements after December 21, 2001.

The following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition of Old Dean, and includes the
effects of divesting four Old Dean plants.

Of the approximately $237 million of acquired intangible assets,
approximately $206.5 million was assigned to trademarks and trade names that are
not subject to amortization and approximately $30.5 million was assigned to
customer contracts that have a weighted-average useful life of approximately 17
years.

The approximately $1.52 billion of goodwill was assigned to Old Dean's
Dairy Group, NRP and Specialty segments in the amounts of $1.01 billion, $215
million and $290 million, respectively. None of the goodwill is expected to be
deductible for tax purposes.

The final allocation of the purchase price to the fair values of assets and
liabilities of Old Dean and the related business integration plans was completed
in the fourth quarter of 2002. This final allocation process increased goodwill
by approximately $55.4 million, primarily as a result of the final determination
of the fair values of depreciable tangible assets and business integration
plans.

The purchase price allocation of Old Dean included a liability for payment
obligations to Old Dean employees related to Old Dean stock options as a result
of the change in control of Old Dean. Under Old Dean's stock option agreements,
upon a change in control, employees had the right to surrender their stock
options to us, in lieu of exercise, in exchange for a cash payment during the
ninety day period following the change in control. The required cash payment
varied depending on the type of stock option and the grant date with certain
stock options requiring a cash payment equal to the difference between the
exercise price and the highest closing price of our stock during the sixty day
period beginning thirty days before and ending 30 days after the completion of
the change in control transaction, and certain of the stock option agreements
required a tax gross-up payment upon surrender. Cash payments of approximately
$44.2 million were made. At the conclusion of the surrender period, the
remaining liability of approximately $30.5 million was transferred to
stockholders' equity as the underlying stock options remained outstanding.

F-13

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

We also incurred a change in control obligation of approximately $4.9
million for payments to 18 officers under Old Dean's long-term incentive plan
and transition bonuses to 5 officers of Old Dean, both of which became earned
and payable upon consummation of the merger; and severance obligations of
approximately $17.5 million related to the termination of certain employees and
officers of Old Dean as a result of the decision to eliminate certain Old Dean
administrative functions.

The unaudited results of operations on a pro forma basis for the year ended
December 31, 2001 and 2000 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 2000 are as follows:

Acquisition of Minority Interest in Spanish Operations -- In August of
2001, we purchased the 25% minority interest in Leche Celta, our Spanish dairy
processor, for approximately $12.6 million. We funded this purchase with cash
flow from operations.

Other Acquisitions -- In January 2002, we bought a milk plant in Fort
Worth, Texas, and in December 2002, we completed the purchase of an ice cream
plant in Denver, Colorado.

Divestitures -- In order to more closely align both our assets and our
management resources with our strategic direction, part of our strategy in 2002
has been to divest certain assets. During 2002, we completed the sale of three
non-core businesses acquired as part of Old Dean's Specialty Foods division. On
January 4, 2002, we completed the sale of the stock of DFC Transportation
Company, a contract hauler. On February 7, 2002, we completed the sale of the
assets related to a boiled peanut business, and on October 11, 2002, we
completed the sale of EBI Foods Limited, a U.K.-based manufacturer of powdered
food coatings. Net proceeds from the sale of these three businesses totaled
approximately $28.9 million.

Discontinued Operations -- On December 30, 2002 we sold our operations in
Puerto Rico for a net price of approximately $119.4 million. In accordance with
generally accepted accounting principles, our financial statements have been
restated to reflect our former Puerto Rico business as a discontinued operation.

Revenues and income before taxes generated by our Puerto Rico operations
were as follows:

- ---------------

(1) Corporate interest expense of $5.5 million, $5.1 million and $5.9 million in
2002, 2001 and 2000, respectively, was allocated to our Puerto Rico
operations based on the ratio of our investment in them to total debt and
equity.

F-14

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Major classes of assets and liabilities of our Puerto Rico operations
included in Assets and Liabilities of Discontinued Operations at December 31,
2001 (in thousands) were as follows:

Current assets.............................................. $ 43,718
Non-current assets.......................................... 124,079
Current liabilities......................................... 9,082
Non-current liabilities..................................... 8,455

All intercompany revenues and expenses have been appropriately eliminated
in the tables above.

In the first quarter of 2002 we recognized an impairment charge of $37.7
million related to the goodwill of our Puerto Rico operations in accordance with
our implementation of SFAS No. 142 "Goodwill and Other Intangible Assets." This
loss is reflected as a cumulative change in accounting principle in our
Consolidated Financial Statements.

3. EXTRAORDINARY GAINS AND LOSSES

On December 21, 2001, simultaneously with our acquisition of Old Dean, we
replaced our former credit facilities with a new credit facility. As a result,
we recognized a $4.3 million extraordinary loss, net of an income tax benefit of
$3 million, for the write-off of deferred financing costs related to the early
retirement of our former credit facilities.

During the first quarter of 2000, we recognized a $5 million extraordinary
gain, net of income tax expense of $2.8 million, which included the following
items related to the early extinguishment of our previous senior credit
facility:

- A $6.5 million gain, net of income tax expense of $3.6 million, for
interest rate derivatives which became unhedged and were marked to fair
market value, and

- A $1.5 million loss, net of an income tax benefit of $0.8 million, for
the write-off of deferred financing costs.

4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

Investment in Consolidated Container Company -- We own a minority interest
in Consolidated Container Company ("CCC"), one of the nation's largest
manufacturers of rigid plastic containers and our largest supplier of plastic
bottles and bottle components. We have owned our minority interest since July
1999 when we sold our U.S. plastic packaging operations to CCC.

Since July 2, 1999, our investment in CCC has been accounted for under the
equity method of accounting. During 2001, due to a variety of operational
difficulties, CCC consistently reported operating results that were
significantly weaker than expected, which resulted in significant losses in the
third and fourth quarters. As a result, by late 2001, CCC had become unable to
comply with the financial covenants contained in its credit facility. We
concluded that our investment was impaired and that the impairment was not
temporary, and wrote off our remaining investment during the fourth quarter of
2001. Accordingly, our investment in CCC was recorded at $0 at December 31,
2001.

In February 2002, CCC's lenders agreed to restructure CCC's credit
agreement to modify the financial covenants, subject to the agreement of CCC's
primary shareholders to guarantee certain of CCC's indebtedness. 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 guarantee of up to $10 million of CCC's
revolving credit indebtedness. By late 2002, CCC was again unable to comply with
the terms of its credit agreement. CCC's lenders agreed to again restructure
CCC's credit agreement, subject to the agreement of CCC's primary shareholders
to provide a total of $35 million of additional debt financing to CCC. In the
fourth quarter of 2002, we agreed to

F-15

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

loan CCC $10 million of the $35 million in additional financing, in exchange for
cancellation of our pre-existing $10 million guaranty and the receipt of
additional equity. Vestar Capital Partners, majority owner of CCC, loaned CCC
the remaining $25 million. Our loan to CCC is due on December 31, 2007 (or upon
the earlier payment in full of CCC's senior debt) and is secured by a
subordinate lien on certain of CCC's assets. The loan is not scheduled to be
repaid until after CCC's senior debt has been paid. Therefore, our right to
enforce payment of the loan is limited prior to payment in full of CCC's senior
debt. The loan bears interest at the prime rate plus 2.25%, or the eurodollar
rate plus 3.25%, at CCC's option. Upon maturity of the loan, we will be entitled
to receive a $400,000 fee, plus an additional fee in respect of the unpaid
principal amount of the loan from January 10, 2003 to the maturity date of the
loan, computed at an annual rate of 11.3%. Because our participation in this
transaction was not in proportion to our ownership interest in CCC, our
ownership interest was diluted from approximately 43% to approximately 40%. On a
fully-diluted basis, our interest is approximately 36%.

Because we made the $10 million loan to CCC, generally accepted accounting
principles required us to recognize a portion of CCC's 2002 losses, up to the
amount of the loan. The loan was written off in its entirety in the fourth
quarter of 2002. Accordingly, our investment in CCC was recorded at $0 at
December 31, 2002. Our equity in earnings (loss) included in our consolidated
statement of income for 2002, 2001 and 2000 was $(10.0) million, $(23.7) million
and $11.3 million, respectively.

Approximately 5% of CCC is owned indirectly by Alan Bernon, a member of our
Board of Directors, and his brother Peter Bernon. Pursuant to our agreements
with Vestar, we control two of the seven seats on CCC's Management Committee. We
have long-term supply agreements with CCC to purchase certain of our
requirements for plastic bottles and bottle components from CCC. In 2002, we
spent approximately $128.7 million on products purchased from CCC.

Investment in Horizon Organic -- As of December 31, 2002 and 2001 we had an
approximately 13% interest in Horizon Organic Holding Company, one of America's
largest organic food companies. We account for this investment under the equity
method of accounting. We believe that we have the ability to influence the
operating policies of Horizon given the size of our investment and the fact that
we control one seat on their Board. Horizon's common stock is traded on the
Nasdaq under the symbol "HCOW." The quoted stock price ranged from $12.29 to
$18.70 during 2002. The closing stock price on December 31, 2002 was $16.19 per
share, resulting in a market value of our investment of $21.7 million. Our
investment in Horizon at December 31, 2002, 2001 and 2000 was $16.4 million,
$16.5 million and $16.4 million, respectively, and our equity in earnings
included in our consolidated statement of income for 2002, 2001 and 2000 was a
loss of $0.1 million, income of $0.1 million, and income of $0.2 million,
respectively.

Investment in White Wave -- From December 21, 2001 to May 9, 2002, we owned
a 36% interest in White Wave, Inc., maker of Silk(R) and White Wave(R). This
investment was made by Old Dean prior to our acquisition of Old Dean. On May 9,
2002, we acquired the remaining equity interest in White Wave and began
consolidating White Wave's results with our financial results.

Investment in Momentx -- As of December 31, 2002 and 2001 we had an
approximately 16% interest in Momentx, Inc. Our investment in Momentx at both
December 31, 2002 and 2001 was $1.2 million. Momentx is the owner and operator
of dairy.com, an online vertical exchange dedicated to the dairy industry. We
account for this investment under the cost method of accounting. During 2001, we
recorded an impairment charge on this investment of $3.6 million in "Other
(income) expense, net" to reflect the current value of our equity stake based on
their latest financing.

F-16

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. INVENTORIES

Approximately $97.3 million and $131.7 million of our inventory was
accounted for under the last-in, first-out (LIFO) method of accounting at
December 31, 2002 and 2001, respectively. There was no material excess of
current cost over the stated value of last-in, first-out inventories at either
date.

6. PROPERTY, PLANT AND EQUIPMENT

For 2002 and 2001, we capitalized $1.5 million and $3.2 million in
interest, respectively, related to borrowings during the actual construction
period of major capital projects, which is included as part of the cost of the
related asset.

7. INTANGIBLE ASSETS

On January 1, 2002 we adopted SFAS No. 142, which requires, among other
things, that goodwill and other intangible assets with indefinite lives no
longer be amortized, and that recognized intangible assets with finite lives be
amortized over their respective useful lives. As required by SFAS No. 142, our
results for the years ended December 31, 2001 and 2000 have not been restated.
The following sets forth a reconciliation of

F-17

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

net income and earnings per share information for the years ended December 31,
2002, 2001 and 2000 eliminating amortization of goodwill and intangible assets
with indefinite lives.

The changes in the carrying amount of goodwill for the year ended December
31, 2002 are as follows:

F-18

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In accordance with SFAS No. 142, we completed a goodwill impairment
assessment on our goodwill balances during 2002. The results of this test
indicated that the goodwill related to our Puerto Rico reporting unit was
impaired at January 1, 2002. In the fourth quarter of 2002, we determined that
the impairment that existed as of January 1, 2002 was $37.7 million. As required
by SFAS No. 142, we recorded the impairment in our income statement as the
cumulative effect of accounting change retroactive to the first quarter of 2002.
See Note 2 for information related to the sale of our Puerto Rico operating
unit. Other than our Puerto Rico operations, our annual impairment test, which
was completed in the fourth quarter of 2002, indicated no goodwill impairment.

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

In accordance with SFAS No. 142, we completed an impairment assessment of
our intangibles with an indefinite useful life, other than goodwill, at January
1, 2002 during the first quarter of 2002. We determined that an impairment of
$47.3 million, net of income tax benefit of $29 million existed at January 1,
2002. The impairment related to certain trademarks in our Dairy Group and
Morningstar/White Wave segments, and was recorded in the first quarter as the
cumulative effect of accounting change. The fair value of these trademarks was
determined using a present value technique. Our annual impairment test was
completed in the fourth quarter of 2002, and no additional impairment was
identified.

Amortization expense on intangible assets for the years ended December 31,
2002, 2001 and 2000 was $7.8 million, $7.8 million and $7.1 million,
respectively. Estimated aggregate intangible asset amortization expense for the
next five years is as follows:

2003........................................................ $4.9 million
2004........................................................ $4.0 million
2005........................................................ $3.2 million
2006........................................................ $2.5 million
2007........................................................ $1.8 million

F-19

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

9. INCOME TAXES

The following table presents the 2002, 2001 and 2000 provisions for income
taxes.

- ---------------

(1) Excludes a $0.9 million income tax expense related to discontinued
operations and a $29.0 million income benefit related to a cumulative effect
of accounting change.

(2) Excludes a $3.0 million income tax benefit related to an extraordinary loss,
a $1.5 million income tax benefit related to a cumulative effect of
accounting change and a $0.6 million income tax expense related to
discontinued operations.

(3) Excludes a $0.6 million income tax expense related to discontinued
operations and a $2.8 million income tax expense related to extraordinary
gains.

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

F-20

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

At December 31, 2002, we had approximately $13.1 million of net operating
losses and approximately $3.9 million of tax credits available for carry-over to
future years. The losses are subject to certain limitations and will expire
beginning in 2007.

A valuation allowance of $6.1 million has been established because we
believe it is "more likely than not" that all of the deferred tax assets
relating to state net operating loss and credit carryovers, foreign tax credit
carryovers and capital loss carryovers will not be realized prior to the date
they are scheduled to expire.

F-21

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. LONG-TERM DEBT

Senior Credit Facility -- Simultaneously with the completion of our
acquisition of Old Dean, we entered into a new $2.7 billion credit agreement
with a syndicate of lenders, in replacement of our then existing credit
facilities. Our new senior credit facility provides an $800 million revolving
line of credit, a Tranche A $900 million term loan and a Tranche B $1 billion
term loan. Upon completion of the Old Dean acquisition, we borrowed $1.9 billion
under this facility's term loans. At December 31, 2002 there were outstanding
term loan borrowings of $1.83 billion under this facility. The revolving line of
credit was undrawn, except for $71.8 million of issued but undrawn letters of
credit. As of December 31, 2002, approximately $728.2 million was available for
future borrowings under the revolving credit facility, subject to satisfaction
of certain conditions contained in the loan agreement. We are currently in
compliance with all covenants contained in our credit agreement.

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

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

- 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:

- 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

- 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.

F-22

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The blended interest rate in effect on borrowings under the senior credit
facility, including the applicable interest rate margin, was 3.65% at December
31, 2002. However, we had interest rate swap agreements in place that hedged
$1.08 billion of our borrowings under this facility at December 31, 2002 at an
average rate of 5.4%, plus the applicable interest rate margin. Interest is
payable quarterly or at the end of the applicable interest period.

The agreement requires principal payments on the Tranche A term loan as
follows:

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

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

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

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

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

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

The agreement requires principal payments on the Tranche B term loan as
follows:

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

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

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

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

No principal payments are due on the 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 3.75 to 1.0, and (3) beginning in 2003, annually when our leverage
ratio is greater than 3.0 to 1.0. The credit agreement requires that we prepay
50% of defined excess cash flow for any fiscal year (beginning in 2003) in which
our leverage ratio at year end is greater than 3.75 to 1.0. As of December 31,
2002, our leverage ratio was 3.3 to 1.0.

In consideration for the revolving commitments, we pay a commitment fee on
unused amounts of the $800 million revolving credit facility that ranges from
37.5 to 50 basis points, depending on our leverage ratio.

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

Our leverage ratio must be less than or equal to:

F-23

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 December 31, 2002, the minimum net worth requirement was $1.28
billion.

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

Our credit agreement also permits us to repurchase stock under our open
market share repurchase program, provided that, if our leverage ratio is greater
than 3.75 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 and the
incurrence of additional indebtedness, and prohibits certain dispositions of
property and restricts certain payments, including dividends. The credit
facility is secured by liens on substantially all of our domestic assets
(including the assets of our subsidiaries, but excluding the capital stock of
Old Dean's subsidiaries and certain 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.

In December 2002, we executed an amendment to our credit facility to relax
certain restrictions. We paid an aggregate of $2.1 million to the lenders who
approved the amendment.

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:

- $96.8 million ($100 million face value), at 6.75% interest, maturing in
2005;

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

- $184.3 million ($200 million face value), at 6.625% interest, maturing in
2009; and

- $125.3 million ($150 million face value), at 6.9% interest, maturing in
2017.

The related indentures do not contain financial covenants but they do
contain certain restrictions including a prohibition against Old Dean and its
subsidiaries granting liens on certain of their real property 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 million receivables
securitization facility pursuant to which certain of our subsidiaries sell their
accounts receivable to three wholly-owned special purpose entities intended to
be bankruptcy-remote. The special purpose entities then transfer the receivables
to third party asset-backed commercial paper conduits sponsored by major
financial institutions. The assets and liabilities of these three special
purpose entities are fully reflected on our balance sheet, and the
securitization is treated as a borrowing for accounting purposes. During 2002,
we made net payments of $255 million on this facility leaving an outstanding
balance of $145 million at December 31, 2002. The

F-24

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

receivables-backed loan bears interest at a variable rate based on the
commercial paper yield as defined in the agreement. Our ability to re-borrow
under this facility is subject to a standard "borrowing base" formula. At
December 31, 2002, we could have re-borrowed an additional $180 million under
this facility.

Foreign Subsidiary Term Loan -- In connection with our acquisition of Leche
Celta in February 2000, our Spanish subsidiary obtained a 42.1 million euro (as
of December 31, 2002, approximately $44.1 million) non-recourse term loan from a
syndicate of lenders, all of which was borrowed at closing and used to finance a
portion of the purchase price. The loan, which is secured by 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. At December 31,
2002, a total of $35.7 million was outstanding under this facility.

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 15 million euros (as of December 31, 2002 approximately $15.7
million), was obtained on July 12, 2000, bears interest at a variable interest
rate based on the ratio of Leche Celta's debt to EBITDA (as defined in the
corresponding loan agreement), is secured by our stock in Leche Celta and will
expire in June 2007. Leche Celta also utilizes other local commercial lines of
credit and receivables factoring facilities. At December 31, 2002, a total of
$11.9 million was outstanding on these facilities.

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 December 31, 2002 there were $71.8 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
$49 million of letters of credit were outstanding at December 31, 2002. The
majority of these letters of credit were required by various utilities and
government entities for performance and insurance guarantees.

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

F-25

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

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

As of December 31, 2002 and 2001, our derivative liability totaled $80.4
million and $44.1 million on our consolidated balance sheet respectively. This
balance includes approximately $42.8 million and $27.8 million recorded as a
component of accounts payable and accrued expenses at December 31, 2002 and
2001, respectively and $37.6 million and $16.3 million recorded as a component
of other long-term liabilities at December 31, 2002 and 2001, respectively.
There was no hedge ineffectiveness, as determined in accordance with SFAS No.
133, for the years ended December 31, 2002 and 2001, respectively. Approximately
$24 million and $6.9 million of losses (net of taxes) were reclassified to
interest expense from other comprehensive income during the years ended December
31, 2002 and 2001, respectively. We estimate that approximately $27 million of
net derivative losses (net of income taxes) included in other comprehensive

F-26

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

11. MANDATORILY REDEEMABLE TRUST ISSUED PREFERRED SECURITIES

On March 24, 1998, we issued $600 million of company-obligated 5.5%
mandatorily redeemable convertible preferred securities of a Delaware business
trust subsidiary in a private placement to "qualified institutional buyers"
under Rule 144A under the Securities Act of 1933, as amended. 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 $39.13. These
preferred securities are also redeemable, at our option, at any time at
specified premiums and are mandatorily redeemable at their liquidation
preference amount of $50 per share at maturity or upon occurrence of certain
specified events. See Note 24.

12. STOCKHOLDERS' EQUITY

Our authorized shares of capital stock include 1,000,000 shares of
preferred stock and 500,000,000 shares of common stock with a par value of $.01
per share.

Stock Award Plans -- We currently have two stock award plans with shares
remaining available for issuance. These plans, including our 1997 Stock Option
and Restricted Stock Plan and the 1989 Old Dean Stock Awards Plan (which we
adopted upon completion of our acquisition of Old Dean), provide for grants of
stock options, restricted stock and other stock-based awards to employees,
officers, directors and, in some cases, consultants, up to a maximum of 25
million and approximately 3.8 million shares, respectively. Approximately 6.6
million and 0.8 million shares remained available for issuance under the 1997
and 1989 plans, respectively, as of March 25, 2003. Options and other
stock-based awards vest in accordance with provisions set forth in the
applicable award agreements.

F-27

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the status of our stock-based compensation
programs:

- ---------------

(1) In connection with our acquisition of Old Dean, all 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. Also, the acquisition triggered certain "change in
control" rights contained in the 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. See Note 2 to
our Consolidated Financial Statements.

(2) 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.

The following table summarizes information about options outstanding and
exercisable at December 31, 2002:

F-28

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 2002, we issued the following shares of restricted stock, all of
which were granted to independent members of our Board of Directors as
compensation for services rendered as directors during the immediately preceding
quarter. Directors' 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.

Rights Plan -- On February 27, 1998, our Board of Directors declared a
dividend of the right to purchase one half of one common share for each
outstanding share of common stock to the stockholders of record on March 18,
1998. The rights are not exercisable until ten days subsequent to the
announcement of the acquisition of or intent to acquire a beneficial ownership
of 15% or more in Dean Foods Company. At such time, each right entitles the
registered holder to purchase from us that number of shares of common stock at
an exercise price of $105.00, with a market value of up to two times the
exercise price. At any time prior to such date, a required majority may redeem
the rights in whole, but not in part, at a price of $0.01 per right. The rights
will expire on March 18, 2008, unless our Board of Directors extends the term
of, or redeems, the rights.

Earnings Per Share -- Basic earnings per share is based on the weighted
average number of common shares outstanding during each period. Diluted earnings
per share is based on the weighted average number of common shares outstanding
and the effect of all dilutive common stock equivalents during each period. The

F-29

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

following table reconciles the numerators and denominators used in the
computations of both basic and diluted EPS:

- ---------------

(1) Stock option conversion excludes anti-dilutive shares of 175,770; 1,206,546;
and 2,180,202 at December 31, 2002, 2001 and 2000, respectively.

Securities Repurchases -- On September 15, 1998, our Board of Directors
authorized a stock repurchase program of up to $100 million. On September 28,
1999, the Board increased the program by $100 million to $200 million and on
November 17, 1999 authorized a further increase to $300 million. We depleted the
$300 million authorization during the second quarter of 2000, and on May 19,
2000, the Board increased the program by $100 million to $400 million. On
November 2, 2000 the Board authorized a further increase to $500 million. On
each of January 8, 2003 and February 12, 2003, the Board authorized additional
increases of

F-30

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$150 million each. See Note 24. Set forth in the chart below is a summary of the
stock we repurchased pursuant to this program through December 31, 2002.

As of March 25, 2003, $171.6 million remains available for spending under
this program.

Repurchased shares are treated as effectively retired in the Consolidated
Financial Statements.

F-31

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. OTHER COMPREHENSIVE INCOME

Comprehensive income comprises net income plus all other changes in equity
from non-owner sources. The amount of income tax (expense) benefit allocated to
each component of other comprehensive income during the year ended December 31,
2002 and 2001 are included below.

14. EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS

We sponsor various defined benefit and defined contribution retirement
plans, including various employee savings and profit sharing plans, and
contribute to various multi-employer pension plans on behalf of our employees.
Substantially all full-time union and non-union employees who have completed one
or more years of service and have met other requirements pursuant to the plans
are eligible to participate in these plans. During 2002, 2001 and 2000, our
retirement and profit sharing plan expenses were as follows:

Defined Benefit Plans -- The benefits under our defined benefit plans are
based on years of service and employee compensation. Our funding policy is to
contribute annually the minimum amount required under ERISA regulations. Plan
assets consist principally of investments made with insurance companies under a
group annuity contract.

F-32

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

F-33

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $240.9 million, $223.4 million and $120.4 million,
respectively, as of December 31, 2002 and $82.8 million, $81.3 million, and
$67.8 million, respectively, as of December 31, 2001.

Defined Contribution Plans -- Certain of our non-union personnel may elect
to participate in savings and profit sharing plans sponsored by us. These plans
generally provide for salary reduction contributions to the plans on behalf of
the participants of between 1% and 17% of a participant's annual compensation
and provide for employer matching and profit sharing contributions as determined
by our Board of Directors. In addition, certain union hourly employees are
participants in company-sponsored defined contribution plans which provide for
employer contributions in various amounts ranging from $21 to $39 per pay period
per participant.

Multi-Employer Pension Plans -- Certain of our subsidiaries contribute to
various multi-employer union pension plans, which are administered jointly by
management and union representatives and cover substantially all full-time and
certain part-time union employees who are not covered by our other plans. The
Multi-Employer Pension Plan Amendments Act of 1980 amended ERISA to establish
funding requirements and obligations for employers participating in
multi-employer plans, principally related to employer withdrawal

F-34

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

from or termination of such plans. We could, under certain circumstances, be
liable for unfunded vested benefits or other expenses of jointly administered
union/management plans. At this time, we have not established any liabilities
because withdrawal from these plans is not probable or reasonably possible.

15. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS

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

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

F-35

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

16. PLANT CLOSING COSTS

Plant Closing Costs -- As part of an overall integration and cost reduction
strategy, we recorded plant closing and other non-recurring costs during 2002,
2001 and 2000 in the amount of $19.1 million, $9.6 million and $2.7 million,
respectively. In addition, our share of Consolidated Container Company's
restructuring charges were expenses of $1.7 million and income of $0.8 million
during 2001 and 2000, respectively. These amounts were reported as an adjustment
to equity in earnings of unconsolidated affiliates.

The charges recorded during 2002 are related to the closing of Dairy Group
plants in Bennington, Vermont and Toledo, Ohio, a Dairy Group distribution
facility in Winchester, Virginia, and one Morningstar plant in Tempe, Arizona.
The charges also reflect additional costs related to severance on the closing of
our dairy plant in Port Huron, Michigan in 2001, the shutdown of an ice cream
production line at our Englewood, Colorado plant and the closing of a plant's
administrative offices in Grand Rapids, Michigan in our Dairy Group.

During 2001, we recorded charges related to the closing of three Dairy
Group plants with consolidation of production into other plants. The plants
closed during 2001 were our processing facilities in Canton, Mississippi, Corpus
Christi, Texas and Port Huron, Michigan.

The charges recorded for our integration and cost reduction programs in
2000 reflect several approved efficiency and integration efforts including
restructuring of our corporate office departments and closing of our Hartford,
Connecticut plant.

The principal components of these plans include the following:

- Workforce reductions as a result of plant closings, plant
rationalizations and consolidation of administrative functions. The plans
included an overall reduction of 451 people in 2002, 198 people in 2001
and 114 people in 2000, who were primarily plant employees associated
with the plant closings and rationalization. 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. All
except 66 employees had been terminated as of December 31, 2002;

- Shutdown costs, including those costs that are necessary to prepare the
plant facilities for closure;

F-36

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

- Write-downs of property, plant and equipment and other assets, primarily
for asset impairments as a result of facilities that are no longer used
in operations. The impairments relate primarily to owned buildings, land
and equipment at the facilities which are being sold and were written
down to their estimated fair value. The effect of suspending depreciation
on the buildings and equipment related to the closed facilities was not
significant. The carrying value of closed facilities at December 31, 2002
was approximately $3.5 million. We are marketing these properties for
sale. Divestitures of the closed facilities has not resulted in
significant modification to the estimate of fair value.

Activity with respect to plant closing and other non-recurring costs for
2002 is summarized below:

Activity with respect to plant closing and other non-recurring costs for
2001 is summarized below:

There have not been significant adjustments to the plans and the majority
of future cash requirements to reduce the liability at December 31, 2002 are
expected to be completed within a year.

Acquired Facility Closing Costs -- As part of our purchase price
allocations, we accrued costs in 2002 and 2001 pursuant to plans to exit certain
activities and operations of acquired businesses in order to rationalize

F-37

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

production and reduce costs and inefficiencies. Several plants were closed in
connection with our acquisition of Old Dean. Plants in Atkins, Arkansas and
Cairo, Georgia in the Specialty Foods segment and a plant in Escondido,
California in the Dairy Group were closed. We have also eliminated Old Dean's
administrative offices, closed Dairy Group distribution depots in Parker Ford,
Pennsylvania and Camp Hill, Pennsylvania, relocated production between plants
and are shutting down two pickle tank yards as part of our overall integration
and efficiency efforts related to our acquisition of Old Dean.

The principal components of the plans include the following:

- Workforce reductions as a result of plant closings, plant
rationalizations and consolidation of administrative functions and
offices, resulting in an overall reduction of 839 plant and
administrative personnel. The costs incurred were charged against our
acquisition liabilities for these costs. As of December 31, 2002, 116
employees had not yet been terminated;

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

- 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 for 2002 is
summarized below:

Activity with respect to these acquisition liabilities for 2001 is
summarized below:

17. 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 $951.9 million, $639.2 million and
$591.1 million during 2002, 2001 and 2000, respectively.

F-38

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. OTHER OPERATING (INCOME) EXPENSE

During the fourth quarter of 2001, we recognized a net of $17.3 million of
other operating income which includes the following:

- A gain of $47.5 million on the divestiture of the plants transferred to
National Dairy Holdings (as assignee of Dairy Farmers of America) in
connection with the acquisition of Old Dean. The gain represented the
difference between fair value and the carrying value of the plants;

- An expense of $28.5 million resulting from a payment to Dairy Farmers of
America as consideration for certain modifications to our existing milk
supply arrangements; and

- An expense of $1.7 million resulting from the impairment in value of a
water plant.

19. SUPPLEMENTAL CASH FLOW INFORMATION

20. COMMITMENTS AND CONTINGENCIES

Leases -- We lease certain property, plant and equipment used in our
operations under both capital and operating lease agreements. Such leases, which
are primarily for machinery, equipment and vehicles, have lease terms ranging
from 1 to 20 years. Certain of the operating lease agreements require the
payment of additional rentals for maintenance, along with additional rentals
based on miles driven or units produced. Rent expense, including additional
rent, was $124.5 million, $86.9 million and $66.4 million for the years ended
December 31, 2002, 2001 and 2000, respectively.

The composition of capital leases which are reflected as property, plant
and equipment in our consolidated balance sheets are as follows:

F-39

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum payments at December 31, 2002, under non-cancelable capital
and operating leases with terms in excess of one year are summarized below:

Contingent Obligations Related to Milk Supply Arrangements -- 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. In connection with
that transaction, we issued a contingent, subordinated promissory note to DFA in
the original principal amount of $40 million. DFA is our primary supplier of raw
milk, and the promissory note is designed to ensure that DFA has the opportunity
to continue to supply raw milk to certain of our plants until 2021, or be paid
for the loss of that business. The promissory note has a 20-year term and bears
interest based on the consumer price index. Interest will not be paid in cash,
but will be added to the principal amount of the note annually, up to a maximum
principal amount of $96 million. We may prepay the note in whole or in part at
any time, without penalty. The note will only become payable if we ever
materially breach or terminate one of our milk supply agreements with DFA
without renewal or replacement. Otherwise, the note will expire at the end of 20
years, without any obligation to pay any portion of the principal or interest.
Because this note was delivered in connection with our acquisition of DFA's
minority interest in our Dairy Group, we originally recorded the note as part of
the purchase consideration and it was reflected on our balance sheet in "other
long-term liabilities". However, we now believe that payments we make under this
note, if any, should be expensed as incurred. Accordingly, the purchase
consideration and the note obligation have been removed from our 2001 balance
sheet.

Also as part of the same transaction, we amended a milk supply agreement
with DFA to provide that:

- 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) June 2003, 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

- 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, up to an
aggregate maximum of $47 million. 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
million subordinated promissory note described above will be reduced by an
amount equal to 25% of the liquidated damages paid. We cannot currently estimate
the amount of damages that we may have to pay, if any.

F-40

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

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

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

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

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

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

Contingent Obligations Related to Divested Operations -- We have sold
several businesses in recent years. In each case, we have retained certain known
contingent liabilities related to those businesses and/or assumed an obligation
to indemnify the purchasers of the businesses for certain unknown contingent
liabilities. In the case of the sale of our Puerto Rico operations, we were
required to post collateral, including one surety bond and one letter of credit,
to secure our obligation to satisfy the retained liabilities and to fulfill our
indemnification obligation. We believe we have established adequate reserves for
any potential liability related to our divested businesses. Moreover, we do not
expect any liability that we may have for these retained liabilities, or any
indemnification liability, to be material.

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

Litigation, Investigations and Audits -- We are party, in the ordinary
course of business, to certain other claims, litigation, audits and
investigations. We believe we have adequate reserves for any liability we may

F-41

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

21. FAIR VALUE OF FINANCIAL INSTRUMENTS

Pursuant to SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments," we are required to disclose an estimate of the fair value of our
financial instruments as of December 31, 2002 and 2001. SFAS No. 107 defines the
fair value of financial instruments as the amount at which the instrument could
be exchanged in a current transaction between willing parties.

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

We have senior notes with an aggregate face value of $700 million with
fixed interest rates ranging from 6.625% to 8.15% at December 31, 2002. These
notes were issued by Old Dean prior to our acquisition of Old Dean, and had a
fair market value of $702.8 million at December 31, 2002.

We have entered into various interest rate agreements to reduce our
sensitivity to changes in interest rates on our variable rate debt. The fair
values of these instruments and our senior notes were determined based on
current values for similar instruments with similar terms. The following table
presents the carrying value and fair value of our senior notes and interest rate
agreements at December 31:

22. SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

Segment Information -- 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
and whipping cream, sour cream, cottage cheese, yogurt and dips, as well as
fruit juices and other flavored drinks and bottled water. Morningstar/White Wave
manufactures dairy and non-dairy coffee creamers, whipping cream and pre-whipped
toppings, dips and dressings, specialty products such as lactose-reduced milk
and extended shelf-life milks, as well as certain other refrigerated and
extended shelf-life products. Specialty Foods processes and markets pickles,
powdered products such as non-dairy coffee creamers, aseptic sauces and puddings
and nutritional beverages. We obtained Specialty Foods as part of our
acquisition of Old Dean on December 21, 2001. Our Spanish operation does not
meet the definition of a segment and is reported in "Corporate/Other." Prior
periods have been restated to remove the results of our Puerto Rico operations,
which has been reclassified as a discontinued operation.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. 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 reported in
segment profit or loss other than depreciation and amortization and the $47.5
million gain on the divestiture of the 11 plants transferred to National Dairy
Holdings (as assignee of Dairy Farmers of America) in connection with the
acquisition of Old Dean which is reported in our Dairy

F-42

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Group segment in 2001. The amounts in the following tables are the amounts
obtained from reports used by our executive management team for the year ended
December 31:

F-43

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- ---------------

(1) Net sales for 2001 and 2000 have been restated to reflect the adoption of
EITF Issue No. 01-09, "Accounting for Consideration Given By a Vendor to a
Customer." The net effect was to decrease net sales by $8.8 million and $9.7
million in 2001 and 2000, respectively.

(2) Net sales for 2001 and 2000 have been restated to reflect the adoption of
EITF Issue No. 01-09 "Accounting for Consideration Given By a Vendor to a
Customer." The net effect was to decrease net sales by $24.9 million and
$20.2 million in 2001 and 2000, respectively.

(3) Balances have been adjusted to remove our Puerto Rico operations which have
been reclassified as discontinued operations.

(4) Operating income includes plant closing and other charges of $14.1 million,
$9.6 million and $2.1 million in 2002, 2001 and 2000, respectively.
Operating income in 2001 includes a gain of $47.5 million related to the
divestiture of 11 plants as part of the acquisition of Dean Foods and an
impairment charge of $1.7 million on a water plant. Operating income in 2000
includes litigation settlement costs of $7.5 million.

(5) Operating income includes plant closing and other non-recurring charges of
$4.9 million in 2002.

(6) Operating income in 2001 includes an expense of $28.5 million resulting from
certain changes to our milk supply agreement.

Geographic Information

- ---------------

(1) Net sales for 2001 and 2000 have been restated to reflect the adoption of
EITF Issue No. 01-09, "Accounting for Consideration Given By a Vendor to a
Customer." The net effect was to decrease net sales by $33.7 million and
$29.9 million in 2001 and 2000, respectively.

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

Major Customers -- Our Dairy Group had one customer that represented
greater than 10% of its 2002 sales. Approximately 10% of our consolidated 2002
sales were to that same customer.

F-44

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

23. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations
for 2002 and 2001. Financial information for all periods has been adjusted to
remove our Puerto Rico operations, which have been reclassified as discontinued
operations.

- ---------------

(1) The results for the first, second, third and fourth quarters include plant
closing and other nonrecurring charges, net of taxes, of $0.8 million, $3.2
million, $3.1 million and $4.7 million, respectively. Results in the fourth
quarter also include a $6.3 million loss related to our investment in
Consolidated Container Company.

(2) The results of the first quarter include $85 million net loss for the
impairment of goodwill and other intangible assets in accordance with our
adoption of SFAS No. 142 in the first quarter of 2002. The results for the
first, second, third and fourth quarters include income from discontinued
operations of $0.7 million, $(0.8) million, $0.7 million and $0.3 million,
respectively.

(3) Earnings per common share calculations for each of the quarters were based
on the basic and diluted weighted average number of shares outstanding for
each quarter, and the sum of the quarters may not necessarily be equal to
the full year earnings per common share amount.

(4) Net results have been restated to reflect the adoption of EITF Issue No.
01-09, "Accounting for Consideration Given By a Vendor to a Customer." The
net effect was to decrease net sales by

F-45

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$8.9 million, $9.2 million, $7.6 million and $8 million for the first,
second, third and fourth quarters, respectively.

(5) The results for the first, third and fourth quarters include plant closing
and other non-recurring charges, net of minority interest when applicable,
of $0.3 million, $1 million and $4.5 million, respectively. Results in the
fourth quarter also include a gain of $29.5 million related to the
divestiture of 11 plants as part of the acquisition of Dean Foods, an
expense of $17.4 million resulting from certain changes to our milk supply
agreements, an impairment charge of $0.7 million, net of minority interest,
on a water plant, a charge of $12.9 million related to the impairment of our
investment in Consolidated Container Company, and a charge of $2.7 million
resulting from the impairment of two small investments. All amounts are net
of income taxes.

(6) Results for the first quarter of 2001 include a cumulative effect of
accounting change expense of $1.4 million related to our adoption of FAS
133, "Accounting for Derivative Instruments and Hedging Activities."

(7) Included in the results for the fourth quarter of 2001 is an extraordinary
loss of $4.3 million for the write-off of deferred financing costs related
to the early retirement of our former credit facilities.

24. SUBSEQUENT EVENTS

Aircraft Leases --On August 1, 2000, we entered into a five-year aircraft
lease agreement with Neptune Colorado LLC, a limited liability company owned by
Gregg Engles (our Chief Executive Officer and Chairman of our Board of
Directors) and Pete Schenkel (President of our Dairy Group and also a member of
our Board of Directors). Pursuant to the lease agreement, we agreed to lease an
airplane from Neptune Colorado at a rate of $1,000 per hour for each hour of
flight with a minimum of 40 hours of flight per month. We also agreed to pay a
non-refundable equipment reserve charge equal to $83.10 per engine hour used
during the term of the agreement, with reserve funds being used by the lessor
for engine overhauls, removal or replacement during the term of the agreement.
Under the lease, we are responsible for paying certain taxes related to and
insurance for the airplane, as well as operating costs, landing and customs
fees, storage charges and any fines or penalties arising from the operation or
use of the airplane. We paid an aggregate of $0.5 million in 2002, $0.6 million
in 2001 and $0.2 million in 2000 to Neptune Colorado, LLC under the lease.

In June 2001, we entered into a six-year aircraft lease agreement with
Curan, LLC, a limited liability company also owned by Gregg Engles and Pete
Schenkel. Pursuant to the lease agreement, we agreed to lease an airplane from
Curan at a rate of $122,000 per month. We were required to set up a
non-refundable equipment reserve account, the amount of which was determined
periodically by a third party. Reserve funds were used by the lessor for engine
overhauls, removal or replacement during the term of the agreement. We are
responsible for paying certain taxes related to and insurance for the airplane,
as well as operating costs, landing and customs fees, storage charges and any
fines or penalties arising from our operation or use of the airplane. We paid an
aggregate of $1.6 million and $0.9 million to Curan, LLC during 2002 and 2001,
respectively.

On March 24, 2003, the independent members of our Board of Directors voted
to purchase Neptune Colorado LLC and Curan, LLC from Messrs. Engles and
Schenkel, after determining that it would be in our best interests to own the
aircraft rather than to lease the aircraft pursuant to the terms of the existing
leases. As consideration for the purchase of the lessor companies from Messrs.
Engles and Schenkel, we will assume the indebtedness that the lessor entities
incurred to finance the purchase of the aircraft. No other consideration will be
paid to Mr. Engles or Mr. Schenkel, directly or indirectly. The aggregate
principal balance of the indebtedness that we will assume is approximately $9.6
million, which approximates the current fair market value of the aircraft. The
indebtedness is secured by the aircraft. The lessor entities have no assets or
liabilities other than the aircraft, certain cash and the related purchase money
indebtedness. As part of the transaction, we will receive cash in the amount of
approximately $100,000, which is the balance of the

F-46

DEAN FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

equipment reserves that were established under the leases. Because the market
value of the assets we will acquire in the transaction is equal to the value of
the liabilities that we will assume, there will be no income statement impact
related to the transaction. We expect to complete the transaction in March 2003.

Securities Repurchases -- On each of January 8, 2003 and February 12, 2003,
our Board of Directors approved $150 million increases to the authorized amount
of our stock repurchase program. Between January 1, 2003 and March 24, 2003, we
spent approximately $129 million to repurchase approximately 3.24 million shares
of our common stock for an average price of $39.72 per share. At March 25, 2003,
approximately $171.6 million remains available under our current authorization.

On March 17, 2003, we announced a partial redemption of our trust-issued
preferred securities ("TIPES"). TIPES with an aggregate liquidation value of
$100 million will be redeemed on April 17, 2003 at a redemption price of
$51.0315 per security. Holders of TIPES that have been called for redemption
have the option to convert their TIPES into shares of our common stock instead
of receiving the cash redemption price. Approximately $500 million of TIPES will
remain outstanding following completion of this partial redemption.

Hedging Transactions -- In January 2003, we entered into forward starting
swaps that began in March 2003 with a notional amount of $400 million. These
swaps all expire in December 2003 and the fixed interest rates range between
1.47% to 1.48%. These swaps have been designated as hedges against interest rate
exposure on loans under our senior credit facility.

25. RELATED PARTY TRANSACTIONS

Real Property Lease -- We lease the land for our Franklin, Massachusetts
plant from a partnership in which Alan Bernon, Chief Operating Officer of the
Northeast region of our Dairy Group and a member of our Board of Directors, owns
a 13.45% minority interest. (The remaining interests are owned by members of Mr.
Bernon's family.) The lease payments totaled $0.7 million in 2002 and $0.6
million in each of 2001 and 2000.

Minority Interest in Consolidated Container Holding Company -- We hold our
minority interest in Consolidated Container Company through our subsidiary
Franklin Plastics, Inc., in which we own an 89.5% interest. Alan Bernon, Chief
Operating Officer of the Northeast region of our Dairy Group and a member of our
Board of Directors, and his brother, Peter Bernon, collectively own the
remaining 10.5% of Franklin Plastics, Inc.

Aircraft Leases -- See Note 24.

F-47

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

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

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Incorporated herein by reference to our proxy statement (to be filed) for
our May 22, 2003 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated herein by reference to our proxy statement (to be filed) for
our May 22, 2003 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated herein by reference to our proxy statement (to be filed) for
our May 22, 2003 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated herein by reference to our proxy statement (to be filed) for
our May 22, 2003 Annual Meeting of Stockholders.

ITEM 14. CONTROLS AND PROCEDURES

Based on their evaluation, as of a date within 90 days of the filing date
of this Annual Report on Form 10-K, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures (as
defined in Rules 13-a and 15d-14 under the Securities Exchange Act of 1934) are
effective. There have been no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated herein by reference to our proxy statement (to be filed) for
our May 22, 2003 Annual Meeting of Stockholders.

41

PART IV

ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

FINANCIAL STATEMENTS

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

FINANCIAL STATEMENT SCHEDULES

Independent Auditors' Report

Schedule II -- Valuation and Qualifying Accounts

EXHIBITS

See Index to Exhibits.

REPORTS ON FORM 8-K

None.

42

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

DEAN FOODS COMPANY
--------------------------------------
Registrant

By: /s/ BARRY A. FROMBERG
--------------------------------------
Barry A. Fromberg
Executive Vice President and
Chief Financial Officer

Dated March 26, 2003

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

S-1

S-2

CERTIFICATION

I, Gregg Engles, certify that:

1. I have reviewed this annual report on Form 10-K of Dean Foods Company;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

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

(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weakness in internal controls;
and

(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ GREGG ENGLES
--------------------------------------
Gregg Engles
Chief Executive Officer

Date: March 26, 2003

C-1

CERTIFICATION

I, Barry A. Fromberg, certify that:

1. I have reviewed this annual report on Form 10-K of Dean Foods Company;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

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

(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weakness in internal controls;
and

(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ BARRY A. FROMBERG
--------------------------------------
Barry A. Fromberg
Chief Financial Officer

Date: March 26, 2003

C-2

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Dean Foods Company
Dallas, Texas

We have audited the consolidated financial statements of Dean Foods Company
and subsidiaries (the "Company") (formerly known as Suiza Foods Corporation) as
of December 31, 2002 and 2001 and for each of the three years in the period
ended December 31, 2002, and have issued our report thereon dated March 24,
2003; such report is included elsewhere in this Form 10-K. Our audits also
included the consolidated financial statement schedule of Dean Foods Company and
subsidiaries, listed in Item 16. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

Dallas, Texas
March 24, 2003

SCHEDULE II

DEAN FOODS COMPANY AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

Allowance for doubtful accounts deducted from accounts receivable:

INDEX TO EXHIBITS

- ---------------

* Management or compensatory contract