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

Commission File Number 1-08262

Dean Holding Company

(Exact name of Registrant as specified in its charter)

2515 McKinney Avenue

Suite 1200

Dallas, Texas 75201

(214) 303-3400

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

area code, of Registrant’s principal executive offices)

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

None

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

None

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

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

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

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

TABLE OF CONTENTS

PART I

      Explanatory Note: As permitted by General Instruction I(2)(d) to Form 10-K, in lieu of the information required by Item 1 of Form 10-K, we are providing only the information required by General Instruction I(2)(d). For more information, this report should be read in conjunction with the 2004 Annual Report on Form 10-K of our parent, Dean Foods Company, as filed with the Securities and Exchange Commission on March 16, 2005.

General

      We are a wholly-owned subsidiary of Dean Foods Company, a leading food and beverage company. Our Dairy Group segment is part of the larger Dairy Group segment of Dean Foods Company and our Specialty Foods Group segment comprises the entirety of Dean Foods Company’s Specialty Foods Group segment. In January 2005, Dean Foods Company announced its intention to pursue a tax-free spin-off of our Specialty Foods Group segment to its shareholders. See “— Developments Since January 1, 2004 — Tax Free Spin-Off of Specialty Foods Group.”

Segments

      Our Dairy Group manufactures, markets and distributes a wide variety of branded and private label dairy case products to retailers, distributors, foodservice outlets, schools and governmental entities across the United States.

      Our Dairy Group’s sales totaled approximately $3.63 billion in 2004, or approximately 84% of our consolidated sales. The following charts graphically depict our Dairy Group’s 2004 sales by product and by channel, and indicate the percentage of private label versus branded sales.

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

      The Dairy Group sells its products primarily on a local or regional basis through its local and regional sales forces, although some national customer relationships are coordinated by Dean Foods Company’s Dairy Group corporate sales department. Most of the Dairy Group’s customers, including its largest customer, purchase products from the Dairy Group either by purchase order or pursuant to contracts that are generally terminable at will by the customer. The Dairy Group’s sales are slightly seasonal, with sales tending to be higher in the third and fourth quarters.

      Our Dairy Group currently operates 34 manufacturing facilities in 17 states. For more information about facilities in the Dairy Group, see “Item 2. Properties.”

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

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

      The Dairy Group generally increases or decreases the prices of its fluid dairy products on a monthly basis in correlation to fluctuations in the costs of raw materials and packaging supplies. However, in some cases, we are competitively or contractually constrained with respect to the means and/or timing of price increases, especially in the event of rapidly increasing raw milk prices. This can have a negative impact on the Dairy Group’s profitability.

      The dairy industry is a mature industry that has traditionally been characterized by slow to flat growth, low profit margins, fragmentation and excess capacity. Excess capacity resulted from the development of more efficient manufacturing techniques, the establishment of captive dairy manufacturing operations by some grocery retailers and declining demand for fluid milk products. Since 1990, the dairy industry has experienced significant consolidation led in part by us. Consolidation has tended to lower costs and raise efficiency. However, per capita consumption of traditional fluid dairy products has continued to decline. According to the

United States Department of Agriculture (“USDA”), per capita consumption of fluid milk and cream decreased by over 10% from 1990 to the end of 2003, although total consumption has remained relatively flat over the same period due to population increases. Therefore, volume growth across the industry generally remains flat to modest, profit margins generally remain low and excess manufacturing capacity continues to exist. In this environment, price competition is particularly intense, as smaller processors struggle to retain enough volume to cover their fixed costs. In response to this dynamic, and due to the significant competitive pressure caused by the ongoing consolidation among food retailers, many processors, including us, are now placing an increased emphasis on product differentiation and cost reduction in an effort to increase consumption, sales and margins.

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

      For more financial information about our Dairy Group’s recent operations, see “Part II — Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 17 to our Consolidated Financial Statements.

      Our Specialty Foods Group is the nation’s leading private label pickle processor, and the largest manufacturer and seller of private label non-dairy powdered creamer in the United States. The Specialty Foods Group also manufactures and sells a variety of other foods, such as aseptic sauces and puddings. In January 2005, Dean Foods Company announced its intention to pursue a tax-free spin-off of our Specialty Foods Group to its shareholders. See “— Developments Since January 1, 2004 — Tax Free Spin-Off of Specialty Foods Group.”

      The Specialty Foods Group’s sales totaled $676.8 million in 2004, or approximately 16% of our consolidated sales. The following charts graphically depict the Specialty Foods Group’s 2004 sales by product category and channel, and indicate the percentage of private label sales versus company branded sales in 2004.

      The Specialty Foods Group’s products are delivered to customers’ stores and warehouses primarily by common carrier. The Specialty Foods Group sells its products through its internal sales force and through independent brokers. Most of the Specialty Foods Group’s customers purchase products from the Specialty Foods Group either by purchase order or pursuant to contracts that are generally terminable at will by the customer.

      Our Specialty Foods Group uses a wide variety of raw materials. The main raw material used by the Specialty Foods Group is cucumbers. The Specialty Foods Group 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 proper agricultural practices. Other raw materials used by the Specialty Foods Group, such as corn syrup, soy bean oil and casein, in addition to packaging materials, are generally available from numerous suppliers and we are not dependent on any single supplier for these materials. Certain of the Specialty Foods Group’s raw materials and packaging supplies are purchased under long-term contracts in order to obtain lower costs. The prices of the Specialty Foods Group’s raw materials increase or decrease based on supply and demand.

      The Specialty Foods Group produces its products in 10 facilities located across the United States. For more information about the Specialty Foods Group’s manufacturing facilities, see “Item 2. Properties.”

      The Specialty Foods Group has several competitors in each of its product markets. In sales of private label products, the principal competitive factors are price relative to other private label suppliers, product quality and quality service. For the Specialty Foods Group’s branded 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 certain cases, the Specialty Foods Group pays fees to retailers to obtain shelf-space for a particular company-branded product. Competition for consumer sales is based on brand recognition, price, taste preferences and quality.

Developments Since January 1, 2004

      On January 27, 2005, Dean Foods Company announced its intent to pursue a tax-free spin-off of our Specialty Foods Group. The spin-off will create a publicly traded food manufacturing company serving the retail grocery and foodservice markets with approximately 1,800 employees and estimated 2005 net sales of over $700 million. Also effective January 27, 2005, Dean Foods Company hired a new management team, headed by Sam Reed, former CEO of Keebler Foods Company, to lead the new company. In conjunction with their employment, the management team made a cash investment of $10 million in the Specialty Foods Group, representing 1.7% ownership of the new business.

      The spin-off is intended to take the form of a tax-free distribution to Dean Foods Company’s shareholders of a new publicly traded stock, which is expected to be listed on the New York Stock Exchange. Dean Foods Company expects the spin-off to be completed in the third quarter of 2005, subject to confirmation by the

Internal Revenue Service of the tax-free nature of the transaction, registration of the new security with the Securities and Exchange Commission and other customary closing conditions.

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

      See Note 2 to our Consolidated Financial Statements for more information about our acquisitions.

      As part of Dean Foods Company’s continued reorganization and cost reduction efforts in our Dairy Group, we closed two Dairy Group facilities in 2004. The closed facilities were located in San Leandro and South Gate, California.

      On September 7, 2004, Dean Foods Company announced its plan to exit the nutritional beverages business operated by our Specialty Foods Group segment, including the closure of a manufacturing facility in Benton Harbor, Michigan. In 2004, we experienced significant declines in volume on this product line and we believed those volumes could not be replaced without a significant investment in capital and research and development. We ceased nutritional beverages production in December 2004.

      We recorded a total of approximately $14.6 million in facility closing and reorganization costs during 2004. We expect to incur additional charges related to these restructuring plans of approximately $2 million, primarily in 2005. These charges include the following costs:

      See Note 13 to our Consolidated Financial Statements for more information regarding our facility closing and reorganization activities.

Employees

      As of December 31, 2004, we had the following employees:

      Approximately 38% of the Dairy Group’s employees and approximately 54% of the Specialty Foods Group’s employees participate in collective bargaining agreements.

Where You Can Get More Information

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

      You may read and copy any reports, statements or other information that we or Dean Foods Company file with the Securities and Exchange Commission at the Securities and Exchange Commission’s Public Reference Room at 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 file our reports with the Securities and Exchange Commission electronically via the Securities and Exchange Commission’s Electronic Data Gathering, Analysis and Retrieval system (“EDGAR”). The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding companies that file electronically with the Securities and Exchange Commission via EDGAR. The address of this Internet site is http://www.sec.gov.

      We also make available free of charge through Dean Food Company’s 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.

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

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

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

      Each of the Dairy Group’s manufacturing facilities also serves as a distribution facility. In addition, our Dairy Group has numerous distribution branches 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.

      Our Specialty Foods Group segment currently conducts its manufacturing operations from facilities in the following locations, all of which are owned:

      Our Specialty Foods Group’s headquarters are located at its facility in Green Bay, Wisconsin.

PART II

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

Results of Operations

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

      Net Sales — Consolidated net sales increased by 11.2% to $4.31 billion in 2004 from $3.88 billion in 2003. Net sales by segment are shown in the table below.

      The change in net sales was due to the following:

      Net sales increased approximately $432.9 million during 2004 compared to the prior year primarily due to higher selling prices resulting from the pass-through of increased raw milk costs and due to acquisitions. We

acquired Ross Swiss Dairies in January 2004 in our Dairy Group segment and Cremora in December 2003 in our Specialty Foods Group segment.

      Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs; labor costs; plant and equipment costs, including costs to operate and maintain our coolers and freezers; and costs associated with transporting our finished products from our manufacturing facilities to our own distribution facilities. Our cost of sales ratio increased to 77.0% in 2004 compared to 75.1% in 2003 due almost entirely to increased raw material costs that affected both of our segments in 2004.

      Operating Costs and Expenses — Our operating expenses increased approximately $70.4 million, or approximately 10.7%, during 2004 versus the prior year. Operating expenses increased primarily due to the following:

      Operating Income — Operating income during 2004 was $265.6 million, a decrease of $42.9 million from 2003 operating income of $308.5 million. This decrease was primarily due to lower operating income at our Specialty Foods Group segment. Our operating margin in 2004 was 6.2% compared to 8.0% in 2003. Our operating margin decreased primarily due to a decline in operating margins at Specialty Foods Group.

      Other (Income) Expense — Total other (income) expense was flat in 2004 compared to 2003. Interest expense decreased slightly to $55.1 million in 2004 from $55.2 million in 2003 primarily due to the pay off of our remaining industrial revenue development bonds during the first half of 2004. See Note 8 to our Consolidated Financial Statements.

      Income Taxes — Income tax expense was recorded at an effective rate of 38.2% in 2004 compared to 37.0% in 2003. Our effective tax rate varies based on the relative earnings of our business units.

      As noted above, we had two reportable segments in 2004: the Dairy Group and the Specialty Foods Group.

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

      The Dairy Group’s net sales increased by approximately $440.3 million or 13.8% in 2004 versus 2003. The change in net sales from 2003 to 2004 was due to the following:

      The increase in the Dairy Group’s net sales primarily results from increased pricing due to the pass through of higher raw milk costs in 2004. In general, our Dairy Group changes the prices it charges customers for fluid dairy products on a monthly basis, as the costs of raw materials fluctuate. Because of competitive pressures, the price increases do not reflect the entire increase in raw material costs that we experienced. 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 2004 compared to 2003:

      The other cause of the increase in the Dairy Group’s net sales was acquisitions. The Dairy Group acquired Ross Swiss Dairies in January 2004 which we estimate contributed $149 million in sales during 2004.

      Volume change for all Dairy Group products, excluding the impact of the acquisition, was a decrease of 0.3% in 2004 compared to 2003. “Other” volumes decreased approximately 22.3% in 2004 primarily due to the loss of the butter volumes of a customer of our southern California plants in September 2003. This decrease was offset by a 0.3% increase in volume sales of milk and cream, which were approximately 74% of the Dairy Group’s 2004 sales.

      The Dairy Group’s cost of sales ratio was higher in 2004 at 76.6% compared to 75.2% for 2003 primarily due to the increase in raw milk costs compared to the prior year. The average minimum price of Class I raw skim milk (as indicated by the Class I mover, described above) was 13% higher and the average Class I butterfat mover increased 64% in 2004 as compared to 2003. Our costs also were impacted by resin prices as they continued to rise to unprecedented levels. Higher resin prices impacted the costs of plastic bottles used in our production process by approximately $8 million. Due to a very competitive retail environment in 2004, we were unable to pass along the entire increase in raw material costs to our customers.

      The Dairy Group’s operating expenses increased approximately $53.5 million during 2004 compared to 2003 primarily due to (1) acquisitions, which we estimate contributed approximately $35.9 million in operating costs; (2) higher fuel costs of approximately $5.3 million related to an increase in fuel prices and (3) an increase in insurance expense due to worse claims experience. These increases were partly offset by a decrease in bad debt expense, primarily due to more favorable than expected resolution of previously accrued bad debt reserves. These bad debt reserves were recorded for certain customers that had experienced economic difficulty and a few large customers that sought bankruptcy protection over the past several years. The Dairy Group’s operating expense ratio decreased to 16.1% in 2004 from 16.7% in 2003 due to the relatively smaller increase in operating expense dollars compared to the increase in sales dollars.

      The Specialty Foods Group’s net sales decreased by $7.4 million, or 1.1%, in 2004 versus 2003. The change in net sales from 2003 to 2004 was due to the following:

      The net decrease in sales was due to an overall decline in volumes in the nutritional beverages and pickle categories. Pickle volumes declined 2% largely due to a decline in sales attributable to the bankruptcy of a large customer in 2003 and the loss of a large retail customer chain in 2004. Private label nutritional beverages sales, which include drinks in the weight loss/gain, meal supplement and sports categories, declined approximately $17 million, or 44%. In the fourth quarter of 2004, we exited the manufacturing of nutritional

beverage products as a result of these significant volume declines during the year because we believed those volumes could not be replaced without a significant investment in capital and research and development.

      These decreases in sales were partly offset by an increase in non-dairy powdered creamer sales due to increased sales to existing customers and higher pricing. Sales also increased slightly due to the acquisition of Cremora in December 2003.

      The Specialty Foods Group’s cost of sales ratio increased to 79.3% in 2004 from 75.3% in 2003, primarily due to substantially higher commodity costs, particularly casein, soybean oil and cheese which increased by a combined total of approximately $19 million, as well as significant increases in glass and other packaging costs which increased approximately $3 million.

      Operating expenses for the Specialty Foods Group increased approximately $3.7 million primarily related to increased distribution expenses as a result of higher fuel costs. The Specialty Foods Group’s operating expense ratio increased to 10.6% in 2004 compared to 9.9% during the prior year.

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Dean Holding Company

Dallas, Texas

      We have audited the accompanying consolidated balance sheets of Dean Holding Company and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dean Holding Company and its subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Note 1 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142.

Dallas, Texas

March 14, 2005

DEAN HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements.

DEAN HOLDING COMPANY

CONSOLIDATED STATEMENTS OF INCOME

See Notes to Consolidated Financial Statements.

DEAN HOLDING COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

See Notes to Consolidated Financial Statements.

DEAN HOLDING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

See Notes to Consolidated Financial Statements.

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2004, 2003 and 2002

      Nature of Our Business — We are a wholly owned subsidiary of Dean Foods Company, a leading food and beverage company. Our Dairy Group segment is part of the larger Dairy Group segment of Dean Foods Company and our Specialty Foods Group segment comprises the entirety of Dean Foods Company’s Specialty Foods Group segment.

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

      Dean Foods Company provides us with management support in return for a management fee. The management fee is based on budgeted annual expenses for Dean Foods Company’s corporate headquarters, which is then allocated among the segments of Dean Foods Company. Dean Foods Company began charging us management fees in the second quarter of 2002. Dean Foods Company charged us management fees of $44.9 million, $37 million and $24.3 million for the years ended December 31, 2004, 2003 and 2002, respectively. Our cash is available for use by, and is regularly transferred to, Dean Foods Company at its discretion. Cash that has been transferred to Dean Foods Company is included in “Receivable from Parent” on our balance sheet.

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

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

      Inventories — Inventories are stated at the lower of cost or market. Dairy and certain specialty products inventories are valued on the first-in, first-out (“FIFO”) method, while our pickle inventories are valued on 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:

      We perform impairment tests when circumstances indicate 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.

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Intangible and Other Assets — Identifiable intangible assets are amortized over their 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 lives are no longer amortized. Instead, we now conduct impairment tests on our goodwill, trademarks and other intangible assets with indefinite lives annually and when circumstances indicate that the carrying value may not be recoverable. We use present value techniques to determine whether an impairment exists.

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

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

      Income Taxes — We (including all of our wholly owned U.S. operating subsidiaries) are included in Dean Foods Company’s consolidated tax return. Our income taxes are determined as if we were filing a separate tax return. Our foreign subsidiary is required to file separate income tax returns in its local jurisdictions. Certain distributions from this subsidiary are subject to U.S. income taxes; however, available tax credits of the subsidiary may reduce or eliminate these U.S. income tax liabilities. Our foreign earnings are expected to be reinvested indefinitely. At December 31, 2004, no provision had been made for U.S. federal or state income tax on approximately $3.7 million of accumulated foreign earnings.

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

      Advertising Expense — Advertising expense is primarily 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

DEAN HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

income totaled $24.5 million in 2004, $27 million in 2003 and $25.4 million in 2002. Additionally, there were no prepaid advertising costs at December 31, 2004 and 2003.

      Shipping and Handling Fees — Our shipping and handling costs are included in both cost of sales and selling and distribution expense, depending on the nature of such costs. Shipping and handling costs included in costs of sales reflect inventory warehouse costs, product loading and handling costs and costs associated with transporting finished products from our manufacturing facilities to our own distribution warehouses. Shipping and handling costs included in selling and distribution expense consist primarily of route delivery costs for both company-owned delivery routes and independent distributor routes, to the extent that such independent distributors are paid a delivery fee and the cost of shipping products to customers through third party carriers. Shipping and handling costs that were recorded as a component of selling and distribution expense were approximately $440.7 million, $386.6 million and $375 million during 2004, 2003 and 2002, respectively.

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

      Facility Closing and Reorganization Costs — We are part of Dean Foods Company’s on-going overall facility closing and reorganization strategy. We periodically record facility closing and reorganization costs when we have identified a facility for closure or other reorganization opportunity and have developed a plan and notified the affected employees. We record these costs in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”

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

      Recently Adopted Accounting Pronouncements — In December 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” in an attempt to improve financial statement disclosures regarding defined benefit plans. This standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant information. In addition to expanded annual disclosures, we are required to report the various elements of pension and other postretirement benefit costs on a quarterly basis. SFAS No. 132 (revised 2003) is effective for fiscal years ending after December 15, 2003, and for quarters beginning after December 15, 2003. The expanded disclosure requirements are included in this report.

      On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law. The Act introduces a prescription drug benefit under Medicare Part D, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In April 2004, the FASB issued Staff Position (“FSP”) No. SFAS 106-2 to address the accounting and disclosure requirements related to the Act. The FSP is effective for interim or annual periods beginning after September 15, 2004. Substantially all of our postretirement benefits terminate at age 65. Therefore, the FSP will have no material affect on our Consolidated Financial Statements.

      Recently Issued Accounting Pronouncements — In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — an Amendment of ARB No. 43, Chapter 4.” SFAS No. 151, which is effective for

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inventory costs incurred during years beginning after June 15, 2005, clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material, requiring that those items be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads be based on the normal capacity of the production facilities. We do not believe the adoption of this standard will have a material impact on our Consolidated Financial Statements.

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

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

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

      We have not completed the final allocation of purchase price to the fair values of assets and liabilities acquired in 2004, or the related business integration plans. We expect that the ultimate purchase price allocation may include additional adjustments to the fair values of depreciable tangible assets, identifiable intangible assets and the carrying values of certain liabilities. Accordingly, to the extent that such assessments indicate the fair value of the assets and liabilities differ from their preliminary purchase price allocation, such difference would adjust the amounts allocated to the assets and liabilities and would change the amounts allocated to goodwill.

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

      Other — During 2004, our Dairy Group and Specialty Foods Group completed two smaller acquisitions for an aggregate purchase price of $2.4 million and $1.1 million, respectively.

      Goodwill arising from the 2004 acquisitions was $24.1 million.

      Cremora — On December 24, 2003, our Specialty Foods Group acquired the Cremora® branded non-dairy powdered coffee creamer business from Eagle Family Foods. Prior to the acquisition, we had been

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producing Cremora creamers for Eagle Family Foods pursuant to a co-packing arrangement, which generated approximately $8.9 million of net sales for us in 2003. Cremora is the first branded powdered coffee creamer offering for our Specialty Foods Group. The Cremora brand had sales of approximately $15.8 million in the 12 months ended June 30, 2003. We purchased the Cremora business for a purchase price of approximately $12.6 million, all of which was funded using borrowings under Dean Foods Company’s senior credit facility.

      Other — During 2003, our Dairy Group completed several small acquisitions for an aggregate purchase price of $1.2 million.

      Goodwill arising from the 2003 acquisitions was $8.6 million.

      During 2002, we completed the sale of the following non-core businesses from our 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 $30 million. No gain or loss was recorded on the divestiture of these businesses during 2002 because the sales prices equaled the carrying values.

      Approximately $88.2 million and $97.6 million of our inventory was accounted for under the LIFO method of accounting at December 31, 2004 and 2003, respectively. Our LIFO reserve was $4 million and $1.4 million at December 31, 2004 and 2003, respectively.

      For 2003, we capitalized $520,000 in interest related to borrowings during the actual construction period of major capital projects, which is included as part of the cost of the related asset. We did not capitalize interest in 2004.

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      The changes in the carrying amount of goodwill for the years ended December 31, 2004 and 2003 are as follows:

      The gross carrying amount and accumulated amortization of our intangible assets other than goodwill as of December 31, 2004 and 2003 are as follows:

      Amortization expense on intangible assets for the years ended December 31, 2004, 2003 and 2002 was $3.4 million, $3.7 million and $5.4 million, respectively. Estimated aggregate intangible asset amortization expense for the next five years is as follows:

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

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

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five years. Determining the expected life of a trademark is based on a number of factors including the competitive environment, market share, trademark history and anticipated future trademark support.

      In accordance with SFAS No. 142, we conduct impairment tests of goodwill and intangible assets with indefinite lives annually in the fourth quarter or when circumstances arise that indicate a possible impairment might exist. If the fair value of an evaluated asset is less than its book value, the asset is written down to fair value based on its discounted future cash flows. Our 2004, 2003 and 2002 annual impairment tests of both goodwill and intangibles with indefinite lives indicated no impairments.

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

      The following table presents the 2004, 2003 and 2002 provisions for income taxes.

      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:

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