UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For Annual and Transition Reports Pursuant to Sections 13 or 15(d)

of the Securities Exchange Act of 1934


(Mark One)
[X]		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2004

or

[ ]		Transition report pursuant to Section 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)

(DEAN FOODS LOGO)


Delaware		75-2932967
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2515 McKinney Avenue, Suite 1200

Dallas, Texas 75201

(214) 303-3400

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

area code, of Registrant’s principal executive offices)

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

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

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

Table of Contents


		Page

Part I — Financial Information			3
	Item 1 — Financial Statements		3
	Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
	Item 4 — Controls and Procedures		24
Part II — Other Information			26
	Item 6 — Exhibits and Reports on Form 8-K		26
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

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Part I — Financial Information


Item 1.	Financial Statements

DEAN HOLDING COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


			June 30,			December 31,
			2004			2003


			(unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	11,375		$	23,963
	Accounts receivable, net			306,273			269,792
	Inventories			240,482			234,311
	Deferred income taxes			77,468			71,946
	Prepaid expenses and other current assets			19,779			16,047

		Total current assets		655,377			616,059
Property, plant and equipment, net				635,921			638,267
Goodwill				1,424,810			1,421,711
Identifiable intangible and other assets				227,866			230,570

		Total	$	2,943,974		$	2,906,607

Liabilities and Stockholder’s Equity
Current liabilities:
	Accounts payable and accrued expenses		$	365,885		$	345,806
	Income taxes payable			5,642			37,475
	Current portion of long-term debt			98,755			3,509

		Total current liabilities		470,282			386,790
Long-term debt				657,776			794,062
Other long-term liabilities				158,874			174,044
Deferred income taxes				226,351			212,889
Commitments and contingencies (Note 9)
Stockholder’s equity:
	Common stock, 1,000 shares issued and outstanding
	Additional paid-in capital			1,391,901			1,369,392
	Retained earnings			382,836			310,529
	Receivable from parent			(334,204	)		(330,651	)
	Accumulated other comprehensive income			(9,842	)		(10,448	)

		Total stockholder’s equity		1,430,691			1,338,822

		Total	$	2,943,974		$	2,906,607

See Notes to Condensed Consolidated Financial Statements.

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DEAN HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands)



			Three Months Ended						Six Months Ended
			June 30						June 30

			2004			2003			2004			2003


			(unaudited)						(unaudited)
Net sales			$	1,125,817		$	949,438		$	2,118,983		$	1,868,501
Cost of sales				874,121			704,661			1,623,691			1,388,759

Gross profit				251,696			244,777			495,292			479,742
Operating costs and expenses:
	Selling and distribution			141,646			129,722			281,388			257,992
	General and administrative			32,576			29,357			67,375			62,427
	Amortization expense			631			608			1,261			1,783
	Plant closing and rationalization costs, net			(20	)		525			2,682			525

		Total operating costs and expenses		174,833			160,212			352,706			322,727

Operating income				76,863			84,565			142,586			157,015
Other (income) expense:
	Interest expense, net			13,759			13,736			27,598			27,306
	Other (income) expense, net			485			(414	)		(1,482	)		(697	)

		Total other (income) expense		14,244			13,322			26,116			26,609

Income before income taxes				62,619			71,243			116,470			130,406
Income taxes				23,736			27,135			44,163			49,836

Net income			$	38,883		$	44,108		$	72,307		$	80,570

See Notes to Condensed Consolidated Financial Statements.

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DEAN HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



					Six Months Ended
					June 30

					2004			2003


					(unaudited)
Cash Flows From Operating Activities
	Net Income				$	72,307		$	80,570
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				41,675			36,228
		Loss (gain) on disposition of assets				(2,106	)		199
		Deferred income taxes				7,940			22,193
		Other, net				1,043			(429	)
		Changes in operating assets and liabilities, net of acquisitions:
			Accounts receivable			(25,321	)		8,074
			Inventories			(2,973	)		4,883
			Prepaid expenses and other assets			793			2,078
			Accounts payable, accrued expenses and other liabilities			(5,926	)		(52,157	)
			Income taxes payable			(16,045	)		(23,314	)

				Net cash provided by operating activities		71,387			78,325
Cash Flows From Investing Activities
	Net additions to property, plant and equipment					(36,240	)		(43,188	)
	Cash outflows for acquisitions					(26,461	)		(637	)
	Proceeds from sale of fixed assets					3,374			1,889

				Net cash used in investing activities		(59,327	)		(41,936	)
Cash Flows From Financing Activities
	Proceeds from issuance of debt								43,672
	Repayment of debt					(43,604	)
	Additional investment from parent					22,509
	Distribution to parent					(3,553	)		(92,746	)

				Net cash used in financing activities		(24,648	)		(49,074	)

Decrease in cash and cash equivalents						(12,588	)		(12,685	)
Cash and cash equivalents, beginning of period						23,963			27,831

Cash and cash equivalents, end of period					$	11,375		$	15,146

See Notes to Condensed Consolidated Financial Statements.

-5-

DEAN HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2004

(Unaudited)


1.	General

Basis of Presentation — The unaudited Condensed Consolidated Financial Statements contained in this report have been prepared on the same basis as the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2003. In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) in order to present fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. Certain reclassifications have been made to conform our 2003 Consolidated Financial Statements to the current classifications. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. Our results of operations for the period ended June 30, 2004 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this report should be read in conjunction with our 2003 Consolidated Financial Statements and notes thereto contained in our Annual Report on Form 10-K (filed with the Securities and Exchange Commission on March 30, 2004).

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

We are a wholly-owned subsidiary of Dean Foods Company. 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, a portion of which is then allocated to us. Dean Foods Company charged us management fees of $10 million and $9.2 million for the second quarter of 2004 and 2003, respectively, and $20.1 million and $18.5 million for the first half of 2004 and 2003, 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.

Recently Adopted Accounting Pronouncements — In December 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“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.

Recently Issued Accounting Pronouncements — 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. We sponsor medical programs for certain of our United States retirees and expect that this legislation will reduce the costs for some of these programs. In April 2004, the FASB issued Staff Position (“FSP”) No. FAS 106-2 to address the accounting and disclosure requirements related to the Act. The FSP is effective for interim or annual periods beginning after June 15, 2004. We are currently evaluating the impact of the FSP on our Consolidated Financial Statements.

Shipping and Handling Fees — Our shipping and handling costs are included in both costs of sales and selling and distribution expense, depending on the nature of the cost. Shipping and handling costs

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DEAN HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

included in cost of sales include 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 $107.9 million and $94.4 million in the second quarter of 2004 and 2003, respectively, and $215.5 million and $189.3 million during the first six months of 2004 and 2003, respectively.


2.	Acquisition

On January 26, 2004, the 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. We transitioned the majority of Ross Swiss Dairies’ manufacturing needs into our southern California plants in May 2004. 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.

We have not completed the final allocation of purchase price to the fair values of assets and liabilities acquired in 2004 and late 2003, 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 that 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.


3.	Inventories


		At June 30,		At December 31,
		2004		2003


		(In thousands)
Raw materials and supplies		$	68,494	$	71,331
Finished goods			171,988		162,980

	Total	$	240,482	$	234,311

Approximately $65.5 million and $97.6 million of our inventory was accounted for under the last-in, first-out (LIFO) method of accounting at June 30, 2004 and December 31, 2003, respectively. There was no material excess of current cost over the stated value of LIFO inventories at either date.

-7-

DEAN HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


4.	Intangible Assets

Changes in the carrying amount of goodwill for the six months ended June 30, 2004 are as follows:


				Specialty
				Foods
	Dairy Group			Group			Total


	(In thousands)
Balance at January 1, 2004	$	1,109,921		$	311,790		$	1,421,711
Acquisitions		20,466						20,466
Purchasing accounting adjustments		(12,597	)		(4,770	)		(17,367	)

Balance at June 30, 2004	$	1,117,790		$	307,020		$	1,424,810

The gross carrying amount and accumulated amortization of our intangible assets other than goodwill as of June 30, 2004 and December 31, 2003 are as follows:



		At June 30, 2004							At December 31, 2003

		Gross					Net		Gross					Net
		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
		Amount		Amortization			Amount		Amount		Amortization			Amount


		(In thousands)
Intangible assets with indefinite lives:
	Trademarks	$	190,010				$	190,010	$	190,010				$	190,010
Intangible assets with finite lives:
	Customer-related		30,240	$	(8,152	)		22,088		28,455	$	(6,514	)		21,941

Total		$	220,250	$	(8,152	)	$	212,098	$	218,465	$	(6,514	)	$	211,951

Amortization expense on intangible assets for the three months ended June 30, 2004 and 2003 was $0.8 million for both periods, and $1.6 million and $2 million for the six months ended June 30, 2004 and 2003, respectively. Estimated aggregate intangible asset amortization expense for the next five years is as follows:


2005	$	3.2 million
2006		3.2 million
2007		3.1 million
2008		3.0 million
2009		3.0 million

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DEAN HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


5.	Long-Term Debt



			At June 30, 2004					At December 31, 2003

			Amount			Interest		Amount			Interest
			Outstanding			Rate		Outstanding			Rate


			(Dollars in thousands)
$100 million senior notes maturing in 2005			$	98,644			6.750%	$	98,006			6.750	%
$250 million senior notes maturing in 2007				250,354			8.150		250,402			8.150
$200 million senior notes maturing in 2009				187,007			6.625		186,070			6.625
$150 million senior notes maturing in 2017				126,633			6.900		126,185			6.900
Receivables-backed facility				93,379			2.010		125,174			1.838
Industrial development revenue bonds									11,700			1.35-1.40
Capital lease obligations and other				514					34

				756,531					797,571
	Less current portion			(98,755	)				(3,509	)

		Total	$	657,776				$	794,062

Senior Notes — We had $700 million (face value) of senior notes outstanding at June 30, 2004. The related indentures do not contain financial covenants but they do contain certain restrictions including a prohibition against us and our subsidiaries granting liens on our real estate interests and a prohibition against granting liens on the stock of our subsidiaries. The indentures also place certain restrictions on our ability to divest assets not in the ordinary course of business. At the date of our acquisition by Dean Foods Company, our long-term debt was re-valued to its current market value. The adjustment to fair value is reflected as a discount on senior notes in our Condensed Consolidated Financial Statements.

Receivables-Backed Facility — We participate in Dean Foods Company’s $500 million receivables securitization facility. Certain of our subsidiaries sell their accounts receivable to 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 special purpose entities are fully reflected on our balance sheet, and the securitization is treated as a borrowing for accounting purposes. The receivables-backed facility bears interest at a variable rate based on the commercial paper yield, as defined in the agreement.

Industrial Development Revenue Bond — During 2004, we repaid the remaining principal balances of our outstanding industrial development bonds, which had an aggregate outstanding principal balance of $11.7 million at December 31, 2003.

Capital Lease Obligations and Other — Capital lease obligations and other subsidiary debt include 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.

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DEAN HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


6.	Comprehensive Income

Comprehensive income consists of net income plus all other changes in equity from non-owner sources. Consolidated comprehensive income was $38.5 million and $72.9 million for the second quarter and first half of 2004. The amounts of income tax benefit allocated to each component of other comprehensive income during the six months ended June 30, 2004 are included below.


		Pre-Tax
		Income			Tax		Net
		(Loss)			Benefit		Amount


		(In thousands)
Accumulated other comprehensive income, December 31, 2003		$	(15,906	)	$	5,458	$	(10,448	)
	Cumulative translation adjustment arising during period		943					943

Accumulated other comprehensive income, March 31, 2004			(14,963	)		5,458		(9,505	)
	Cumulative translation adjustment arising during period		(337	)				(337	)

Accumulated other comprehensive income, June 30, 2004.		$	(15,300	)	$	5,458	$	(9,842	)


7.	Employee Retirement and Postretirement Benefits

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



		Three Months						Six Months
		Ended						Ended
		June 30						June 30

		2004			2003			2004			2003


		(In thousands)
Components of net period cost:
	Service cost	$	282		$	251		$	563		$	502
	Interest cost		2,724			2,628			5,448			5,257
	Expected return on plan assets		(1,699	)		(1,255	)		(3,398	)		(2,511	)
Amortizations:
	Prior service cost		126			125			251			251
	Unrecognized net loss		75			54			149			108
	Effect of settlement		225						450

Net period benefit cost		$	1,733		$	1,803		$	3,463		$	3,607

We expect to contribute $30.6 million to our pension plans during 2004.

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

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DEAN HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)



		Three
		Months				Six Months
		Ended				Ended
		June 30				June 30

		2004		2003		2004		2003


		(In thousands)
Components of net period cost:
	Service cost	$	241	$	245	$	482	$	489
	Interest cost		232		170		464		340
Amortizations:
	Unrecognized net loss		68		21		136		42

Net period benefit cost		$	541	$	436	$	1,082	$	871

We expect to contribute $2 million to our postretirement health plans during 2004.


8.	Plant Closing and Rationalization Costs

Plant Closing and Rationalization Costs — As part of our overall rationalization and cost reduction program, we recorded net costs of $2.7 million and $0.5 million during the first six months of 2004 and 2003, respectively.

The charges recorded during the first six months of 2004 are primarily related to the closing of two Dairy Group manufacturing facilities in California.

These charges were accounted for in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which became effective for us in January 2003. We expect to incur additional charges of approximately $1.4 million related to shutdown and other costs. The majority of these additional charges are expected to be completed by December of 2004.

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


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

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

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

	•	Write-downs of property, plant and equipment and other assets, primarily for asset impairments as a result of facilities that are no longer used in operations. The impairments relate primarily to owned buildings, land and equipment at the facilities which are written down to their estimated fair value and held for sale. The effect of suspending depreciation on the buildings and equipment related to the closed facilities was not significant. The carrying value of closed facilities at June 30, 2004 was approximately $3.9 million. We are marketing these properties for sale.

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DEAN HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Activity with respect to plant closing and rationalization is summarized below:



			Accrued		Six Months Ended						Accrued
			Charges at		June 30, 2004						Charges at
			December 31,								June 30,
			2003		Charges			Payments			2004


			(In thousands)
Cash charges:
	Workforce reduction costs		$	3,547	$	(529	)	$	(2,318	)	$	700
	Shutdown costs					1,243			(1,243	)
	Lease obligations after shutdown					338			(181	)		157
	Other					2,097			(2,097	)

	Subtotal		$	3,547		3,149		$	(5,839	)	$	857

Noncash charges:
	Net gain on sale of assets					(467	)

		Total charges			$	2,682

Transaction Closing Costs — As part of our acquisition by Dean Foods Company, we accrued costs in 2002 pursuant to a plan to exit certain activities and businesses in order to rationalize production and reduce costs and inefficiencies. As part of this plan we closed two Specialty Foods Group plants in Atkins, Arkansas and Cairo, Georgia, and one Dairy Group plant in Escondido, California. We also eliminated our administrative offices, closed Dairy Group distribution depots in Parker Ford, Pennsylvania and Camp Hill, Pennsylvania, shut down two pickle tank yards and relocated production between plants as part of our overall integration and efficiency efforts.

The principal components of the plans include the following:


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

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

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

During the first quarter of 2004 we recorded certain adjustments to reduce the liability by approximately $1.5 million related to the closures in our Specialty Foods Group segment. These adjustments also reduced goodwill.

Activity with respect to these liabilities for the first six months of 2004 is summarized below:



		Accrued		Six Months Ended						Accrued
		Charges at		June 30, 2004						Charges at
		December 31,								June 30,
		2003		Payments			Adjustments			2004


		(In thousands)
Workforce reduction costs		$	2,181	$	(253	)	$	(456	)	$	1,472
Shutdown costs			4,064		(493	)		(1,016	)		2,555

	Total	$	6,245	$	(746	)	$	(1,472	)	$	4,027

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DEAN HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Commitments and Contingencies

Leases — We lease certain property, plant and equipment used in our operations under both capital and operating lease agreements. Such leases, which are primarily for machinery, equipment and vehicles, have lease terms ranging from 1 to 20 years. Certain of the operating lease agreements require the payment of additional rentals for maintenance, along with additional rentals based on miles driven or units produced. Certain leases require us to guarantee a minimum value of the leased asset at the end of the lease. Our maximum exposure under those guarantees is not a material amount.

Guaranty of Dean Foods Company’s Obligations Under Its Senior Credit Facility — Certain of Dean Foods Company’s subsidiaries, including us, are required to guarantee Dean Foods Company’s indebtedness under its senior credit facility. We have pledged substantially all of our assets (other than our real property and our ownership interests in our subsidiaries) as security for our guaranty. At June 30, 2004 the senior credit facility provided for a $1 billion multi-currency revolving line of credit (which provides for borrowings up to $200 million in euros), a Tranche A $1 billion term loan, Tranche B $750 million term loan and a Tranche C $400 million term loan. At June 30, 2004 there were outstanding term loan borrowings of $1.99 billion under this facility, and $188.1 million outstanding under the revolving line of credit. Letters of credit in the aggregate amount of $101.2 million were issued but undrawn. At June 30, 2004 approximately $710.7 million was available for future borrowings under Dean Foods Company’s revolving credit facility. Dean Foods Company is currently in compliance with all covenants contained in their credit agreement.

Principal payments are required on Dean Foods Company’s Tranche A term loan as follows:


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

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

	•	$50 million quarterly on March 31, 2006 through December 31, 2006;

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

	•	A final payment of $275 million on July 15, 2007.

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


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

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

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


	•	$1 million quarterly beginning on June 30, 2004 through December 31, 2007;

	•	$192.5 million on March 31, 2008; and

	•	$192.5 million on July 15, 2008.

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

Dean Foods Company’s credit agreement also requires mandatory principal prepayments upon the occurrence of certain asset dispositions not in the ordinary course of business.

The senior credit facility contains various financial and other restrictive covenants and requires that Dean Foods Company 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 Dean Foods Company maintain a minimum level of net worth (as defined by Dean Foods Company’s credit agreement).

-13-

DEAN HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The credit facility is secured by liens on substantially all of Dean Foods Company’s domestic assets (including ours and those of our subsidiaries, but excluding the capital stock of our subsidiaries and the real property owned by us and our 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 Dean Foods Company’s other debt, a change in control and certain other material adverse changes in their business. The agreement does not contain any default triggers based on Dean Foods Company’s credit rating.

Dean Foods Company expects to finalize a significant amendment to their credit facility in mid-August 2004. See Note 11.

Insurance — We retain selected levels of property and casualty risks, primarily related to employee healthcare, workers’ compensation claims and other casualty losses. Many of these potential losses are covered under conventional insurance programs with third party carriers with high deductible limits. In other areas, we are self-insured with stop-loss coverages. These deductibles range from $350,000 for medical claims to $2 million for casualty claims. We believe we have established adequate reserves to cover these claims.

Litigation, Investigations and Audits — We and our subsidiaries are parties from time to time to certain other claims, litigation, audits and investigations. We believe that we have established adequate reserves to satisfy any potential liability we may have under all such claims, litigations, audits and investigations that are currently pending. In our opinion, the settlement of any such currently pending or threatened matter is not expected to have a material adverse impact on our financial position, results of operations or cash flows.

10. Business and Geographic Information and Major Customers

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

Our Dairy Group is our largest segment. It manufactures, markets and distributes a wide variety of “dairy case” products, such as milk, cream, ice cream, cultured dairy products and juices to retailers distributors, foodservice outlets, schools and governmental entities across the United States, under customer labels and under proprietary local and regional brands.

The Specialty Foods Group is the nation’s leading pickle processor, and one of the largest manufacturers and sellers of powdered non-dairy coffee creamers in the United States. The Specialty Foods Group also manufactures and sells a variety of specialty foods, such as powdered ingredients, aseptic sauces and nutritional beverages.

We evaluate the performance of our segments based on operating profit or loss before gains and losses on sale of assets, plant closing and rationalization costs and foreign exchange gains and losses. Therefore, the segment profit or loss presented below is before such items.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies set forth in Note 1 to our 2003 Consolidated Financial Statements contained in our 2003 Annual Report on Form 10-K.

-14-

DEAN HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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



			Three Months Ended						Six Months Ended
			June 30						June 30

			2004			2003			2004			2003


			(In thousands)
Net sales to external customers:
	Dairy Group		$	951,649		$	773,762		$	1,779,332		$	1,529,887
	Specialty Foods Group			174,168			175,676			339,651			338,614

		Total	$	1,125,817		$	949,438		$	2,118,983		$	1,868,501

Operating income:
	Dairy Group		$	68,696		$	69,566		$	129,590		$	130,463
	Specialty Foods Group			19,832			26,584			39,138			49,775
	Corporate/Other			(11,685	)		(11,060	)		(23,460	)		(22,698	)

	Segment operating income			76,843			85,090			145,268			157,540
	Plant closing and rationalization costs, net			(20	)		525			2,682			525

		Total	$	76,863		$	84,565		$	142,586		$	157,015



		At June 30

		2004		2003


		(In thousands)
Assets:
	Dairy Group	$	2,244,640	$	2,156,034
	Specialty Foods Group		609,899		597,810
	Corporate/Other		89,435		93,626

	Total	$	2,943,974	$	2,847,470

Substantially all of our business is within the United States.

Significant Customers — The Dairy Group and Specialty Foods Group segments had one customer that represented greater than 10% of their sales in the first six months of 2004. Approximately 12.9% of our consolidated sales in the first six months of 2004 were to that same customer.

11. Subsequent Events

On August 13, 2004, Dean Foods Company completed an amendment to its senior credit facility that (1) increased the size of its revolving credit facility from $1 billion to $1.5 billion, (2) increased the size of its term loan A from $850 million to $1.5 billion, and (3) eliminated term loans B and C. Previously, the interest rate on the revolving credit facility and the term loan A was either, at Dean Foods Company’s election, a base rate (defined as the higher of the federal funds rate plus 50 basis points or the prime rate) plus a margin that varied from 0 to 75 basis points depending on its leverage ratio (which is the ratio of indebtedness to EBITDA, as such terms are defined in the credit agreement), or LIBOR plus a margin that varied from 125 to 200 basis points, which depended on its leverage ratio. With this amendment, both the revolver and the term loan bear interest, at Dean Foods Company’s election, at the base rate plus a margin that varies from 0 to 62.5 basis points depending on its credit ratings (as issued by Standard & Poor’s and Moody’s), or LIBOR plus a margin that varies from 75 to 187.5, depending on its credit ratings (as issued by Standard & Poor’s and Moody’s). The maturity date of the revolving credit facility

-15-

DEAN HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and the term loan A was extended from July 2007 to August 2009, and the amortization of the term loan A changed so that no principal payments are due in 2004 or 2005, and principal payments totaling $56.3 million, $225 million, $431.3 million and $787.5 million are due in 2006, 2007, 2008 and 2009, respectively. Also, the net worth covenant was eliminated, the maximum leverage ratio requirement is fixed at 4 to 1 and the minimum interest coverage requirement is fixed at 3 to 1.

-16-


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

We are a wholly-owned subsidiary of Dean Foods Company. Our operations consist of two segments: the Dairy Group and the Specialty Foods Group. Our Dairy Group is part of the 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.

As permitted by General Instruction H to Form 10-Q, in lieu of providing the information required by Item 2, we are providing only the information required by General Instruction H(2)(a).

Results of Operations

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



			Quarter Ended June 30											Six Months Ended June 30


			2004						2003					2004					2003

			Dollars			Percent			Dollars		Percent			Dollars		Percent			Dollars		Percent


			(Dollars in thousands)
Net sales			$	1,125,817			100.0	%	$	949,438		100.0	%	$	2,118,983		100.0	%	$	1,868,501		100.0	%
Cost of sales				874,121			77.6			704,661		74.2			1,623,691		76.6			1,388,759		74.3

Gross profit				251,696			22.4			244,777		25.8			495,292		23.4			479,742		25.7
Operating costs and expenses:
	Selling and distribution			141,646			12.6			129,722		13.7			281,388		13.3			257,992		13.8
	General and administrative			32,576			2.9			29,357		3.0			67,375		3.2			62,427		3.4
	Amortization expense			631			0.1			608		0.1			1,261		0.1			1,783		0.1
	Plant closing and rationalization costs, net			(20	)					525		0.1			2,682		0.1			525

		Total operating expenses		174,833			15.6			160,212		16.9			352,706		16.7			322,727		17.3

Total operating income			$	76,863			6.8	%	$	84,565		8.9	%	$	142,586		6.7	%	$	157,015		8.4	%

Quarter Ended June 30, 2004 Compared to Quarter Ended June 30, 2003

Net Sales — Consolidated net sales increased approximately 18.6% to $1.13 billion during the second quarter of 2004 from $949.4 million during the second quarter of 2003. Net sales by segment are shown in the table below.



		Quarter Ended June 30

						$ Increase/			% Increase/
		2004		2003		(Decrease)			(Decrease)


		(Dollars in thousands)
Dairy Group		$	951,649	$	773,762	$	177,887			23.0	%
Specialty Foods Group			174,168		175,676		(1,508	)		(0.9	)

	Total	$	1,125,817	$	949,438	$	176,379			18.6	%

The change in net sales was due to the following:



		Quarter Ended June 30, 2004 vs. Quarter Ended
		June 30, 2003

				Pricing, Volume
				and Product			Total
		Acquisitions		Mix Changes			Increase/(Decrease)


		(In thousands)
Dairy Group		$	38,706	$	139,181		$	177,887
Specialty Foods Group			2,250		(3,758	)		(1,508	)

	Total	$	40,956	$	135,423		$	176,379

-17-

Net sales for the second quarter of 2004 increased approximately $176.4 million compared to the second quarter of 2003 primarily due to higher selling prices at the Dairy Group resulting from the pass-through of increased raw milk costs and due to acquisitions. We acquired Ross Swiss Dairies in the Dairy Group segment and Cremora in our Specialty Foods Group segment.

See “— Results by Segment” for more information.

Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs; labor costs; 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 was 77.6% in the second quarter of 2004 compared to 74.2% in the second quarter of 2003. Increased raw material costs affected both of our segments in 2004.

See “— Results by Segment” for more information.

Operating Costs and Expenses — Our operating expenses increased approximately $14.6 million during the second quarter of 2004 as compared to the same period in the prior year. Operating expenses increased primarily due to:


	•	Acquisitions, which represented approximately $9 million of the increase; and

	•	Distribution costs, which were approximately $6.7 million higher in the second quarter of 2004 compared to last year partially due to higher fuel costs at both our segments.

These increases were slightly offset by a decrease of approximately $0.5 million in net plant closing and rationalization costs. Our operating expense ratio decreased to 15.6% in the second quarter of 2004 compared to 16.9% during the second quarter of 2003, due to the effect of increased sales.

Operating Income — Operating income during the second quarter of 2004 was $76.9 million, a decrease of $7.7 million from the second quarter of 2003 operating income of $84.6 million. Our operating margin in the second quarter of 2004 was 6.8% compared to 8.9% in the second quarter of 2003. Our operating income decreased primarily as a result of higher raw material costs and our operating margin decreased for the same reason, in addition to the effect of increased sales. See “— Results by Segment” for more information.

Other (Income) Expense — Total other expense increased by $0.9 million in the second quarter of 2004 compared to the second quarter of 2003. Interest expense was relatively flat at $13.8 million in the second quarter of 2004 as compared to $13.7 million in the second quarter of 2003.

Income Taxes — Income tax expense was recorded at an effective rate of 37.9% in the second quarter of 2004 compared to 38.1% in the second quarter of 2003. Our tax rate varies as the mix of earnings contributed by our various business unit changes, and as tax savings initiatives are adopted.

Quarter Ended June 30, 2004 Compared to Quarter Ended June 30, 2003 — Results by Segment


	Dairy Group —



	Quarter Ended June 30


	2004					2003

	Dollars		Percent			Dollars		Percent


	(Dollars in thousands)
Net sales	$	951,649		100.0	%	$	773,762		100.0	%
Cost of sales		738,753		77.6			573,903		74.2

Gross profit		212,896		22.4			199,859		25.8
Operating costs and expenses		144,200		15.2			130,293		16.8

Total segment operating income	$	68,696		7.2	%	$	69,566		9.0	%

-18-

The Dairy Group’s net sales increased by approximately $177.9 million, or 23%, in the second quarter of 2004 versus the second quarter of 2003. The change in net sales from the second quarter of 2003 to the second quarter of 2004 was due to the following:


		Dollars			Percent


		(Dollars in millions)
2003 Net sales		$	773.7
	Acquisitions		38.7			5.0	%
	Volume		(16.2	)		(2.1)
	Pricing and product mix		155.4			20.1

2004 Net sales		$	951.6			23.0	%

The most significant cause of the increase in the Dairy Group’s net sales was price increases. In general, we change the prices that we charge our customers for fluid dairy products on a monthly basis, as the costs of our raw materials fluctuate. The increase in net sales due to price and product mix shown in the above table primarily results from higher raw milk costs in the second quarter of 2004 compared to the second quarter of 2003. These price increases due to increases in the cost of raw milk were offset somewhat by the effect of price concessions that were granted in some markets in the third quarter of 2003 due to the competitive environment. The following table sets forth the average monthly Class I “mover” and average monthly Class II minimum prices for raw skim milk and butterfat (which are indicators of the prices we pay for raw milk) for the second quarter of 2004 compared to the second quarter of 2003:



	Quarter Ended June 30*

	2004			2003			% Change

Class I raw skim milk mover(1)	$	10.15	(2)	$	5.92	(2)		71.5	%
Class I butterfat mover(1)		2.38	(3)		1.14	(3)		108.8
Class II raw skim milk minimum(4)		6.77	(2)		6.62	(2)		2.3
Class II butterfat minimum(4)		2.38	(3)		1.16	(3)		105.2


	*	The prices noted in this table are not the prices that we actually pay. The minimum prices applicable at any given location for Class I raw skim milk or Class I butterfat are based on the Class I mover plus a location differential. Class II prices noted in the table are federal minimum prices, applicable at all locations. Our actual cost also includes producer premiums, procurement costs and other related charges that vary by location and vendor.


(1)	We process Class I raw skim milk and butterfat into fluid milk products.

(2)	Prices are per hundredweight.

(3)	Prices are per pound.

(4)	We process Class II raw skim milk and butterfat into products such as cottage cheese, creams and creamers, ice cream and sour cream.

The 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 contributed $38.7 million in sales during the second quarter of 2004.

Volume sales of all products, net of the effect of acquisitions, fell approximately 2.1% in the second quarter of 2004 compared to the second quarter of 2003, primarily due to decreased demand.

The Dairy Group’s cost of sales ratio was significantly higher in the second quarter of 2004 compared to the second quarter of 2003, almost entirely 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 71.5% higher in the second quarter of 2004 compared to the second quarter of 2003.

-19-

The Dairy Group’s operating expenses increased approximately $13.9 million during the second quarter of 2004 compared to the second quarter of 2003. The increase was primarily due to acquisitions, which contributed approximately $9 million in operating costs, and due to higher distribution expenses related to an increase in fuel costs. Despite the increased operating expenses, the Dairy Group’s operating expense ratio decreased to 15.2% in the second quarter of 2004 from 16.8% in the second quarter of 2003 due to the effect of increased sales.

Specialty Foods Group —



	Quarter Ended June 30


	2004					2003

	Dollars		Percent			Dollars		Percent


	(Dollars in thousands)
Net sales	$	174,168		100.0	%	$	175,676		100.0	%
Cost of sales		135,492		77.8			131,194		74.7

Gross profit		38,676		22.2			44,482		25.3
Operating costs and expenses		18,844		10.8			17,898		10.2

Total segment operating income	$	19,832		11.4	%	$	26,584		15.1	%

The Specialty Foods Group’s net sales decreased by $1.5 million, or 0.9%, in the second quarter of 2004 versus the second quarter of 2003. The change in net sales from the second quarter of 2003 to the second quarter of 2004 was due to the following:


		Dollars			Percent


		(Dollars in millions)
2003 Net sales		$	175.7
	Acquisitions		2.3			1.3	%
	Volume		1.6			0.9
	Pricing and product mix		(5.4	)		(3.1	)

2004 Net sales		$	174.2			(0.9	)%

The net decrease in sales was primarily due to a shift in product mix as volumes of products with a higher sales price declined. The nutritional drink and aseptic product categories, which have a higher sales price, were down approximately $7 million and $2 million, respectively, for the second quarter of 2004 compared to the second quarter of 2003, primarily due to decreased consumer demand and the loss of a significant co-pack customer. These decreases were partly offset by an increase in non-dairy coffee creamer sales of approximately $6 million (net of the effect of the acquisition of Cremora) as a result of increased pricing.

Despite a decrease in sales, the Specialty Foods Group’s cost of sales increased by approximately $4.3 million, and its cost of sales ratio increased to 77.8% in the second quarter of 2004 versus 74.7% in the second quarter of 2003. This increase was due to substantially higher commodity costs, particularly soybean oil, casein and cheese as well as increases in glass and other packaging costs.

Operating expenses for the Specialty Foods Group increased slightly by $0.9 million and the operating expense ratio increased to 10.8% in the second quarter of 2004 as compared to 10.2% in the second quarter of 2003. The increase in operating expenses was primarily due to an increase in distribution expenses related to higher fuel costs.

-20-

First Six Months of 2004 Compared to the First Six Months of 2003 — Consolidated Results

Net Sales — Consolidated net sales increased approximately 13.4% to $2.12 billion during the first six months of 2004 from $1.87 billion during the first six months of 2003. Net sales by segment are shown in the table below.



		Six Months Ended June 30

		2004		2003		$ Increase		% Increase


		(In thousands)
Dairy Group		$	1,779,332	$	1,529,887	$	249,445		16.3%
Specialty Foods Group			339,651		338,614		1,037		0.3

	Total	$	2,118,983	$	1,868,501	$	250,482		13.4%

The change in net sales was due to the following:



		Six Months Ended June 30, 2004 vs. Six Months
		Ended June 30, 2003

				Pricing, Volume
				and Product			Total
		Acquisitions		Mix Changes			Increase


		(In thousands)
Dairy Group		$	75,762	$	173,683		$	249,445
Specialty Foods Group			3,838		(2,801	)		1,037

	Total	$	79,600	$	170,882		$	250,482

Net sales for the first six months of 2004 increased approximately $250.5 million compared to the same period in the prior year primarily due to higher selling prices at the Dairy Group resulting from the pass-through of increased raw milk costs and due to acquisitions. We acquired Ross Swiss Dairies in the Dairy Group segment and Cremora in our Specialty Foods Group segment.

See “— Results by Segment” for more information.

Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs; labor costs; 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 was 76.6% in the first six months of 2004 compared to 74.3% in the first six months of 2003. Increased raw material costs affected both of our segments in 2004.

See “— Results by Segment” for more information.

Operating Costs and Expenses — Our operating expenses increased approximately $30 million during the first six months of 2004 as compared to the same period in the prior year. Operating expenses increased primarily due to the following:


	•	Acquisitions, which represented approximately $18.4 million of the increase;

	•	Distribution costs, which were approximately $12.5 million higher in the second quarter of 2004 compared to last year partially due to higher fuel costs across both our segments; and

	•	Net plant closing and rationalization costs that were approximately $2.2 million higher than last year.

Our operating expense ratio decreased to 16.7% for the first six months of 2004 from 17.3% during the first six months of 2003, due to the effects of increased sales.

Operating Income — Operating income during the first six months of 2004 was $142.6 million, a decrease of $14.4 million from the first six months of 2003 operating income of $157 million. Our operating margin in the first six months of 2004 was 6.7% compared to 8.4% in the first six months of

-21-

2003. Our operating margin decreased primarily as a result of higher raw material costs and the effect of increased sales. See “— Results by Segment” for more information.

Other (Income) Expense — Total other expense decreased by $0.5 million in the first six months of 2004 compared to the first six months of 2003. Interest expense was relatively flat at $27.6 million in the second quarter of 2004 as compared to $27.3 million in the second quarter of 2003.

Income Taxes — Income tax expense was recorded at an effective rate of 37.9% in the first six months of 2004 compared to 38.2% in the first six months of 2003. Our tax rate varies as the mix of earnings contributed by our various business unit changes, and as tax savings initiatives are adopted.

First Six Months of 2004 Compared to the First Six Months of 2003 — Results by Segment

Dairy Group —



	Six Months Ended June 30


	2004					2003

	Dollars		Percent			Dollars		Percent


	(Dollars in thousands)
Net sales	$	1,779,332		100.0	%	$	1,529,887		100.0	%
Cost of sales		1,359,828		76.4			1,136,250		74.3

Gross profit		419,504		23.6			393,637		25.7
Operating costs and expenses		289,914		16.3			263,174		17.2

Total segment operating income	$	129,590		7.3	%	$	130,463		8.5	%

The Dairy Group’s net sales increased by approximately $249.4 million, or 16.3%, in the first six months of 2004 versus the first six months of 2003. The change in net sales from the first six months of 2003 to the first six months of 2004 was due to the following:


		Dollars			Percent


		(Dollars in millions)
2003 Net sales		$	1,529.9
	Acquisitions		75.8			5.0	%
	Volume		(19.9	)		(1.3	)
	Pricing and product mix		193.5			12.6

2004 Net sales		$	1,779.3			16.3%

-22-

The most significant cause of the increase in the Dairy Group’s net sales was price increases. In general, we change the prices that we charge our customers for fluid dairy products on a monthly basis, as the costs of our raw materials fluctuate. The increase in net sales due to price and product mix shown in the above table primarily results from higher raw milk costs in the first six months of 2004 compared to the first six months of 2003. These price increases due to increases in the cost of raw milk were offset somewhat by the effects of price concessions that were granted in some markets in the third quarter of 2003 due to the competitive environment. The following table sets forth the average monthly Class I “mover” and average monthly Class II minimum prices for raw skim milk and butterfat for the first six months of 2004 compared to the first six months of 2003:



	Six Months Ended June 30*

	2004			2003			% Change

Class I raw skim milk mover(1)	$	8.40(2	)	$	6.11(2	)		37.5%
Class I butterfat mover(1)		1.96(3	)		1.16(3	)		69.0
Class II raw skim milk minimum(4)		6.71(2	)		6.81(2	)		(1.5	)
Class II butterfat minimum(4)		2.15(3	)		1.16(3	)		85.3


*	The prices noted in this table are not the prices that we actually pay. The minimum prices applicable at any given location for Class I raw skim milk or Class I butterfat are based on the Class I mover plus a location differential. Class II prices noted in the table are federal minimum prices, applicable at all locations. Our actual cost also includes producer premiums, procurement costs and other related charges that vary by location and vendor.

(1)	We process Class I raw skim milk and butterfat into fluid milk products.

(2)	Prices are per hundredweight.

(3)	Prices are per pound.

(4)	We process Class II raw skim milk and butterfat into products such as cottage cheese, creams and creamers, ice cream and sour cream.

The 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 contributed $75.8 million in sales during the first six months of 2004.

Volume sales of all products, net of the effect of acquisitions, fell approximately 1.3% in the first six months of 2004 compared to the first six months of 2003, primarily due to decreased demand.

The Dairy Group’s cost of sales ratio was substantially higher in the first six months of 2004 compared to the first six months of 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 37.5% higher in the second quarter of 2004 than in the second quarter of 2003.

The Dairy Group’s operating expenses increased approximately $26.7 million during the first six months of 2004 compared to the first six months of 2003 primarily due to acquisitions, which contributed approximately $18.4 million in operating costs and to an increase in fuel costs. The Dairy Group’s operating expense ratio decreased to 16.3% in the first six months of 2004 from 17.2% in the first six months of 2003 due to the effect of increased sales.

-23-

Specialty Foods Group —



	Six Months Ended June 30


	2004					2003

	Dollars		Percent			Dollars		Percent


	(Dollars in thousands)
Net sales	$	339,651		100.0	%	$	338,614		100.0	%
Cost of sales		264,207		77.8			253,575		74.9

Gross profit		75,444		22.2			85,039		25.1
Operating costs and expenses		36,306		10.7			35,264		10.4

Total segment operating income	$	39,138		11.5	%	$	49,775		14.7	%

The Specialty Foods Group’s net sales increased by $1 million, or 0.3%, in the first six months of 2004 versus the first six months of 2003. The change in net sales from the first six months of 2003 to the first six months of 2004 was due to the following:


		Dollars			Percent


		(Dollars in millions)
2003 Net sales		$	338.6
	Acquisitions		3.9			1.1	%
	Volume		(0.4	)		(0.1	)
	Pricing and product mix		(2.4	)		(0.7	)

2004 Net sales		$	339.7			0.3	%

The increase was due to the acquisition of Cremora in December 2003. This increase was offset by a net decrease in sales due to a shift in product mix as volumes of products with a higher sales price declined. The aseptic product and nutritional drink categories, which have a higher sales price, were down approximately $5 million and $3 million, respectively, for the first six months of 2004 compared to the first six months of 2003, primarily due to decreased consumer demand and the loss of a significant co-pack customer. Pickle sales also declined approximately $3 million primarily due to an increase in promotional spending (which is required to be recorded as a reduction of revenue) in response to competition. These decreases were partly offset by an increase in non-dairy coffee creamer sales of approximately $8 million (net of the effects of the acquisition of Cremora) as a result of higher volumes and increased pricing.

The Specialty Foods Group’s cost of sales ratio increased from 74.9% for the first six months of 2003 to 77.8% for the first six months of 2004, primarily due to substantially higher commodity costs, particularly soybean oil, casein and cheese as well as increases in glass and other packaging costs.

Operating expenses for the Specialty Foods Group increased approximately $1 million primarily related to increased distribution expenses as a result of higher fuel costs.


Item 4.	*Controls and Procedures*

Quarterly Controls Evaluation and Related CEO and CFO Certifications

We conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (Disclosure Controls) as of the end of the period covered by this Quarterly Report. The controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO).

Attached as exhibits to this quarterly report are certifications of the CEO and the CFO, which are required in accordance with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

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Definition of Disclosure Controls

Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed with the Securities and Exchange Commission (the “SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our Disclosure Controls include components of our internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with US generally accepted accounting principles.

Limitations on the Effectiveness of Controls

We do not expect that our Disclosure Controls or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation

Our evaluations of our Disclosure Controls include reviews of the controls’ objectives and design, our implementation of the controls and the effect of the controls on the information generated for use in our SEC filings. In the course of our controls evaluations, we seek to identify data errors, controls problems or acts of fraud and confirm that appropriate corrective actions, including process improvements, are undertaken. Many of the components of our Disclosure Controls are evaluated on an ongoing basis by Dean Foods Company’s Audit Services department. The overall goals of these various evaluation activities are to monitor our Disclosure Controls, and to modify them as necessary. Our intent is to maintain the Disclosure Controls as dynamic systems that change as conditions warrant.

Conclusions

Based upon our most recent controls evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this Quarterly Report, our Disclosure Controls were effective to provide reasonable assurance that material information is made known to management, particularly during the period when our periodic reports are being prepared. In the three months ended June 30, 2004, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II — Other Information


Item 6.	*Exhibits and Reports on Form 8-K*

(a) Exhibits


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

(b) Form 8-K’s


	None

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SIGNATURES

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


	DEAN HOLDING COMPANY

	/s/ BARRY A. FROMBERG

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

August 16, 2004

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EXHIBIT INDEX


Exhibit
Number			Description

	31	.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

DEAN HOLDING CO 10-Q