suiza foods corp (form: 10-k405, filing date:...

Business Address2515 MCKINNEY AVENUE LB30SUITE 1200DALLAS TX 752012145289922

Mailing Address3811 TURTLE CREEK BLVDSUITE 1300DALLAS TX 75219

SECURITIES AND EXCHANGE COMMISSION

FORM 10-K405Annual report pursuant to section 13 and 15(d), Regulation S-K Item 405

Filing Date: 2001-04-02 | Period of Report: 2000-12-31SEC Accession No. 0000950134-01-003019

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FILERSUIZA FOODS CORPCIK:931336| IRS No.: 752559681 | State of Incorp.:DE | Fiscal Year End: 1231Type: 10-K405 | Act: 34 | File No.: 001-12755 | Film No.: 1589715SIC: 2024 Ice cream & frozen desserts

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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-KFOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-12755

SUIZA FOODS CORPORATION(Exact name of Registrant as specified in its charter)

[SUIZA FOODS LOGO]

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DELAWARE 75-2559681(State or other jurisdiction of (I.R.S. Employerincorporation or organization) Identification No.)

2515 MCKINNEY AVENUESUITE 1200

DALLAS, TEXAS 75201(214) 303-3400

(Address, including zip code, and telephone number, includingarea code, of Registrant's principal executive offices)

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

NAME OF EACH EXCHANGETITLE OF EACH CLASS ON WHICH REGISTERED

---------------------------- -----------------------Common Stock, $.01 par value New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item405 of Regulation S-K is not contained herein, and will not be contained, to thebest of Registrant's knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K: [X]

The aggregate market value of the Registrant's voting stock held bynon-affiliates of the Registrant at March 19, 2001, based on the $48.45 pershare closing price for the Company's common stock on the New York StockExchange, was approximately $1.2 billion.

The number of shares of the Registrant's common stock outstanding as ofMarch 19, 2001 was 27,455,865.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for its AnnualMeeting of Stockholders to be held on or about May 17, 2001 (to be filed) areincorporated by reference into Part III of this Form 10-K.



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TABLE OF CONTENTS

<TABLE><CAPTION>

PAGE----

PART I

<S> <C> <C>1 Business........................................................................................... 12 Properties......................................................................................... 133 Legal Proceedings.................................................................................. 14

PART II

5 Market for Our Common Stock and Related Matters.................................................... 146 Selected Financial Data............................................................................ 167 Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 177A Quantitative and Qualitative Disclosures About Market Risk......................................... 228 Consolidated Financial Statements.................................................................. 23

PART III

10 Directors and Executive Officers................................................................... 2511 Executive Compensation............................................................................. 2512 Security Ownership of Certain Beneficial Owners and Management..................................... 2513 Certain Relationships and Related Transactions..................................................... 25

PART IV

14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 26</TABLE>

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PART I

ITEM 1. BUSINESS

GENERAL

We are the leading manufacturer and distributor of dairy products in theUnited States.

Our principal executive offices are located at 2515 McKinney Avenue, Suite1200, Dallas, Texas 75201. Our telephone number is (214) 303-3400. We maintain aworldwide web site at http://www.suizafoods.com. We were incorporated inDelaware in 1994.

BRIEF HISTORY

We commenced operations in 1988 through a predecessor entity. Our originaloperations consisted solely of a packaged ice business. As a result of ouracquisition strategy in the packaged ice industry, we became one of the largestmanufacturers and distributors of packaged ice in the United States.

We entered the dairy business in December 1993 when we acquired Suiza DairyCorporation, a regional dairy processor located in Puerto Rico. We have grownour dairy business rapidly, primarily through a focused acquisition strategy.Since our acquisition of Suiza Dairy in 1993, we have completed 43 dairyacquisitions, including seven during 2000.

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For information about significant acquisitions during 2000, see "-DevelopmentsSince January 1, 2000 - Acquisitions" below. Primarily as a result of ouracquisition strategy in the dairy industry, we are now the largest manufacturerand distributor of dairy products in the United States.

We completed our initial public offering in April 1996. Initially our commonstock was traded in the Nasdaq National Market. In January 1997 we completed asecond public offering. Our common stock began trading on the New York StockExchange in March 1997.



In August 1997 we acquired Franklin Plastics, Inc., a company engaged in thebusiness of manufacturing and selling plastic containers, in connection with ouracquisition of a dairy company related to Franklin Plastics. We then beganacquiring other companies in the plastic container business includingContinental Can in May 1998. By the end of 1998 we had built one of the largestplastic packaging companies in the United States.

In April 1998 we sold our packaged ice operations in order to focus ourresources on our dairy and packaging operations.

In July 1999, having made a decision to further focus our resources on ourcore dairy business, we sold our U.S. plastic packaging operations toConsolidated Container Company in exchange for cash and a 43.1% interest in thepurchaser. In March and May 2000 we sold the European packaging operations thatwe acquired as part of our acquisition of Continental Can. Our only remainingpackaging investment is our 43.1% interest in Consolidated Container Company.

The following timeline graphically depicts our history:

<TABLE><CAPTION>

------------------------------------------------------------------| acquisitions of packaged ice companies || |

Dec Apr Jan Aug Apr Jul May1988 1993 1996 1997 1997 1998 1999 2000--o-------------o-------------o---------o------------o-------------o----------------o----------------o--------

<S> <C> <C> <C> <C> <C> <C> <C>Commenced entered IPO second entered sold packaged sold U.S. plastic Completedoperations dairy public packaging ice business packaging divestitures of- packaged business offering industry operations European

ice with | | packagingoperations purchase of | | businesses

only Suiza Dairy | || -------------------------------| acquisitions of packaging companies-------------------------------------------------------------------------------------------------------->

acquisitions of dairy companies</TABLE>

DEVELOPMENTS SINCE JANUARY 1, 2000

Acquisitions

We have completed seven acquisitions since January 1, 2000 including,among others:

o Southern Foods (January 2000). Southern Foods Group, the third largestdairy processor in the United States, had 30 plants in 12 states at thetime of the acquisition and net sales of approximately $1.3 billion in1999. We acquired Southern Foods Group pursuant to a joint venture withDairy Farmers of America.

o Leche Celta (February 2000). Leche Celta, the fourth largest dairyprocessor in Spain, had net sales of approximately $150 million in 1999.Leche Celta has three plants located in the Galicia and Cantabriaregions of Spain, and produces primarily ultra-high temperature dairyproducts. We currently own a 75% interest in this business, and it iscurrently our only operation outside the United States.

o Valley of Virginia (February 2000). Valley of Virginia Cooperative MilkProducers Association, an agricultural marketing cooperative with dairyprocessing plants in Springfield and Mt. Crawford, Virginia, had netsales of approximately $209 million in 1999.

o Schenkel's All Star Dairy (December 2000). Schenkel's All Star Dairy,based in Huntington, Indiana, manufactures and sells a full line ofdairy products throughout Indiana and the contiguous states. Schenkel'sAll Star Dairy had net sales of approximately $73.0 during fiscal year1999.

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Primarily as a result of acquisitions, we increased our net sales from $4.48billion for the year ended December 31, 1999 to $5.76 billion for the year endedDecember 31, 2000.

Other Events

Other important events since January 2000 include the following:



o Between January 1, 2000 and March 5, 2001 we repurchased approximately3.4 million shares of our common stock under our open market sharerepurchase program for a total purchase price of approximately $154.6million.

o In January 2000 we expanded the test market of our value-added line ofmilks, including kidsmilk(R) and fitmilk(R), to approximately 1,000stores in New England and Michigan and in February 2000 we launchedSunSoy(TM), a non-dairy, lactose-free, cholesterol-free soymilk enrichedwith calcium and vitamins.

o During the first half of 2000 we sold the European packaging businessesthat we acquired as part of Continental Can.

o In September 2000, we formed a strategic partnership with Hershey Foodspursuant to which our Morningstar Foods subsidiary will manufacture,sell and distribute products under the Hershey's brand, and we launchedour first three products under the partnership including Hershey's FatFree Chocolate Milk, 2% Reduced Fat Chocolate Milk and 2% Reduced FatStrawberry Milk, all of which are now distributed nationally.

o During 2000, we took a leadership role in the development and formationof dairy.com, the first business-to-business online vertical exchangefocused specifically on bringing farmers, farm cooperatives, processorsand manufacturers together in an electronic marketplace for the exchangeof goods and services, supply chain efficiency tools and dairy farmoptimization tools.

o During the second quarter of 2000, we closed and fully funded areceivable-backed loan in the amount of $150 million, and used theproceeds to pay down higher-cost debt.

o We furthered our overall integration and cost reduction strategy during2000 by closing three plants and reducing our workforce accordingly. Wealso re-distributed manufacturing capacity between our businesssegments, allowing our business units to better serve our customers,while at the same time enabling them to operate more efficiently as theyconcentrate on their core businesses. As a result of these manufacturingre-alignment activities and certain management reporting changeseffected during 2000, we now have two reportable business segments,including Suiza Dairy Group and Morningstar Foods.

For more information about our receivable-backed loan, our stock repurchasesand our integration and cost reduction activities, please see Notes 11, 13 and17, respectively, to our Consolidated Financial Statements.

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The following chart is a general representation of our current corporatestructure:

[CHART]

CURRENT BUSINESS STRATEGY

We are focused on maximizing shareholder value primarily through thefollowing strategies:

Increasing Sales

We intend to grow sales in our existing businesses by combining excellentproduct quality and customer service with our unparalleled geographic reach toprovide unmatched service and convenience to our customers. Also, we intend toexpand our product offerings through innovation because we believe thatinnovation is key to growing both our sales and overall consumption of dairyproducts.

Taking Advantage of Our Scale

We intend to:

o continue to vigorously pursue economies of scale in purchasing andproduct development,

o continue to reduce manufacturing costs and increase product qualitythrough the integration of manufacturing operations into morespecialized, scale-efficient facilities, and

o continue to reduce expenses by eliminating duplicative administrativecosts.



Enhancing Operating Profit Margin and Free Cash Flow

We continue to seek profit margin improvements through integration and costreduction initiatives, and increased sales of higher-margin products. Also, weseek to increase free cash flow primarily through a disciplined capitalexpenditure strategy and effective management of working capital.

Expanding With Our Customers

We will continue to pursue acquisitions because we believe that in order towin and retain customers in the consolidating retail sector it is critical notonly that we have excellent product quality and customer service

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but also that we are able to distribute our products wherever our customers haveoperations. In addition, acquisitions may help to further reduce ourdistribution costs or enable us to quickly expand our product lines ortechnological capabilities. In February of 2000, we completed the acquisition ofa Spanish dairy processor, and we may pursue one or more additionalinternational acquisitions.

INDUSTRY OVERVIEW

The dairy industry is a mature industry which has traditionally beencharacterized by slow to flat growth, low profit margins, fragmentation andexcess capacity. Excess capacity has resulted from the development of moreefficient manufacturing techniques, the establishment of captive dairymanufacturing operations by large grocery retailers and little to no growth inthe demand for fresh milk products. For the last several years, the dairyindustry has been in the process of consolidating. As the industry hasconsolidated, large regional dairy processors have emerged.

Consolidation has tended to raise efficiencies in the typically low-margindairy industry. However, consumption of dairy products remains flat and has evendeclined in some regions of the country. We believe that the consolidation trendwill continue as dairy processors continue to seek to better serve theircustomers. Also, we believe that innovation will become increasingly importantas processors seek to increase consumption, sales and margins through productdifferentiation and branding.

BUSINESS SEGMENTS

Suiza Dairy Group

We sell primarily fresh dairy products through Suiza Dairy Group, with ourproduct mix weighted heavily toward fluid milk, including flavored milks andbuttermilk. Other products that we sell through Suiza Dairy Group include:

o ice cream and novelties,

o half-and-half and whipping cream,

o condensed milk,

o cottage cheese,

o sour cream,

o yogurt,

o dips,

o coffee creamers,

o juice and juice drinks, and

o water.

Suiza Dairy Group operates its business in a generally decentralized mannerorganized by geographic region, including the Northeast region, the Southeastregion and the Southwest region. We have established a strong presence in eachof our regions. Suiza Dairy Group manufactures its products in 67 plants in 29states. For more information about plants in the Suiza Dairy Group regions, see"Properties."

Primarily due to the highly perishable nature of its products, Suiza DairyGroup delivers most of its products directly from its plants or distributionwarehouses to its customers in trucks that we own or lease. This form ofdelivery is called a "direct store delivery" or "DSD" system. We believe that we



have one of the most extensive refrigerated DSD systems in the United States,with over 4,300 delivery routes across the United States. Using its DSD system,Suiza Dairy Group also acts as distributor for certain other manufacturers ofrefrigerated products in certain parts of the country.

Suiza Dairy Group sells its products through internal regional sales forcesto a wide variety of retail and food service customers including grocery stores,club stores, convenience stores, institutional food service, gas stores,schools, restaurants and hotels. Suiza Dairy Group's customer base is large, andwe are not dependent on any single customer. Suiza Dairy Group's sales areslightly seasonal, with sales tending to be higher in the third and fourthquarters.

In 2000, Suiza Dairy Group manufactured and marketed approximately twothirds of its dairy products under its proprietary and licensed brand names. Theremaining one third of Suiza Dairy Group's products were

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manufactured and sold on a private-label (or "customer brand") basis forcustomers. Proprietary brands used in Suiza Dairy Group include the followingregional brands: Adohr Farms(R), Barbe's(R), Broughton(R), Brown's Dairy(R),Country Fresh(R), Dairy Gold(R), Dairymens(R), Lehigh Valley Farms(R), MeadowGold(R), Model Dairy(TM), Natural by Garelick Farms(R), Oak Farms(R),Robinson(R), Schenkel's All Star Dairy(TM), Schepps(R), Shenandoah's Pride(R),Louis Trauth Dairy(R), Tuscan(R), Velda Farms(R) and West Lynn Creamery(R).Suiza Dairy Group also sells products, on a regional basis, under certainpartner or licensed brands including Borden(R), Flav-O-Rich(R), Foremost(R) andPet(R), and under our proprietary kidsmilk(R) and fitmilk(R) brands.

Sales by Suiza Dairy Group to unaffiliated customers totaled $4.66 billionin 2000. For more financial information about Suiza Dairy Group, see Note 21 toour Consolidated Financial Statements.

Morningstar Foods

Morningstar Foods sells primarily extended shelf life ("ESL") fluid, aerosoland other dairy and non-dairy products. Its product offerings include:

o dairy and non-dairy coffee creamers,

o flavored and unflavored ESL milks, lactose-free milks and soymilk,

o aerosol whipped topping,

o dairy and non-dairy frozen whipped topping,

o egg substitute, and

o cultured dairy products.

Morningstar Foods markets and sells its products primarily on a nationalbasis to a wide variety of retail, food service and dairy outlets and in severalforeign countries through an internal sales force and independent brokers.Morningstar Foods' customer base is large, and it is not dependent on any singlecustomer. Its specialty and long shelf-life products are delivered primarily bycommon carrier. Sales of some of these products are higher in the fourthquarter.

Morningstar Foods manufactures its products in ten plants located across theUnited States. For more information about Morningstar Foods' manufacturingplants, see "Properties."

In 2000, Morningstar Foods manufactured and marketed approximately 42% ofits products under its proprietary and licensed brand names. The remaining 58%of Morningstar Foods' products were manufactured and sold on a private-label (or"customer brand") basis for customers. Proprietary brands used in MorningstarFoods include the following national brands: International Delight(R), SunSoy(TM), Second Nature(R), Naturally Yours(R) and Mocha Mix(R). MorningstarFoods also sells products under certain partner or licensed brands includingLactaid(R) and Hershey's(R).

Sales by Morningstar Foods to unaffiliated customers totaled approximately$704 million in 2000. For more financial information about Morningstar Foods,see Note 21 to our Consolidated Financial Statements.

Puerto Rico and International Operations

We have a strong dairy operation on the island of Puerto Rico, operatedunder the name "Suiza Dairy." Suiza Dairy manufactures primarily fresh dairyproducts with its product mix weighted heavily toward fluid milk and juice



drinks. We also have a small coffee roasting business in Puerto Rico.

We have four plants across the island. For more information about our PuertoRico properties, see "Properties." Suiza Dairy delivers its productsthrough a DSD system. It sells its products through an internal sales force to awide variety of retail and food service customers including grocery stores, clubstores, convenience stores, corner bakeries, institutional food service, gasstores, schools, restaurants and hotels. In 2000, Suiza Dairy manufactured andmarketed approximately 97% of its products under its proprietary brand names.The remaining three percent of Suiza Dairy's products were manufactured and soldon a private-label (or "customer brand") basis for customers.

Our international dairy operations consist solely of our Spanish operationsconducted through Leche Celta, in which we own a 75% interest. Leche Celta sellsprimarily ultra-high temperature ("UHT") fluid milk. Leche Celta manufacturesits products in three plants located in the Galicia and Cantabria regions ofSpain. For more

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information about Leche Celta's plants, see "Properties." Leche Celta deliversits products primarily through independent trucking companies deliveringdirectly to our customers' warehouses. It sells its products through an internalsales force to a wide variety of customers, including mainly large and mid-sizeretailers. In 2000, Leche Celta manufactured and marketed approximately 75% ofits products under its proprietary brands, and the remaining 25% underprivate-label brands for customers.

RESEARCH AND DEVELOPMENT

The development of new products, packaging and manufacturing processes is animportant part of our business. We utilize consumer research to test newproducts prior to market introduction and we are currently test marketingseveral new products and packaging innovations. While company-sponsored researchand development is important to our operations, our total expenditures to daterelated to this function have not been material to our overall financialresults.

RAW MATERIALS AND SUPPLY

The primary raw material used in our operations is raw milk. We purchase asignificant portion of our raw milk for our U.S. operations from Dairy Farmersof America, a large farmers cooperative and owner of 33.8% of Suiza Dairy Group.We have entered into various supply agreements with Dairy Farmers of America.Prices charged by Dairy Farmers of America under these contracts are competitivemarket prices. We also purchase raw milk from independent farmers and certainother farm co-operatives typically pursuant to contractual arrangements. Rawmilk is generally readily available. After raw milk, cream (including butterfat)is our most used raw material. We use cream in the manufacture of creamers, icecream and certain other dairy products. Although we produce a significant amountof cream in our fluid milk operations, we also purchase cream from unaffiliatedthird parties from time to time. Cream (including butterfat) is generallyreadily available. Other raw materials, such as coffee, juice concentrates,sweeteners, and packaging supplies are generally available from numeroussuppliers and we are not dependent on any single supplier for these materials.Certain of our raw materials are purchased under long-term contracts in order toobtain lower costs. The prices of our raw materials increase and decreasedepending on supply and demand. Also, the price of raw milk in the United Statesis regulated by the federal government through federal market orders and pricesupport programs, and many state and other governments regulate raw milk pricingthrough their own programs. For more information about raw milk pricing in theUnited States, please see "Government Regulation -- Milk Industry Regulation."Prices of raw milk and cream can fluctuate widely.

COMPETITION

Our businesses are highly competitive. We have many competitors in each ofour major product, service and geographic markets.

Competition in our businesses is based primarily on:

o service,

o price,

o brand recognition,

o quality, and

o breadth of product line.



INTELLECTUAL PROPERTY

We have developed or acquired several hundred trademarks, brand names andlogos and several patents, and we are constantly developing new trademarks,brand names, logos and patents. In addition, we hold licenses for the use ofseveral registered trademarks from third parties. We believe that our use oftrademarks, brand names and patented packaging designs creates goodwill andresults in product differentiation and, therefore, is important to our business.

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GOVERNMENT REGULATION

Public Health

As a manufacturer and distributor of food products, we are subject to anumber of food safety regulations, including the Federal Food, Drug and CosmeticAct and regulations promulgated thereunder by the U.S. Food and DrugAdministration ("FDA"). This comprehensive regulatory scheme governs themanufacture (including composition and ingredients), labeling, packaging andsafety of food in the United States. The FDA:

o regulates manufacturing practices for foods through its current goodmanufacturing practices regulations,

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

o prescribes the format and content of certain information required toappear on food product labels.

In addition, the FDA enforces the Public Health Service Act and regulationsissued thereunder, which authorize regulatory activity necessary to prevent theintroduction, transmission or spread of communicable diseases. These regulationsrequire, for example, pasteurization of milk and milk products. We are alsosubject to numerous other regulations involving such matters as the licensing ofdairy manufacturing facilities, enforcement by government health agencies ofstandards for our products, inspection of our facilities and regulation of ourtrade practices in connection with the sale of dairy products.

We use quality control laboratories in all of our manufacturing facilitiesto test raw milk and other ingredients and finished products. Product qualityand freshness are essential to the successful distribution of our products. Tomonitor product quality at our facilities, we maintain quality control programsto test products during various processing stages. We believe that our dairyfacilities and manufacturing practices comply with all material governmentregulations.

Employee Safety Regulations

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

Environmental Regulations

We are subject to various environmental regulations. Ammonia, a refrigerantused extensively in our operations, is considered an "extremely" hazardoussubstance pursuant to U.S. federal environmental laws due to its toxicity. Also,certain of our dairy facilities discharge biodegradable wastewater intomunicipal waste treatment facilities in excess of levels permitted under localregulations. Because of this, certain of our dairy subsidiaries are required topay waste water surcharges or to construct waste water pretreatment facilities.To date, such waste water surcharges have not had a material effect on ourconsolidated financial statements.

We maintain above-ground or underground petroleum storage tanks at many ofour facilities. These tanks are periodically inspected to determine compliancewith applicable regulations. We may be required to make expenditures from timeto time in order to maintain compliance of these tanks.

We do not expect environmental compliance to have a material impact on ourcapital expenditures, earnings or competitive position in the foreseeablefuture.

Milk Industry Regulation

Pursuant to the U.S. Federal Milk Marketing Order program, the federalgovernment and several state agencies establish minimum regional prices paid to



producers for raw milk. These prices, which are calculated by economic formulabased on supply and demand, vary depending on the type of product manufacturedusing the raw milk. In New England, the Northeast Dairy Compact Commission setsa minimum price for milk independent of the price set by the federal milkmarketing orders. The price we pay for raw milk in New England currently exceedsthe price we pay for raw milk in other parts of the country. Several otherstates have considered adopting compacts among milk producers which wouldestablish minimum prices paid by milk processors, including us, to raw milkproducers in those states. We do not know whether new compacts will beauthorized by Congress or, if authorized,

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the extent to which these compacts would increase the prices we pay for rawmilk. In Spain, the government has established a quota system regulating theamount of milk that can be sold by individual farmers and farm cooperativeswhich affects the manner in which we purchase raw milk, as well as the prices wepay for raw milk.

EMPLOYEES

As of December 31, 2000 we employed over 18,000 people in the followingcategories:

<TABLE><CAPTION>

NO. OF EMPLOYEES % OF TOTAL---------------- ----------

<S> <C> <C>Suiza Dairy Group............ 15,597 85.3%Morningstar Foods............ 1,388 7.6Other Operations............. 1,219 6.7Corporate.................... 73 0.4

</TABLE>

RISK FACTORS

This report contains statements about our future that are not statements ofhistorical fact. Most of these statements are found in the portions of thisreport entitled "Current Business Strategy," "Government Regulation," "IndustryOverview," "Raw Materials and Supply," "Liquidity and Capital Resources," "KnownTrends and Uncertainties," and "Quantitative and Qualitative Disclosures AboutMarket Risk." In some cases, you can identify these statements by terminologysuch as "may," "will," "should," "could," "expects," "seek to," "anticipates,""plans," "believes," "estimates," "intends," "predicts," "potential" or"continue" or the negative of such terms and other comparable terminology. Thesestatements are only predictions, and in evaluating those statements, you shouldcarefully consider the risks outlined below. Actual performance or results maydiffer materially and adversely.

We May Have Difficulties Managing Our Growth

We have expanded our operations rapidly in recent years. This rapid growthplaces a significant demand on our management and our financial and operationalresources, which subjects us to various risks, including among others:

o inability to successfully integrate or operate acquired businesses,

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

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

The integration of businesses we have acquired or may acquire in the futuremay also require us to invest more capital than we expected or require more timeand effort by management than we expected. If we fail to effectively manage theintegration of the businesses we have acquired, our operations and financialresults will be affected, both materially and adversely.

Our Failure to Successfully Compete Could Adversely Affect our Prospects andFinancial Results

Our business is subject to significant competition based on a number offactors. See "Competition." If we fail to successfully compete against ourcompetitors, our business will be adversely affected.

Significant consolidation is currently underway in the supermarket industry.As our customer base continues to consolidate, we expect competition among usand our competitors to intensify as we compete for the business of fewercustomers. As the consolidation of the grocery industry continues, there can be



no assurance that we will be able to keep our existing customers, or to gain newcustomers. Winning new customers is particularly important to our future growth,as demand tends to be relatively flat in our industry. Moreover, as ourcustomers become larger, they will have significantly greater purchasingleverage, and may force dairy prices and margins significantly lower thancurrent levels.

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

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Our Innovation Efforts May Not Succeed

We have invested, or intend to invest, significant resources in productinnovation in an effort to increase our sales and profit margins as well as theoverall consumption of dairy products. We believe that sales and profit growththrough innovation is a significant source of growth for our business becausedemand tends to be relatively flat, and we expect margins on non value-addeddairy products to be compressed as our customer base consolidates. The successof our innovation initiatives will depend on customer and consumer acceptance ofour products, of which there can be no assurance. If our innovation efforts donot succeed, we may not be able to continue to significantly increase sales orprofit margins.

Our Raw Material and Supply Costs Could Increase

The most important raw materials that we use in our operations are raw milkand cream (including butterfat). The prices of these materials increase anddecrease depending on supply and demand and, in some cases, governmentalregulation. For more information about the pricing of raw milk, see "RawMaterials and Supply" and "Government Regulation -- Milk Industry Regulation".Prices of raw milk and cream can fluctuate widely over short periods of time. Inmany cases, we are not able to pass on the increased price of raw materials toour customers due primarily to timing problems. Therefore, volatility in thecost of our raw materials can adversely affect our performance.

Also, because we deliver a majority of our products directly to ourcustomers through our "direct store delivery" system, we are a large consumer ofgasoline. We experienced increased fuel costs in 2000 as a result of increasedfuel prices, and a continued increase in fuel prices could adversely affect ourresults of operations.

Consolidated Container Company, in which we own a 43.1% interest, uses highdensity, polyethylene resin as its primary raw material. Due to recent increasesin the cost of petroleum products, Consolidated Container incurred sharplyincreased costs for high density, polyethylene resin during 2000, whichadversely affected its results of operations for 2000 and, accordingly, our 2000earnings per share. Continued high costs for HDPE, or a further increase inthose costs, could adversely affect Consolidated Container's results ofoperations, which would have an adverse impact on our earnings per share.

We Could Be Adversely Affected By Changes in Regulations

Our operations are subject to federal, foreign, state and local governmentalregulation. See "Government Regulation." While we believe that we are incompliance with all material governmental regulations, we cannot be certain whateffect any future material noncompliance, or any material changes in these lawsand regulations, including changes in the laws regulating minimum prices for rawmilk, could have on our business.

Our Substantial Debt Could Adversely Affect Us and We Have Additional BorrowingCapacity

As of March 19, 2001, we had substantial debt and other financialobligations, including the following, in addition to certain other subsidiarydebt obligations:

o $1.03 billion of indebtedness under the senior credit facility of SuizaDairy Group,

o $599.9 million of 5.5% preferred securities,

o $174.7 million of indebtedness under the receivable-backed loan.

As of March 19, 2001, we had approximately $562.4 million of borrowingcapacity under our parent credit facility and the Suiza Dairy Group creditfacility. We have pledged the stock of certain subsidiaries to secure our seniorcredit facilities and the assets of other subsidiaries to secure otherindebtedness. Our credit facilities and related debt service obligations:



o limit our ability to obtain additional financing in the future withoutobtaining prior consent,

o require us to dedicate a significant portion of our cash flow to thepayment of principal and interest on our debt which reduces the funds wehave available for other purposes,

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

o impose on us additional financial and operational restrictions, and

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

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Our ability to make scheduled payments on our debt and other financialobligations depends on our financial and operating performance. Our financialand operating performance is subject to prevailing economic conditions and tofinancial, business and other factors, some of which are beyond our control. Asignificant increase in interest rates could adversely impact our financialresults. If we do not comply with the financial and other restrictive covenantsunder our credit facilities, we may default under them. Upon default, ourlenders could accelerate the indebtedness under the facilities, forecloseagainst their collateral or seek other remedies.

We May Be Subject to Product Liability Claims

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

o product contamination or spoilage,

o product tampering, and

o other adulteration of food products.

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

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

o product withdrawals,

o product recalls,

o remediation expenses,

o negative publicity,

o reduced demand for our products,

o temporary plant closings, and

o substantial costs of compliance or remediation.

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

Our Foreign Operations Bring Added Risk

In February of 2000 we purchased a majority interest in a Spanish dairyprocessor. We have limited experience in managing a European dairy business.There can be no assurance that we will be able to effectively manage a dairyoperation in Europe. Also, we are exposed to foreign currency risk due tocertain operating cash flows and various financial instruments being denominatedin Spanish pesetas. Any substantial devaluation of the Spanish peseta could havea material adverse effect on our financial condition and results of operations.

Loss of or Inability to Attract Key Personnel Could Adversely Affect OurBusiness

Our success depends to a large extent on the skills, experience andperformance of our key personnel. The loss of one or more of these persons couldhurt our business. We do not maintain key man life insurance on any of ourexecutive officers, directors or other employees. Also, we have experienced, andcould continue to experience, some difficulty in attracting personnel due to the



currently low unemployment rates in the United States. If we are unable toattract and retain key personnel, our business will be adversely affected.

Certain Provisions of Our Certificate of Incorporation, Bylaws and Delaware LawCould Deter Takeover Attempts

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

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

o divide our board of directors into three classes so that onlyapproximately one-third of the total number of directors is elected eachyear,

o permit directors to be removed only for cause, and

o specify advance notice requirements for stockholder proposals anddirector nominations.

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

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

We Are Subject to Environmental Regulations

We, like others in similar businesses, are subject to a variety of federal,foreign, state and local environmental laws and regulations including, but notlimited to, those regulating waste water and stormwater, air emissions, storagetanks and hazardous materials. We believe that we are in material compliancewith these laws and regulations. Future developments, including increasinglystringent regulations, could require us to make currently unforeseenenvironmental expenditures.

WHERE YOU CAN GET MORE INFORMATION

If you would like more information about our company, write or call us at:

Suiza Foods Corporation2515 McKinney Avenue, Suite 1200Dallas, Texas 75201(214) 303-3400Attention: Investor Relations

Our fiscal year ends on December 31. We furnish our stockholders with annualreports containing audited financial statements and other appropriate reports.In addition, we file annual, quarterly and current reports, proxy statements andother information with the Securities and Exchange Commission. You may read andcopy any reports, statements or other information we file at the Securities andExchange Commission's public reference rooms in Washington D.C. You can requestcopies of these documents, upon payment of a duplicating fee, by writing to theSecurities and Exchange Commission. Please call the Securities and ExchangeCommission at 1-800-SEC-0330 for further information on the operation of thepublic reference rooms. Our Securities and Exchange Commission filings are alsoavailable to the public on the Internet at http://www.sec.gov.

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ITEM 2. PROPERTIES

Suiza Dairy Group currently conducts its manufacturing operations in thefollowing plants:



<TABLE><CAPTION>

NUMBERREGION OF PLANTS LOCATIONS OF PLANTS------ --------- -------------------

<S> <C> <C>Northeast 10 o Maine

o Massachusetts (3)o New Jersey (2)o New Yorko Pennsylvania (2)o Vermont

Southeast 19 o Florida (2)o Illinoiso Indiana (2)o Kentucky (2)o North Carolina (3)o Ohio (3)o South Carolina (2)o Tennesseeo Virginia (3)

Southwest 38 o Alabamao California (4)o Colorado (4)o Hawaii (3)o Idaho (2)o Louisiana (3)o Michigan (4)o Mississippio Montana (3)o Nebraskao Nevadao Oklahomao Tennesseeo Texas (7)o Utah (2)

</TABLE>

Morningstar Foods currently conducts its manufacturing operations in plantsin the following locations:

o Tempe, Arizonao City of Industry, Californiao Gustine, Californiao Greeley, Coloradoo Frederick, Marylando Fraser, New Yorko Arlington, Tennesseeo Sulphur Springs, Texaso Mt. Crawford, Virginiao Madison, Wisconsin

Our Puerto Rico operation currently manufactures its products in plants inthe following locations:

o Aguadillao Caguaso Lareso San Juan

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Our Spanish operation currently manufactures its products in plants in thefollowing locations:

o Pontedeumeo Meirao Santander

We own most of our plants. Each of our plants also serves as a distributionfacility. We also have numerous distribution branches located across the UnitedStates, some of which are owned and some of which are leased. We believe thateach of our properties is suitable for its current use.

Our executive offices are located in leased premises at 2515 McKinneyAvenue, Suite 1200, Dallas, Texas 75201.

ITEM 3. LEGAL PROCEEDINGS



Prior to our acquisition of West Lynn Creamery in 1998, West Lynn Creamerypaid rebates to certain of its customers pursuant to a rebate program conductedby West Lynn Creamery between 1992 and 1997 (the "Rebate Program"). As a resultof allegations made by one or more of West Lynn's customers that West Lynnconspired with or aided these customers in evading payment of such customers'federal income taxes through the use of the Rebate Program, the United StatesDepartment of Justice (the "DOJ"), through the U.S. Attorney for Boston,conducted an investigation of this matter. We were not aware of theinvestigation at the time we acquired West Lynn Creamery. On March 30 of thisyear, we reached a final settlement of this matter with the DOJ, pursuant towhich West Lynn Creamery will plead guilty to one charge of conspiracy toimpede the collection of taxes by the Internal Revenue Service and will pay$7.2 million to the government. We intend to seek recourse against the formerowners of West Lynn Creamery, although there can be no assurance that we will besuccessful in our efforts. We do not expect any material loss of sales or otherlong-term adverse effects on our business as a result of this settlement.

From time to time we are party to other legal proceedings that arise in theordinary course of business. Except for the litigation described in theforegoing paragraph, we do not believe that the resolution of any currentlypending legal proceedings will have a material adverse affect on our financialposition, results of operations, cash flows or liquidity.

PART II

ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED MATTERS

Our common stock began trading in the Nasdaq National Market on April 17,1996. Our common stock began trading on the New York Stock Exchange on March 5,1997. The following table sets forth the high and low sales prices of our commonstock as quoted on the New York Stock Exchange for the last two fiscal years. AtMarch 19, 2001, there were approximately 375 record holders of our common stock.

<TABLE><CAPTION>

HIGH LOW--------- ---------

<S> <C> <C>1999:

First Quarter ............................ $ 50.25 $ 32.56Second Quarter ........................... 41.88 29.63Third Quarter ............................ 40.69 30.00Fourth Quarter ........................... 39.75 32.63

2000:First Quarter ............................ 44.88 36.00Second Quarter ........................... 49.00 37.81Third Quarter ............................ 52.44 44.50Fourth Quarter ........................... 51.50 40.44

2001:First Quarter (through March 19, 2001) ... 50.57 42.00

</TABLE>

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We have never declared or paid a cash dividend on our common stock. Weintend to retain all earnings to cover working capital fluctuations and to fundcapital expenditures, scheduled debt repayments, stock buybacks and acquisitionsand we do not anticipate paying cash dividends on our common stock in theforeseeable future.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data as of and for each of the five yearsin the period ended December 31, 2000 has been derived from our auditedconsolidated financial statements. The selected financial data do not purport toindicate results of operations as of any future date or for any future period.The selected financial data should be read in conjunction with our ConsolidatedFinancial Statements and related Notes.

<TABLE><CAPTION>

YEAR ENDED DECEMBER 31,



----------------------------------------------------------------------------2000 1999 1998 1997 1996

------------ ------------ ------------ ------------ ------------(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

<S> <C> <C> <C> <C> <C>Operating Data:

Net sales ....................................... $ 5,756,303 $ 4,481,999 $ 3,320,940 $ 1,795,868 $ 1,207,565Cost of sales ................................... 4,330,067 3,487,075 2,557,908 1,381,084 970,796

------------ ------------ ------------ ------------ ------------Gross profit .................................... 1,426,236 994,924 763,032 414,784 236,769Operating costs and expenses:

Selling and distribution ...................... 812,274 518,962 376,928 209,271 123,161General and administrative .................... 182,570 148,009 112,169 58,708 44,352Amortization of intangibles ................... 52,441 38,513 31,479 14,916 7,675Plant closing, merger and other costs ......... 3,388 12,566 37,003 571Litigation settlement costs ................... 7,500

------------ ------------ ------------ ------------ ------------Total operating costs and expenses .............. 1,058,173 718,050 520,576 319,898 175,759

------------ ------------ ------------ ------------ ------------Operating income ................................ 368,063 276,874 242,456 94,886 61,010Other (income) expense:

Interest expense, net ......................... 112,586 49,233 52,082 36,664 15,707Financing charges on trust issued preferredsecurities ................................... 33,595 38,584 30,213

Equity in earnings of unconsolidatedaffiliates .................................. (11,453) (2,630) (78)

Other income, net ............................. (630) (1,416) (4,212) (24,483) (4,499)------------ ------------ ------------ ------------ ------------

Total other expense ............................. 134,098 83,771 78,005 12,181 11,208------------ ------------ ------------ ------------ ------------

Income from continuing operations beforeincome taxes .................................. 233,965 193,103 164,451 82,705 49,802

Income taxes .................................... 90,303 75,463 59,823 43,375 2,939Minority interest in earnings ................... 29,911 8,813 1,559

------------ ------------ ------------ ------------ ------------Income from continuing operations ............... 113,751 108,827 103,069 39,330 46,863Income (loss) from discontinued operations ...... (3,161) 717 2,315

------------ ------------ ------------ ------------ ------------Income before extraordinary gain (loss) ......... 113,751 108,827 99,908 40,047 49,178Extraordinary gain (loss) ....................... 4,968 904 31,698 (11,283) (2,215)

------------ ------------ ------------ ------------ ------------Net income ...................................... $ 118,719 $ 109,731 $ 131,606 $ 28,764 $ 46,963

============ ============ ============ ============ ============Net income applicable to common stock ........... $ 118,719 $ 109,731 $ 131,369 $ 28,464 $ 46,661

============ ============ ============ ============ ============Basic earnings per common share:

Income from continuing operations ............... $ 4.03 $ 3.31 $ 3.12 $ 1.32 $ 1.99Income (loss) from discontinued operations ...... (0.10) 0.02 0.10Extraordinary gain (loss) ....................... .18 .03 0.96 (0.38) (0.10)

------------ ------------ ------------ ------------ ------------Net income ...................................... $ 4.21 $ 3.34 $ 3.98 $ 0.96 $ 1.99

============ ============ ============ ============ ============Diluted earnings per common share:

Income from continuing operations ............... $ 3.68 $ 3.11 $ 2.90 $ 1.25 $ 1.90Income (loss) from discontinued operations ...... (0.08) 0.02 0.10Extraordinary gain (loss) ....................... .14 .02 0.76 (0.36) (0.09)

------------ ------------ ------------ ------------ ------------Net income ...................................... $ 3.82 $ 3.13 $ 3.58 $ 0.91 $ 1.91

============ ============ ============ ============ ============Average common shares:

Basic ........................................... 28,195,043 32,861,218 32,953,290 29,508,791 23,424,322============ ============ ============ ============ ============

Diluted ......................................... 36,671,264 42,858,492 41,965,564 31,348,591 24,491,899============ ============ ============ ============ ============

Other Data:Ratio of earnings to combined fixed charges andpreferred stock dividends(1) ................... 2.58x 3.75x 3.36x 2.89x 3.38x

Balance Sheet Data (at end of period):Total assets .................................... $ 3,780,478 $ 2,658,922 $ 3,013,783 $ 1,403,462 $ 833,624Long-term debt(2) ............................... 1,353,269 712,068 932,969 828,659 455,880Mandatorily redeemable convertible trust issuedpreferred securities ........................... 584,032 683,505 682,938

Total stockholders' equity ...................... 598,832 583,972 655,771 359,310 213,854</TABLE>

----------

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



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

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

We are the nation's leading dairy processor and distributor, producing afull line of company-branded and customer-branded dairy products such as fluidmilk, ice cream and novelties, coffee creamers, half-and-half, whipping cream,sour cream, cottage cheese and yogurt. We also manufacture and distribute fruitjuices and other flavored drinks, bottled water and coffee, and have holdings inthe consumer goods packaging industry. We currently have two reportable businesssegments, including Suiza Dairy Group and Morningstar Foods.

RESULTS OF OPERATIONS

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

<TABLE><CAPTION>

YEAR ENDED DECEMBER 31,-----------------------------------------------------------------------------

2000 1999 1998----------------------- ----------------------- -----------------------DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT

---------- ---------- ---------- ---------- ---------- ----------(DOLLARS IN THOUSANDS)

<S> <C> <C> <C> <C> <C> <C>Net sales ..................................... $5,756,303 100.0% $4,481,999 100.0% $3,320,940 100.0%Cost of sales ................................. 4,330,067 75.2 3,487,075 77.8 2,557,908 77.0

---------- ---------- ---------- ---------- ---------- ----------Gross profit .................................. 1,426,236 24.8 994,924 22.2 763,032 23.0Operating costs and expenses:

Selling and distribution .................... 812,274 14.1 518,962 11.5 376,928 11.4General and administrative .................. 182,570 3.2 148,009 3.3 112,169 3.4Amortization of intangibles ................. 52,441 0.9 38,513 0.9 31,479 0.9Plant closing and other costs ............... 3,388 0.1 12,566 0.3Litigation settlement costs ................. 7,500 0.1

---------- ---------- ---------- ---------- ---------- ----------Total operating costs and expenses ............ 1,058,173 18.4 718,050 16.0 520,576 15.7

---------- ---------- ---------- ---------- ---------- ----------Operating income .............................. $ 368,063 6.4% $ 276,874 6.2% $ 242,456 7.3%

========== ========== ========== ========== ========== ==========</TABLE>

During the first half of 2000, we sold our European packaging business. OnJuly 2, 1999 we sold our U.S. plastic packaging operations to ConsolidatedContainer Company, in exchange for cash and a 43.1% interest in ConsolidatedContainer. This is our only remaining packaging investment. We account for ourinvestment in Consolidated Container under the equity method of accounting. As aresult, the sales and operating expenses of Consolidated Container subsequent toJuly 2, 1999 are not included in the table presented above, but are insteadcondensed onto a single line below operating income (see discussion below under"Other Income and Expense").

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

Net Sales -- Net sales increased 28.4% to $5.76 billion during 2000 from$4.48 billion in 1999. Excluding the effect of our packaging operations, salesincreased by $1.72 billion, or 43.1%, in 2000. Net sales for Suiza Dairy Groupincreased by $1.56 billion, or 50.2%, in 2000 compared to 1999 mainly due toacquisitions, particularly the acquisition of Southern Foods Group. Net salesfor Morningstar Foods increased by $49.1 million, or 7.5%, in 2000 due toincreased sales of higher priced products.

Cost of Sales -- Our cost of sales ratio was 75.2% in 2000 compared to 77.8%in 1999. The cost of sales ratio for Suiza Dairy Group decreased to 75.9% in2000 from 79.6% in 1999. This ratio improved due to improved performance atdairies owned more than twelve months, lower raw material costs and becauseSouthern Foods Group, which we acquired effective January 1, 2000, has a lowercost of sales ratio than our existing dairies. The customer base of SouthernFoods Group is somewhat different from our other dairies, which requiresSouthern Foods Group to charge higher prices to cover higher distribution costs.The cost of sales ratio for Morningstar Foods improved to 66.8% in 2000 from69.0% in 1999 due to an increased emphasis on cost-savings initiatives, as wellas increased sales of higher margin products.

Operating Costs and Expenses -- Our operating expense ratio was 18.4% in



2000 compared to 16.0% in 1999. The operating expense ratio at Suiza Dairy Groupwas 17.9% in 2000 compared to 15.1% in 1999. This ratio increased due to higherdistribution costs at Southern Foods Group as a result of their extensive directstore delivery routes in rural areas and due to increased distribution costs in2000 because of higher fuel costs. These cost increases were partly offset by a$3.6 million pre-tax gain in the second quarter of 2000 related to thecurtailment of certain defined benefit plans. Included in operating costs inSuiza Dairy Group in 2000 are plant closing costs of $2.1 million and litigationsettlement costs of $7.5 million. For more information regarding the litigationsettlement costs, see Note 3 to our Consolidated Financial Statements. In 1999,plant closing costs amounted to $8.7 million.

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The operating expense ratio at Morningstar Foods was 18.9% in 2000 comparedto 18.2% in 1999. This ratio increased due to higher marketing expenses in 2000related to new products. In 1999, plant closing costs amounted to $0.5 million.

Operating Income -- Operating income in 2000 was $368.1 million, an increaseof 32.9% from 1999 operating income of $276.9 million. Excluding the effect ofour packaging operations, our operating income in 2000 increased $141.2 millionor 62.3%. Our operating income margin increased to 6.4% in 2000 compared to 6.2%in 1999 (5.7% excluding the contribution of our packaging operations in 1999).Operating margin in Suiza Dairy Group improved to 6.2% in 2000 from 5.3% in1999. This increase is due primarily to improved performance at dairies ownedmore than twelve months. Morningstar Foods' operating margin improved to 14.3%in 2000 from 12.8% in 1999 due to increased sales of higher margin products.

Other Income and Expense -- Total other expense increased in 2000 by $50.3million. Interest expense increased to $112.6 million in 2000 from $49.2 millionin 1999. This increase is due to additional debt used to finance acquisitionsand also as a result of higher interest rates. Financing charges on preferredsecurities decreased to $33.6 million in 2000 from $38.6 million in 1999 as aresult of the redemption of $100.0 million of 5.0% preferred securities held byDairy Farmers of America on January 1, 2000 in connection with our acquisitionof Southern Foods Group.

Income from investments in unconsolidated affiliates, which is primarilyrelated to our minority interest in Consolidated Container Company, amounted to$11.5 million in 2000. These earnings included $0.8 million, representing ourproportional share of a favorable adjustment to previously recordedrestructuring charges at Consolidated Container Company. During 1999 we reported$2.6 million in income from investments in unconsolidated subsidiaries,primarily Consolidated Container Company.

Income Taxes -- Income tax expense was recorded at an effective rate of38.6% in 2000 compared to 39.1% during 1999. This decrease was a result of thesale of our U.S. packaging operations, which had a higher effective tax ratethan our dairy operations, and certain tax saving initiatives implemented during2000.

Minority Interest -- Minority interest in earnings increased to $29.9million in 2000 from $8.8 million in 1999. Effective January 1, 2000 we enteredinto a joint venture with Dairy Farmers of America into which we contributed ourdomestic fluid dairy operations and Dairy Farmers of America contributed theoperations of Southern Foods Group and their interests in certain other jointventures with us. Dairy Farmers of America received a 33.8% ownership interestin the joint venture, which is shown as a minority interest on our consolidatedfinancial statements. During 1999, minority interest in earnings consistedprimarily of Dairy Farmers of America's ownership interests in our jointventures with them.

Extraordinary Gain -- During the first quarter of 2000 we recognized a $5.0million extraordinary gain, net of income tax expense of $2.8 million, whichincluded the following items related to the early extinguishment of our previoussenior credit facility:

o A $6.5 million gain, net of income tax expense of $3.6 million, forinterest rate derivatives which became unhedged and were marked to fairmarket value, and

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

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Net Sales -- Our net sales increased by $1.16 billion or 35% in 1999compared to 1998, primarily as a result of acquisitions. Excluding $244.9million and $325.0 million in revenues recorded by our U.S. packaging operationsin 1999 and 1998, respectively, sales increased $1.24 billion or 41.5%. Netsales for Suiza Dairy Group increased by $1.14 billion, or 58.2%, in 1999



compared to 1998 mainly due to acquisitions in the northeastern United Statesand to growth in our existing businesses. Net sales for Morningstar Foodsincreased by $43.4 million, or 7.1%, in 1999 primarily due to increased sales ofhigher priced products such as branded coffee creamers.

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Cost of Sales -- Our cost of sales ratio was 77.8% in 1999 compared to 77.0%in 1998. This ratio increased due to the sale of our U.S. packaging operations,which had a lower cost of sales ratio. The cost of sales ratio for Suiza DairyGroup was 79.6% in 1999 compared to 78.5% in 1998. This increase was due tohigher costs of sales in newly acquired businesses. The cost of sales ratio forMorningstar Foods improved to 69.0% in 1999 from 72.4% in 1998 due to increasedvolume of higher margin branded products.

Operating Costs and Expenses -- Our operating expense ratio was 16.0% in1999 compared to 15.7% in 1998. The operating expense ratio at Suiza Dairy Groupwas 15.1% in 1999 compared to 14.2% in 1998. This increase was primarily theresult of $8.7 million in plant closing and other costs. We incurred these plantclosing and other costs in order to operate more efficiently. Excluding thesecharges, our operating expense ratio was equivalent to 1998 levels. Theoperating expense ratio at Morningstar Foods was 18.2% in 1999 compared to 16.6%in 1998. This ratio increased due to higher distribution and marketing expensesin 1999 and to plant closing costs of $0.5 million.

Operating Income -- Our operating income in 1999 was $276.9 million, anincrease of $34.4 million or 14.2% from 1998 operating income of $242.5 million.Our operating income margin decreased to 6.2% in 1999 from 7.3% in 1998. On acomparable basis, excluding

o $12.6 million in plant closing and other nonrecurring charges in 1999,and

o operating income of $36.2 million and $45.2 million generated by ourU.S. packaging operations in 1999 and 1998, respectively,

our operating income in 1999 was $253.3 million, an increase of $56.0 million or28.4% compared to 1998 operating income of $197.3 million. Making the sameadjustments, our operating margin was 6.0% in 1999 compared to 6.6% in 1998.Operating margin in Suiza Dairy Group decreased to 5.3% in 1999 from 6.2% in1998 due to the plant closing costs noted above and due to lower operatingincome margins at newly acquired companies. Dairies owned more than 12 monthsincreased operating margins by 0.57%. Morningstar Foods' operating marginimproved to 12.8% in 1999 from 11.0% in 1998 due to increased sales of highermargin products.

Other Income and Expense -- Our interest expense decreased to $49.2 millionin 1999 from $52.1 million in 1998 due to the elimination of approximately $500million of debt following the sale of our U.S. packaging operations, partiallyoffset by additional debt incurred to pay for acquisitions and stock repurchasestotaling approximately $428.8 million. Financing charges on our trust issuedpreferred securities amounted to $38.6 million in 1999 compared to $30.2 millionin 1998, reflecting a full year of these charges in 1999 as compared to onlypart of the year in 1998.

Income from investments in unconsolidated affiliates, which was primarilyrelated to our minority interest in Consolidated Container Company during thelast two quarters of 1999, amounted to $2.6 million. These earnings were net of$4.9 million representing our proportional share of restructuring and othernon-recurring charges related to the integration and rationalization ofConsolidated Container Company's operations.

Income Taxes -- Income tax expense was recorded at an effective rate of39.1% for 1999 compared with 36.4% in 1998. The increase in the rate was dueprimarily to a lower of level of earnings in Puerto Rico in 1999, where we havethe benefit of lower tax rates and higher foreign taxes from a full year ofContinental Can foreign operations in 1999 compared to only 7 months in 1998.

Discontinued Operations and Extraordinary Items -- In 1998, we reported aloss from discontinued operations of $3.2 million, net of an income tax benefitof $2.1 million, related to our packaged ice operations which were sold on April30, 1998.

Extraordinary items included:

o the sale of our packaged ice business in April 1998 resulting in a $35.5million gain, net of income tax expense of $22.0 million, and

o the recording of a $3.8 million loss, net of an income tax benefit of$2.3 million, from the write-off of deferred financing costs and therecognition of interest rate swap losses in connection with the early



extinguishment of the term portion of our credit facility in May 1998.

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o the recording of an additional gain of $0.9 million, net of income taxesof $0.5 million, in the fourth quarter of 1999 when contingenciesrelated to the sale of our packaged ice operations in 1998 were resolvedfavorably.

LIQUIDITY AND CAPITAL RESOURCES

Historical Cash Flow

During 2000, we met our working capital needs with cash flow from operationsalong with borrowings under the Suiza Dairy Group credit facility. Net cashprovided by continuing operations was $297.7 million for 2000 as contrasted to$283.5 million for 1999, an increase of $14.2 million. Net income plus non-cashitems increased by $83.5 million in 2000 compared to 1999, partially offset bychanges in working capital components of $69.3 million in 2000 compared to theprevious year. Net cash used in investing activities was $380.3 million in 2000compared to $38.0 million in 1999. Cash paid for acquisitions was $336.0 millionin 2000, an increase of $100.1 million over 1999, offset by $89.0 million ofcash proceeds from divestitures as compared to $383.1 million in 1999.

During 2000, we spent a total of $148.5 million on stock repurchases underour open market stock repurchase program, which we funded with borrowings underour receivables-backed loan, cash flow from operations and cash flow fromdivestitures. From January 1, 2001 through March 5, 2001, we have repurchasedand effectively retired 123,334 shares of our stock for a total purchase priceof approximately $6.1 million, all of which has been funded with cash flow fromoperations. For more information about our stock repurchase program, please seeNote 13 to our Consolidated Financial Statements.

We have not made any significant acquisitions during 2001 to date.

Current Debt Obligations

Effective January 1, 2000, in connection with our acquisition of SouthernFoods Group, we entered into a joint venture with Dairy Farmers of America. Wecontributed our domestic fluid dairy operations (not including our MorningstarFoods and Puerto Rico operations) and Dairy Farmers of America contributed theoperations of Southern Foods Group, as well as its interests in certain otherjoint ventures with us, to form Suiza Dairy Group. In exchange for ourcontribution we received a 66.2% ownership in Suiza Dairy Group. We report theresults of Suiza Dairy Group in our Consolidated Financial Statements. DairyFarmers of America's portion of Suiza Dairy Group's income, cash flows, assetsand liabilities is shown as a minority interest on our Consolidated FinancialStatements.

Simultaneously with the closing of this transaction, Suiza Dairy Groupentered into a new $1.61 billion credit facility and borrowed approximately $1.1billion under this new facility. Suiza Dairy Group distributed a portion of theborrowings under the new credit facility to DFA and to us.

We used our portion of the distributed funds to repay certain existingobligations, including our then existing senior credit facility which weterminated and replaced with a new $300 million parent-level credit facility. Wealso redeemed $100 million aggregate stated amount of mandatorily redeemabletrust issued preferred securities held by Dairy Farmers of America, and assumedapproximately $113.8 million of outstanding debt of Southern Foods Group. As aresult of the acquisition, we were required to offer to repurchase these seniornotes at 101% of face value. All senior notes were tendered and were redeemed onMarch 24, 2000.

As a result of these transactions, we now have two senior credit facilities,one at the parent level and one at the Suiza Dairy Group level.

At December 31, 2000, Suiza Dairy Group had outstanding borrowings of $1.10billion under its senior credit facility. In addition, $17.8 million of lettersof credit secured by the Suiza Dairy Group credit facility were issued butundrawn. As of December 31, 2000, approximately $497.2 million was available forfuture borrowings under this credit facility, subject to satisfaction of certainconditions contained in the loan agreement.

We had no debt outstanding under our parent-level credit facility; however,$4.0 million of letters of credit secured by that facility were issued butundrawn.

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On June 30, 2000, we obtained a receivable-backed loan in the amount of $150million. Pursuant to this transaction, we have pledged these receivables to amulti-seller asset-backed conduit sponsored by a major financial institution. Inreturn, we obtained $150 million in proceeds which we distributed to oursubsidiaries, Suiza Dairy Group and Morningstar Foods. Suiza Dairy Group usedits proceeds to pay down higher cost borrowings under its credit facility. InFebruary 2001 we increased the amount of this loan from $150 million to $175million and again used the proceeds to pay down higher cost debt.

Future Capital Requirements

We intend to invest a total of approximately $150 million in capitalexpenditures for our existing manufacturing facilities and distributioncapabilities during 2001, which we intend to fund using cash flow fromoperations.

We expect that cash flow from operations will be sufficient to meet ourrequirements for our existing businesses for the foreseeable future. In thefuture, we may pursue additional acquisitions that are compatible with our corebusiness strategy. Any acquisitions of fluid dairy businesses in the UnitedStates (excluding territories) will be purchased through Suiza Dairy Group,pursuant to our agreement with Dairy Farmers of America, except in certainunusual circumstances. Therefore, any such acquisitions will be funded under theSuiza Dairy Group credit facility. Working capital requirements for Suiza DairyGroup and its subsidiaries will also be funded through this facility. Anyinternational acquisitions, or domestic acquisitions of non-fluid dairybusinesses, as well as all stock repurchases, will be funded through cash flowsfrom operations or the parent-level credit facility. We financed a portion ofthe purchase price for our acquisition of a majority interest in Leche Celtawith low-cost borrowings in Spain. We may use similar types of financing in anyfuture international acquisitions. We believe that we have the ability to secureadditional financing for our future capital requirements.

Preferred Securities

On February 20, 1998, we issued $100 million of company-obligated 5%mandatorily redeemable convertible preferred securities of a subsidiary trust aspart of the consideration paid to acquire Land-O-Sun. These securities weresubsequently redeemed as part of the Southern Foods transaction on January 4,2000.

On March 24, 1998, we issued $600 million of company-obligated 5.5%mandatorily redeemable convertible preferred securities of a subsidiary trust ina private placement transaction, the proceeds of which were primarily used torepay amounts outstanding under our senior credit facility. These preferredsecurities mature 30 years from the date of issue.

The remaining preferred securities have quarterly distributions payable at arate of 5.5% per annum, and have a liquidation preference of $50 per security.Distributions may be deferred for up to 20 consecutive quarters. The preferredsecurities are convertible, at the option of the holder thereof, into anaggregate of approximately 7.7 million shares of our common stock.

The preferred securities are redeemable, at our option, at any time afterMarch 24, 2001 at specified amounts and are mandatorily redeemable at theirliquidation preference amount of $50 per share at maturity on March 24, 2028 orupon the occurrence of certain specified events.

We have fully guaranteed all of the subsidiary trust obligations under thepreferred securities, to the extent the subsidiary trust has funds on handavailable therefor. We also agreed to register the resale of the common stockissuable upon conversion of the preferred securities under certaincircumstances.

KNOWN TRENDS AND UNCERTAINTIES

Tax Rate

Our 2000 tax rate was approximately 38.6%. We believe that our effective taxrate will range from 37% to 40% for the next several years. Our effective taxrate is affected by various tax advantages applicable to our Puerto Rico basedoperations, which will phase out in 2002. Any additional acquisitions couldchange this effective tax rate.

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Rationalization Activities

As a result of our rapid growth in recent years, we have had, and we believe



we will continue to have, many opportunities to lower costs and become moreefficient in our operations by rationalizing our assets and work force. Ourstrategy has been to expand our dairy businesses primarily through acquisitionsand then to consolidate these acquisitions into our existing dairies.

For more information about these activities to date, please see Note 17 toour Consolidated Financial Statements. In 2001 we intend to continue ouremphasis on our rationalization activities. As we continue these activities, wemay incur costs or other charges. Although we cannot estimate the amount ofthese costs or other charges at this time, we do not expect that these costswill have a material adverse impact on our earnings or results of operations. Wealso expect that our earnings from our 43.1% equity investment in ConsolidatedContainer Company will continue to be reduced by our share of restructuring andother non-recurring charges recognized by Consolidated Container as theycontinue to integrate the operations of our former U.S. plastic packagingbusiness and the business of Reid Plastics. Although we cannot estimate theeffect of these charges on our earnings at this time, we do not expect thesecosts to have a material adverse impact on our earnings or results ofoperations.

Euro Currency Conversion

Companies conducting business in or having transactions denominated incertain European currencies are facing the European Union's conversion to a newcommon currency, the "euro." This conversion is expected to be implemented overa three year period ending December 31 of this year. On January 1, 1999, theeuro became the official currency for accounting and tax purposes of severalcountries of the European Union and the exchange rate between the euro and localcurrencies was fixed. In 2002, the euro will replace the individual nation'scurrencies. Since we have operations in Europe, the conversion to the euro willhave an effect on us. We currently believe that there will be no materialadverse impact of the conversion on our operations or financial performance.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

Market risk represents the risk of loss that may impact our consolidatedfinancial position, results of operations or cash flows. We are exposed tomarket risk in the areas of interest rates and foreign currency exchange rates.

INTEREST RATE FLUCTUATIONS

Our exposure to market risk for changes in interest rates relates primarilyto our debt obligations. We manage interest rate risk to reduce the potentialvolatility of earnings that may arise from changes in interest rates through theuse of interest rate derivative agreements.

We have interest rate derivative agreements in place, including interestrate swaps and collars that have been designated as hedges against our variableinterest rate exposure on our loans under the Suiza Dairy Group credit facility.The following table summarizes our various interest rate agreements as ofDecember 31, 2000:

<TABLE><CAPTION>

TYPE INTEREST RATE LIMITS NOTIONAL AMOUNTS EXPIRATION DATES---- -------------------- ---------------- ---------------------------

<S> <C> <C> <C>

Swaps ..................... 6.07% to 6.14% $ 250.0 million December 200225.0 million December 2003

Collars ................... 6.08% and 7.50% 100.0 million December 2002 to June 2003</TABLE>

These derivative agreements provide hedges for loans under Suiza DairyGroup's credit facility by limiting or fixing the LIBOR interest rates specifiedin the Suiza Dairy Group credit facility at the interest rates noted above untilthe indicated expiration dates of these interest rate derivative agreements.

These derivative agreements were previously designated as hedges forborrowings under our terminated senior credit facility. In connection with therepayment of amounts owed under our terminated senior credit facility thesederivative agreements were marked to fair market value, which resulted in a gainof $6.5 million, net of income taxes, which, along with a loss from thewrite-off of unamortized deferred loan costs related to this facility wasreported as an extraordinary gain from the extinguishment of debt during thefirst quarter of 2000. These

22



25

derivative agreements have been redesignated as hedges under the Suiza DairyGroup credit facility and their recorded asset value is being amortized on astraight-line basis over the remaining lives of the respective agreements. Theamortization is reported as a component of total consolidated interest expense.

We also entered into certain additional interest rate swap agreements with anotional amount of $550.0 million in the fourth quarter of 2000, which areintended to provide hedges against variable interest rate exposure on loansunder Suiza Dairy Group's credit facility. These agreements, which becameeffective January 2, 2001, are interest rate swaps with an interest range of6.44% to 6.78% expiring between December 2001 and December 2006.

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

<TABLE><CAPTION>

Type Interest Rate Limits Notional Amounts Expiration Date---- -------------------- ---------------- ---------------

<S> <C> <C> <C>November 23, 2000 5.54% 1,500,000,000 pesetas (approximately $8.4 November 2003

million)

November 23, 2000 5.6% 2,000,000,000 pesetas (approximately November 2004$11.2 million)

</TABLE>

We are exposed to market risk under these arrangements due to thepossibility of interest rates on our credit facilities falling below the rateson our interest rate derivative agreements. Credit risk under these arrangementsis remote since the counterparties to our interest rate derivative agreementsare major financial institutions.

A portion of our debt obligations are at variable rates. We have performed asensitivity analysis assuming a hypothetical 10% adverse movement in interestrates. As of December 31, 2000, the analysis indicated that such interest ratemovement would not have a material effect on our financial position, results ofoperations or cash flows. However, actual gains and losses in the future maydiffer materially from that analysis based on changes in the timing and amountof interest rate movement and our actual exposure and hedges.

FOREIGN CURRENCY

We are exposed to foreign currency risk due to operating cash flows andvarious financial instruments that are denominated in foreign currencies. Ourmost significant foreign currency exposures relate to the Spanish peseta and theeuro. At this time, we believe that potential losses due to foreign currencyfluctuations would not have a material impact on our consolidated financialposition, results of operations or operating cash flow.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS

Our Consolidated Financial Statements for 2000 are included in this reporton the following pages.

<TABLE><CAPTION>

PAGE----

<S> <C>Independent Auditors' Report .................................................................. F-1Consolidated Balance Sheets as of December 31, 2000 and 1999 .................................. F-2Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 ........ F-3Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000,

1999 and 1998 .............................................................................. F-4Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 .... F-5Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies .............................................. F-62. Acquisitions ............................................................................ F-83. Subsequent Events ....................................................................... F-104. Extraordinary Gains and Losses and Discontinued Operations .............................. F-105. Investments in Unconsolidated Affiliates ................................................ F-106. Inventories ............................................................................. F-117. Property, Plant and Equipment ........................................................... F-128. Intangible and Other Assets ............................................................. F-129. Accounts Payable and Accrued Expenses ................................................... F-12

</TABLE>

23



26

<TABLE><CAPTION>

PAGE----

<S> <C>10. Income Taxes ............................................................................ F-1211. Long-Term Debt .......................................................................... F-1412. Mandatorily Redeemable Trust Issued Preferred Securities ................................ F-1713. Stockholders' Equity .................................................................... F-1714. Other Comprehensive Income .............................................................. F-2015. Employee Retirement and Profit Sharing Plans ............................................ F-2016. Postretirement Benefits Other Than Pensions ............................................. F-2217. Plant Closing and Other Costs ........................................................... F-2318. Supplemental Cash Flow Information ...................................................... F-2519. Commitments and Contingencies ........................................................... F-2520. Fair Value of Financial Instruments ..................................................... F-2621. Business and Geographic Information and Major Customers ................................. F-2622. Quarterly Results of Operations (unaudited) ............................................. F-28

</TABLE>

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INDEPENDENT AUDITORS' REPORT

To the Board of DirectorsSuiza Foods CorporationDallas, Texas

We have audited the accompanying consolidated balance sheets of Suiza FoodsCorporation and subsidiaries (the "Company") as of December 31, 2000 and 1999,and the related consolidated statements of income, stockholders' equity and cashflows for each of the three years in the period ended December 31, 2000. Theseconsolidated financial statements are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

We conducted our audits in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we planand perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the consolidated financial position ofSuiza Foods Corporation and subsidiaries as of December 31, 2000 and 1999, andthe results of their operations and their cash flows for each of the three yearsin the period ended December 31, 2000, in conformity with accounting principlesgenerally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Dallas, TexasFebruary 8, 2001(March 30, 2001 as to Note 3)

F-1

28

SUIZA FOODS CORPORATION

CONSOLIDATED BALANCE SHEETS(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE><CAPTION>



DECEMBER 31,------------------------------

2000 1999----------- -----------

<S> <C> <C>ASSETS

Current assets:Cash and cash equivalents .................................................... $ 31,110 $ 25,155Receivables, net of allowance for doubtful accounts of

$24,171 and $18,849 ........................................................ 519,318 379,070Inventories .................................................................. 186,713 182,321Refundable income taxes ...................................................... 3,925 3,514Deferred income taxes ........................................................ 54,634 27,005Prepaid expenses and other current assets .................................... 22,231 22,342

----------- -----------Total current assets ................................................. 817,931 639,407

Property, plant and equipment .................................................. 1,003,769 758,485Intangible and other assets .................................................... 1,958,778 1,261,030

----------- -----------Total ................................................................ $ 3,780,478 $ 2,658,922

=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:Accounts payable and accrued expenses ........................................ $ 567,342 $ 441,792Income taxes payable ......................................................... 4,342 14,654Current portion of long-term debt ............................................ 128,224 22,671

----------- -----------Total current liabilities ............................................ 699,908 479,117

Long-term debt ................................................................. 1,225,045 689,397Other long-term liabilities .................................................... 34,202 34,858Deferred income taxes .......................................................... 123,614 46,323Mandatorily redeemable convertible trust issued preferred securities

(redemption value of $599,945 and $700,000 plus accrued dividends) ........... 584,032 683,505Minority interest in subsidiaries .............................................. 514,845 141,750Commitments and contingencies (Note 19)Stockholders' equity:

Preferred stock, none issuedCommon stock, 27,285,649 and 29,287,558 shares issued and outstanding,

with a par value of $0.01 per share ....................................... 273 293Additional paid-in capital ................................................... 166,361 275,527Retained earnings ............................................................ 433,309 314,590Accumulated other comprehensive loss ......................................... (1,111) (6,438)

----------- -----------Total stockholders' equity ........................................... 598,832 583,972

----------- -----------Total ................................................................ $ 3,780,478 $ 2,658,922

=========== ===========</TABLE>

See notes to consolidated financial statements.

F-2

29


CONSOLIDATED STATEMENTS OF INCOME(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE><CAPTION>

YEARS ENDED DECEMBER 31,----------------------------------------------------

2000 1999 1998------------ ------------ ------------

<S> <C> <C> <C>Net sales .................................................. $ 5,756,303 $ 4,481,999 $ 3,320,940Cost of sales .............................................. 4,330,067 3,487,075 2,557,908

------------ ------------ ------------Gross profit ............................................... 1,426,236 994,924 763,032Operating costs and expenses:

Selling and distribution ................................. 812,274 518,962 376,928General and administrative ............................... 182,570 148,009 112,169Amortization of intangibles .............................. 52,441 38,513 31,479Plant closing and other costs ............................ 3,388 12,566Litigation settlement costs .............................. 7,500



------------ ------------ ------------Total operating costs and expenses ............... 1,058,173 718,050 520,576

------------ ------------ ------------Operating income ........................................... 368,063 276,874 242,456Other (income) expense:

Interest expense, net .................................... 112,586 49,233 52,082Financing charges on trust issued preferred securities ... 33,595 38,584 30,213Equity in earnings of unconsolidated affiliates .......... (11,453) (2,630) (78)Other income, net ........................................ (630) (1,416) (4,212)

------------ ------------ ------------Total other expense .............................. 134,098 83,771 78,005

------------ ------------ ------------Income from continuing operations before income taxes ...... 233,965 193,103 164,451Income taxes ............................................... 90,303 75,463 59,823Minority interest in earnings .............................. 29,911 8,813 1,559

------------ ------------ ------------Income from continuing operations .......................... 113,751 108,827 103,069Loss from discontinued operations .......................... (3,161)

------------ ------------ ------------Income before extraordinary gain ........................... 113,751 108,827 99,908Extraordinary gain ......................................... 4,968 904 31,698

------------ ------------ ------------Net income ................................................. $ 118,719 $ 109,731 $ 131,606

============ ============ ============Net income applicable to common stock ...................... $ 118,719 $ 109,731 $ 131,369

============ ============ ============Basic earnings per common share:

Income from continuing operations ........................ $ 4.03 $ 3.31 $ 3.12Loss from discontinued operations ........................ (0.10)Extraordinary gain ....................................... .18 .03 0.96

------------ ------------ ------------Net income ............................................... $ 4.21 $ 3.34 $ 3.98

============ ============ ============Diluted earnings per common share:

Income from continuing operations ........................ $ 3.68 $ 3.11 $ 2.90Loss from discontinued operations ........................ (0.08)Extraordinary gain ....................................... .14 .02 0.76

------------ ------------ ------------Net income ............................................... $ 3.82 $ 3.13 $ 3.58

============ ============ ============Average common shares -- Basic ............................. 28,195,043 32,861,218 32,953,290

============ ============ ============Average common shares -- Diluted ........................... 36,671,264 42,858,492 41,965,564

============ ============ ============</TABLE>


F-3

30SUIZA FOODS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>

PREFERREDSTOCK COMMON STOCK ADDITIONAL

----------- -------------------------- PAID-IN RETAINEDAMOUNT SHARES AMOUNT CAPITAL EARNINGS

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

<S> <C> <C> <C> <C> <C>Balance, January 1, 1998 ........... $ 3,741 30,614,037 $ 306 $ 281,773 $ 73,490

Issuance of common stock ......... 4,494,437 45 210,443Purchase and retirement of

treasury stock.................. (1,510,400) (15) (45,986)Repurchase of 11,691 shares

of preferred stock ............. (3,741)Dividends on preferred stock ..... (237)Net income ....................... 131,606Other comprehensive income

(Note 14):Cumulative translation

adjustment......................Minimum pension liability

adjustment......................

Comprehensive income .............----------- ----------- ----------- ----------- -----------



Balance, December 31, 1998 ......... -- 33,598,074 336 446,230 204,859Issuance of common stock ......... 1,106,207 11 27,382Purchase and retirement of

treasury stock.................. (5,416,723) (54) (198,085)Net income ....................... 109,731Other comprehensive income


adjustment......................


Balance, December 31, 1999 ......... -- 29,287,558 293 275,527 314,590Issuance of common stock ......... 1,279,956 13 39,327Purchase and retirement of

treasury stock.................. (3,281,865) (33) (148,493)Net income ....................... 118,719Other comprehensive income


adjustment......................


Balance, December 31, 2000 ......... -- 27,285,649 $ 273 $ 166,361 $ 433,309=========== =========== =========== =========== ===========

<CAPTION>ACCUMULATED

OTHERCOMPREHENSIVE TOTAL

INCOME STOCKHOLDERS' COMPREHENSIVE(LOSS) EQUITY INCOME

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

<S> <C> <C> <C>Balance, January 1, 1998 ........... $ 359,310

Issuance of common stock ......... 210,488Purchase and retirement of

treasury stock.................. (46,001)Repurchase of 11,691 shares

of preferred stock ............. (3,741)Dividends on preferred stock ..... (237)Net income ....................... 131,606 $ 131,606Other comprehensive income


adjustment...................... $ 4,273 4,273 4,273Minimum pension liability

adjustment...................... 73 73 73-----------

Comprehensive income ............. $ 135,952----------- ----------- ===========

Balance, December 31, 1998 ......... 4,346 655,771Issuance of common stock ......... 27,393Purchase and retirement of

treasury stock.................. (198,139)Net income ....................... 109,731 $ 109,731Other comprehensive income


adjustment...................... (10,784) (10,784) (10,784)-----------


Balance, December 31, 1999 ......... (6,438) 583,972Issuance of common stock ......... 39,340Purchase and retirement of

treasury stock.................. (148,526)Net income ....................... 118,719 $ 118,719Other comprehensive income


adjustment...................... 5,327 5,327 5,327-----------


Balance, December 31, 2000 ......... $ (1,111) $ 598,832=========== ===========

</TABLE>


F-4



31


CONSOLIDATED STATEMENTS OF CASH FLOWS(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>

YEARS ENDED DECEMBER 31,-------------------------------------------------

2000 1999 1998----------- ----------- -----------

<S> <C> <C> <C>Cash flows from operating activities:

Net income .............................................................. $ 118,719 $ 109,731 $ 131,606Adjustments to reconcile net income to net cash

provided by operating activities:Loss from discontinued operations .................................... 3,161Depreciation and amortization ........................................ 144,983 116,645 91,779(Gain) loss on disposition of assets ................................. 768 5,352 (53)Minority interest .................................................... 52,187 14,614 1,559Equity in earnings of unconsolidated affiliates ...................... (11,453) (2,630) (78)Extraordinary gain ................................................... (4,968) (904) (31,698)Deferred income taxes ................................................ 50,916 22,199 20,386Other ................................................................ 1,265 3,863 (711)Changes in operating assets and liabilities, net of acquisitions:

Receivables ........................................................ (43,104) 41,878 (49,065)Inventories ........................................................ (18,977) 22,709 (4,600)Prepaid expenses and other assets .................................. 2,321 (20,492) (1,284)Accounts payable and accrued expenses .............................. 6,344 (52,164) 24,481Income taxes ....................................................... (1,323) 22,704 22,998

----------- ----------- -----------Net cash provided by continuing operations ...................... 297,678 283,505 208,481Net cash used in discontinued operations ........................ (2,068)

----------- ----------- -----------Net cash provided by operating activities ....................... 297,678 283,505 206,413

----------- ----------- -----------Cash flows from investing activities:

Net additions to property, plant, and equipment ......................... (136,876) (187,642) (176,870)Cash outflows for acquisitions and investments .......................... (335,956) (235,837) (611,401)Net proceeds from the sale of discontinued operations ................... 172,732Net proceeds from divestitures .......................................... 89,037 383,112Other ................................................................... 3,542 2,383 1,369

----------- ----------- -----------Net cash used in continuing operations .......................... (380,253) (37,984) (614,170)Net cash used in discontinued operations ........................ (14,022)

----------- ----------- -----------Net cash used in investing activities ........................... (380,253) (37,984) (628,192)

----------- ----------- -----------Cash flows from financing activities:

Proceeds from issuance of debt .......................................... 1,284,492 538,995 965,820Repayment of debt ....................................................... (947,443) (631,065) (1,082,464)Payments of deferred financing costs .................................... (12,014) (1,256)Proceeds from issuance of minority interest ............................. 8,983Distributions to minority interest holders .............................. (16,438) (10,122)Issuance of common stock, net of expenses ............................... 28,514 16,060 37,808Redemption of common and preferred stock ................................ (148,526) (198,139) (49,742)Issuance of trust issued preferred securities, net of expenses .......... 582,500Redemption of trust issued preferred securities ......................... (100,055)Preferred dividends paid and other ...................................... (353)

----------- ----------- -----------Net cash provided by (used in) financing activities ............. 88,530 (275,288) 452,313

----------- ----------- -----------Increase (decrease) in cash and cash equivalents .......................... 5,955 (29,767) 30,534Cash and cash equivalents, beginning of period ............................ 25,155 54,922 24,388

----------- ----------- -----------Cash and cash equivalents, end of period .................................. $ 31,110 $ 25,155 $ 54,922

=========== =========== ===========</TABLE>


F-5

32




NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation -- Our consolidated financial statements include theaccounts of our wholly-owned and majority owned subsidiaries. All significantintercompany balances and transactions are eliminated in consolidation. We alsoown equity interests of less than 50% in certain companies that we do notcontrol which are accounted for in the consolidated financial statements usingeither the equity or cost method of accounting depending on our ownershipinterest. Under the equity method of accounting, our investments in theseaffiliates are presented as a single amount in our consolidated balance sheetsand our proportional share of their earnings are presented in our consolidatedstatements of income as a single line item in other income.

The preparation of our consolidated financial statements in conformity withgenerally accepted accounting principles requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period. Actual results could differ from these estimates.

Cash Equivalents -- We consider all highly liquid investments purchased witha remaining maturity of three months or less to be cash equivalents.

Inventories -- Inventories are stated at the lower of cost, using thefirst-in, first-out ("FIFO") method, or market. The costs of finished goodsinventories include raw materials, direct labor and indirect production andoverhead costs.

Property, Plant and Equipment -- Property, plant and equipment are stated atacquisition cost, along with capitalized interest on borrowings during theactual construction period of major capital projects. Also included in property,plant and equipment are certain direct costs related to the implementation ofcomputer software for internal use. Depreciation and amortization are providedusing the straight-line method over the estimated useful lives of the assets, asfollows:

<TABLE><CAPTION>

ASSET USEFUL LIFE---------------------------------- --------------------------

<S> <C>Buildings and improvements Seven to 40 yearsMachinery and equipment Three to 20 years

</TABLE>

Capitalized lease assets are amortized over the shorter of their lease termor their estimated useful lives. Expenditures for repairs and maintenance whichdo not improve or extend the life of the assets are expensed as incurred.

Intangible and Other Assets -- Intangible and other assets include thefollowing intangibles, which are amortized over their related estimated usefullives:

<TABLE><CAPTION>

ASSET USEFUL LIFE---------------------------------- ----------------------------------------------------------------------------

<S> <C>Goodwill Straight-line method over 25 to 40 yearsIdentifiable intangible assets:

Customer lists Straight-line method over seven to ten yearsCustomer supply contracts Straight-line method over the terms of the agreements (primarily 15 years)Trademarks/trade names Straight-line method over ten to 40 yearsNoncompetition agreements Straight-line method over the terms of the agreementsPatents Straight-line method over fifteen years

Deferred financing costs Interest method over the terms of the related debt</TABLE>

We periodically assess the net realizable value of our long-lived assets, aswell as all other assets, by comparing the expected future net operating cashflows, undiscounted and without interest charges, to the carrying

F-6



33

amount of the underlying assets. We would evaluate a potential impairment if therecorded value of these assets exceeded the associated future net operating cashflows. Any potential impairment loss would be measured as the amount by whichthe carrying value exceeds the fair value of the asset. Fair value of assetswould be measured by market value, if an active market exists, or by a forecastof expected future net operating cash flows, discounted at a rate commensuratewith the risk involved.

Foreign Currency Translation -- The financial statements of our foreignsubsidiaries are translated to U.S. dollars in accordance with the provisions ofStatement of Financial Accounting Standards ("SFAS") No. 52, "Foreign CurrencyTranslation." The functional currency of our foreign subsidiaries is generallythe local currency of the country. Accordingly, assets and liabilities of theforeign subsidiaries are translated to U.S. dollars at year-end exchange rates.Income and expense items are translated at the average rates prevailing duringthe year. Changes in exchange rates, which affect cash flows and the relatedreceivables or payables are recognized as transaction gains and losses in thedetermination of net income. The cumulative translation adjustment instockholders' equity reflects the unrealized adjustments resulting fromtranslating the financial statements of our foreign subsidiaries.

Minority Interest in Subsidiaries -- Minority interest in results ofoperations of consolidated subsidiaries represents the minority shareholders'share of the income or loss of various consolidated subsidiaries. The minorityinterest in the consolidated balance sheets reflect the original investment bythese minority shareholders in these consolidated subsidiaries, along with theirproportional share of the earnings or losses of these subsidiaries less anydistributions made.

Employee Stock Options and Restricted Stock -- We measure compensationexpense for our stock-based employee compensation plans using the intrinsicvalue method and provide the required pro forma disclosures of the effect on netincome and earnings per share as if the fair value-based method had been appliedin measuring compensation expense.

Revenue -- Revenue is recognized when the product is shipped to thecustomer. We provide credit terms to customers generally ranging up to 30 days,perform ongoing credit evaluation of our customers and maintain allowances forpotential credit losses based on historical experience.

Income Taxes -- All of our wholly-owned U.S. operating subsidiaries areincluded in our consolidated tax return. In addition, our proportional share ofthe operations of our majority owned subsidiaries and certain of our equitymethod affiliates, which are organized as limited liability companies or limitedpartnerships are also included in our consolidated tax return. Our Puerto Ricoand foreign subsidiaries are required to file separate income tax returns intheir local jurisdictions. Certain distributions from these subsidiaries aresubject to U.S. income taxes; however, available tax credits of thesesubsidiaries may reduce or eliminate these U.S. income tax liabilities.

Deferred income taxes are provided for temporary differences in theconsolidated financial statements and tax bases of assets and liabilities usingcurrent tax rates. Deferred tax assets, including the benefit of net operatingloss carryforwards, are evaluated based on the guidelines for realization andmay be reduced by a valuation allowance if deemed necessary.

Advertising Expense -- Advertising expense is comprised of media, agency andproduction expenses, along with coupon and customer advertising funds.Advertising expenses are charged to income during the period incurred, exceptfor expenses related to the development of a major commercial or media campaignwhich are charged to income during the period in which the advertisement orcampaign is first presented by the media. Advertising expenses charged to incometotaled $63.1 million in 2000, $43.5 million in 1999 and $28.9 million in 1998.Additionally, there were no prepaid advertising costs at December 31, 2000 andsuch costs were $1.7 million at December 31, 1999.

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

Interest Rate Agreements -- Interest rate swaps, caps and floors are enteredinto as hedges against interest exposure of our variable rate debt. Differencesbetween amounts to be paid or received on these interest rate agreementsdesignated as hedges are included in interest expense as payments are made orreceived. Gains or losses on agreements not designated as hedges are included inincome as incurred. Amounts paid to acquire

F-7



34

interest rate caps and amounts received for interest rate floors are amortizedas an adjustment to interest expense over the life of the related agreement.

Recently Issued Accounting Pronouncements -- Statement of FinancialAccounting Standards (SFAS) No. 133, Accounting for Derivative Instruments andHedging Activities (as amended) became effective for us as of January 1, 2001.All derivatives, which currently consist of only our interest rate agreements,have been identified pursuant to SFAS No. 133 requirements. We have completedour documentation and assessment of those derivatives designated as accountinghedges, all of which were determined to be cash flow hedges. As of the effectivedate, we will record the derivative asset or liability related to these cashflow hedges on our consolidated balance sheet at fair value, with an offset toother comprehensive income to the extent the hedge is effective, as required bySFAS No. 133. Any ineffectiveness in cash flow hedges or fair value hedges willbe recorded as an adjustment to earnings and not other comprehensive income. Ouradoption of this accounting standard as of January 1, 2001 will result in therecognition of a liability related to our cash flow hedges of $16.3 million, acharge, net of income taxes, of $2.2 million to earnings as the cumulativeeffect of the adoption of this new standard and a cumulative effect charge, netof income taxes, of $9.6 million to other comprehensive income.

In September 2000, the Emerging Issues Task Force ("Task Force") of theFinancial Accounting Standards Board reached a consensus on Issue No. 00-10,"Accounting for Shipping and Handling Fees and Costs," which became effectivefor us in the fourth quarter of 2000. This issue requires the disclosure of ouraccounting policies for shipping and handling costs and their income statementclassification. Our shipping and handling costs are included in both costs ofsales and selling and distribution expense, depending on the nature of suchcosts. Shipping and handling costs in costs of sales include the cost ofshipping products to customers through third party carriers, inventory warehousecosts and product loading and handling costs. Shipping and handling costs inselling and distribution expense consist primarily of route delivery costs forboth Company owned delivery routes and independent distributor routes, to theextent that such independent distributors are paid a delivery fee. Theseshipping and handling costs that were recorded as a component of selling anddistribution expense were approximately $614.1 million, $370.4 million and$268.1 million during 2000, 1999 and 1998 respectively.

The Task Force also reached a consensus on Issue No. 00-14, "Accounting forCertain Sales Incentives," which becomes effective for us in the second quarterof 2001. This issue addresses the recognition, measurement and income statementclassification of sales incentives that have the effect of reducing the price ofa product or service to a customer at the point of sale. Upon our adoption,certain sales incentives, which are currently classified as selling anddistribution expenses, will be reclassified as a reduction of sales. Our currentaccounting policy for recording sales incentives within the scope of this issueis to record estimated coupon expense based on historical coupon redemptionexperience which is consistent with the requirements of this issue, and weestimate that the costs of these sales incentives that are recorded as sellingand distribution expenses approximated $4.3 million, $2.1 million and $4.3million during 2000, 1999 and 1998, respectively.

Reclassifications -- Certain reclassifications have been made to conform theprior years' consolidated financial statements to the current yearclassifications.

2. ACQUISITIONS

Effective January 1, 2000 we entered into a joint venture with Dairy Farmersof America in which we contributed certain of our domestic fluid dairyoperations with certain of Dairy Farmers of America's operations into a newlyformed venture, Suiza Dairy Group, L.P. Dairy Farmers of America is a largefarmers' cooperative from which we purchase a significant portion of our rawmilk. In connection with this transaction, Suiza Dairy Group, L.P. issuedpartnership interests to Dairy Farmers of America of approximately $326 millionand made a cash payment to Dairy Farmers of America's partner in the amount of$100 million. Dairy Farmers of America received a 33.8% ownership interest inSuiza Dairy Group, L.P., in exchange for the contribution of the operations ofSouthern Foods Group which had net sales of approximately $1.3 billion in 1999,and for the contribution of its investments in its other joint ventures with us:Suiza GTL, LLC and Suiza SoCal, LLC. We received a 66.2% ownership interest inSuiza Dairy Group, L.P. in exchange for the contribution of our domestic fluiddairy operations (excluding our Puerto Rican operations and our MorningstarFoods subsidiary). Our ownership interest as well as Dairy Farmers of America'swas determined by negotiation between the parties. This transaction wasaccounted for as an acquisition by us of Southern Foods Group using the purchasemethod of accounting.

F-8



35In total, we completed the acquisitions of 27 dairy businesses and eight

packaging businesses during the last three years which included the followingacquisitions which were significant at the time of completion:

<TABLE><CAPTION>

DATE COMPANY SEGMENT PURCHASE PRICE---------------------- -------------------------- ---------------- ------------------

(IN THOUSANDS)<S> <C> <C> <C>

January 2000 Southern Foods Group Dairy $435,606February 1998 Land-O-Sun Dairies Dairy 248,000May 1998 Continental Can Packaging 354,400

</TABLE>

These acquisitions and the smaller dairy and packaging businesses acquiredwere funded primarily with borrowings under our credit facilities, along withthe issuance in 1999 and 1998 of 77,233 and 2,050,635 shares of our commonstock, respectively, with fair market values of $3.2 million and $138.5 million,respectively.

All acquisitions were accounted for using the purchase method of accountingas of their respective acquisition dates, and accordingly, only the results ofoperations of the acquired companies subsequent to their respective acquisitiondates are included in our consolidated financial statements. At the acquisitiondate, the purchase price was allocated to assets acquired, includingidentifiable intangibles, and liabilities assumed based on their fair marketvalues. The excess of the total purchase prices over the fair values of the netassets acquired represented goodwill. In connection with the acquisitions,assets were acquired and liabilities were assumed, subject to final purchaseprice adjustments, as follows:

<TABLE><CAPTION>

YEAR ENDED DECEMBER 31,-------------------------------------------

2000 1999 1998--------- --------- ---------

(IN THOUSANDS)<S> <C> <C> <C>Purchase prices:

Cash paid, net of cash acquired ......................................... $ 331,543 $ 230,611 $ 599,197Cash acquired in acquisitions ........................................... 6,327 9,976 24,353Common stock issued ..................................................... 3,193 138,547Subsidiary preferred and common securities issued and minority

partnership interests ................................................. 340,336 18,500 201,447--------- --------- ---------

Total purchase prices ........................................... 678,206 262,280 963,544Fair values of net assets acquired:

Fair values of assets acquired .......................................... 473,648 94,514 798,902Liabilities assumed ..................................................... (187,907) (21,273) (541,447)

--------- --------- ---------Total net assets acquired ....................................... 285,741 73,241 257,455

--------- --------- ---------Goodwill .................................................................. $ 392,465 $ 189,039 $ 706,089

========= ========= =========</TABLE>

The unaudited results of operations on a pro forma basis for the year endedDecember 31, 1999, as if the Southern Foods operations had been acquired as ofthe beginning of 1999 are as follows (in thousands, except per share data):

<TABLE><CAPTION>

---------------------------HISTORICAL PRO FORMA---------- ----------

<S> <C> <C>Net sales ....................................................... $4,481,999 $5,782,896Income from continuing operations before taxes .................. 193,103 217,152Net income from continuing operations ........................... 108,827 109,787Earnings per share from continuing operations:

Basic ........................................................ $ 3.31 $ 3.34Diluted ...................................................... $ 3.11 $ 3.16

</TABLE>

Since Southern Foods Group was acquired effective January 1, 2000, itsfull-year operating results are included in the consolidated financialstatements. However, on a pro forma basis, the 1999 acquisitions, net of thesale in 1999 of a majority interest in our U.S. plastic packaging operationsdiscussed in Note 5, do not have a material pro forma impact on net sales,income from continuing operations or net income for 1999.

Related Party Transactions -- During 2000, 1999 and 1998, we paid fees to a



former officer and director for acquisition consulting services related tocertain completed acquisitions totaling $3.9 million, $0.5 million and $5.1million, respectively, which have been capitalized as part of the purchase priceof the acquisitions.

F-9

36

3. SUBSEQUENT EVENT

Prior to our acquisition of West Lynn Creamery in June 1998, West LynnCreamery paid rebates to certain of its customers pursuant to a rebate programconducted by West Lynn Creamery between 1992 and 1997 (the "Rebate Program"). Asa result of allegations made by one or more of West Lynn's customers that WestLynn conspired with or aided these customers in evading payment of suchcustomers' federal income taxes through the use of the Rebate Program, theUnited States Department of Justice (the "DOJ") conducted an investigation ofthis matter. On March 30, 2001, we reached a final settlement of this matterwith the DOJ pursuant to which West Lynn Creamery will plead guilty to onecharge of conspiracy to impede the collection of taxes by the Internal RevenueService and will pay $7.2 million to the government. As a result, we haverecorded a charge of $7.5 million ($5.0 million net of minority interest) in thefourth quarter of 2000, which includes certain professional fees and expensesincurred in connection with this matter. This charge is reflected as "LitigationSettlement Costs" in our 2000 Consolidated Income Statement, and in "AccountsPayable and Accrued Expenses" in our Consolidated Balance Sheet as of December31, 2000.

4. EXTRAORDINARY GAINS AND LOSSES AND DISCONTINUED OPERATIONS

During the first quarter of 2000 we recognized a $5.0 million extraordinarygain, net of income tax expense of $2.8 million, which included the followingitems related to the early extinguishment of our previous senior creditfacility:

o A $6.5 million gain, net of income tax expense of $3.6 million, forinterest rate derivatives which became unhedged and were marked to fairmarket value, and

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

In the fourth quarter of 1999 we recorded a gain of $0.9 million, net ofincome taxes of $0.5 million, when contingencies related to the sale of ourpackaged ice operations in 1998 were resolved favorably.

On April 30, 1998, we completed the sale of our packaged ice operations fornet cash proceeds of approximately $172.7 million. We reported an extraordinarygain of $35.5 million from the sale of this operation, net of $22.0 million ofincome tax expense. Our packaged ice segment had revenues of approximately $17.9million during the four months ended April 30, 1998. The results of discontinuedoperations includes interest expense of $2.4 million during 1998. Interestcharges allocated to discontinued operations are based on debt specificallyattributed to our packaged ice operations. The results of discontinuedoperations are presented net of the related income tax benefit of $2.1 millionin 1998.

In 1998, an extraordinary loss of $3.8 million, net of a $2.3 million incometax benefit, was also recognized in connection with the early extinguishment ofthe term loan of our previous senior credit facility, and included losses fromthe write-off of deferred financing costs and interest rate swap losses.

5. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

Investment in Consolidated Container Company LLC -- On July 2, 1999, we solda majority interest in our U.S. plastic packaging operations to ConsolidatedContainer Company, which through a predecessor owned another plastic packagingbusiness. Pursuant to this transaction, we received a 43.1% common equityinterest in Consolidated Container Company in exchange for our common equityinterest in our U.S. plastic packaging operations, along with cash ofapproximately $364.0 million in connection with Consolidated Container Company'srefinancing of the intercompany debt and preferred stock investment that ourU.S. plastic packaging operations owed us. As a part of this transaction thesenior secured notes of Plastic Containers, Inc., a former subsidiary ofContinental Can, were assumed by Consolidated Container Company.



F-10

37

With the consummation of this transaction, the assets and liabilities andresults of operations of our formerly consolidated U.S. plastic packagingoperations were combined with those of Consolidated Container Company and wereeliminated from our consolidated financial statements. For all periods prior tothis date, our U.S. plastic packaging operations continue to be included in ourconsolidated financial statements. Included in consolidated sales for the firstsix months of 1999 and for all of 1998 were sales of $245.0 million and $332.0million, respectively, related to the U.S. plastic packaging operations.

Our investment in Consolidated Container Company after July 2, 1999 isaccounted for under the equity method of accounting. Our investment inConsolidated Container Company was $23.7 million and $3.9 million at December31, 2000 and 1999, respectively. Our initial investment, as adjusted, was lowerthan our proportional share of Consolidated Container Company's net assets by$100.4 million which is being amortized over forty years. Earnings from ourunconsolidated affiliates in our consolidated statements of income include $11.3million and $2.4 million (net of restructuring and other non-recurring chargesof ($0.8) million and $4.9 million) attributable to Consolidated ContainerCompany, of which $2.6 million and $1.4 million are attributable to theamortization of the difference between the carrying amount of our investment andour proportional share of our underlying equity interest in their net assets forthe years ended December 31, 2000 and 1999, respectively. Although the marketvalue of our investment in Consolidated Container Company is not readilydeterminable, we believe that the fair value of this investment exceeds itscarrying amount.

Summarized financial information for Consolidated Container Company atDecember 31, 2000 and 1999 and for the periods ended December 31, 2000 and 1999is as follows:

<TABLE><CAPTION>

DECEMBER 31,---------------------------

2000 1999---------- ----------

(IN THOUSANDS)

<S> <C> <C>Current assets ......................... $ 148,243 $ 154,743Total assets ........................... 1,001,625 990,589Current liabilities .................... 162,796 142,280Debt ................................... 530,971 554,011Total liabilities ...................... 723,184 733,761Total equity ........................... 278,441 256,828</TABLE>

<TABLE><CAPTION>

FOR THE YEAR FOR THE SIX MONTHSENDED DECEMBER 31, ENDED DECEMBER 31,

2000 1999------------------ ------------------

<S> <C> <C>Net sales .................... $ 754,649 $ 388,665Operating income ............. 81,081 27,470</TABLE>

Investment in Horizon Organic -- As of December 31, 2000 and 1999 we had a13.6% and 13.8% interest in Horizon Organic, respectively. We account for thisinvestment under the equity method of accounting as we believe that we have theability to influence the operating policies of Horizon. The quoted stock priceranged from $4.00 to $12.25 during 2000. The closing stock price on December 31,2000 was $4.44 per share, resulting in a market value of our investment of $5.9million. Our investment in Horizon Organic at December 31, 2000 and 1999 was$16.4 million and $16.2 million, respectively, and our equity in earningsincluded in our consolidated statement of income for both 2000 and 1999 was $0.2million.

6. INVENTORIES

<TABLE><CAPTION>

DECEMBER 31,------------------------------

2000 1999---------- ----------



(IN THOUSANDS)<S> <C> <C>Raw materials and supplies ........ $ 99,315 $ 100,044Finished goods .................... 87,398 82,277

---------- ----------Total ................... $ 186,713 $ 182,321

========== ==========</TABLE>

F-11

38

7. PROPERTY, PLANT AND EQUIPMENT

<TABLE><CAPTION>

DECEMBER 31,---------------------------------

2000 1999----------- -----------

(IN THOUSANDS)<S> <C> <C>Land .............................. $ 102,331 $ 64,063Buildings and improvements ........ 327,477 227,306Machinery and equipment ........... 863,740 703,984

----------- -----------1,293,548 995,353

Less accumulated depreciation ..... (289,779) (236,868)----------- -----------

Total ................... $ 1,003,769 $ 758,485=========== ===========

</TABLE>

For 2000 and 1999, we capitalized $3.5 million and $3.6 million in interest,respectively related to borrowings during the actual construction period ofmajor capital projects, which is included as part of the cost of the relatedasset.

8. INTANGIBLE AND OTHER ASSETS

<TABLE><CAPTION>

DECEMBER 31,---------------------------------

2000 1999----------- -----------

(IN THOUSANDS)<S> <C> <C>Goodwill ......................................... $ 1,790,523 $ 1,207,756Identifiable intangibles ......................... 224,129 103,798Deposits and other ............................... 36,444 21,123Investments in unconsolidated affiliates ......... 44,831 20,137Deferred income taxes ............................ 41 501

----------- -----------2,095,968 1,353,315

Less accumulated amortization .................... (137,190) (92,285)----------- -----------

Total .................................. $ 1,958,778 $ 1,261,030=========== ===========

</TABLE>

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE><CAPTION>

DECEMBER 31,--------------------------

2000 1999-------- --------

(IN THOUSANDS)<S> <C> <C>Accounts payable ....................... $370,355 $276,968Payroll and benefits ................... 71,219 70,076Other accrued liabilities .............. 125,768 94,748

-------- --------$567,342 $441,792======== ========

</TABLE>

10. INCOME TAXES



The following table presents the 2000, 1999 and 1998 provisions for incometaxes.

<TABLE><CAPTION>

YEAR ENDED DECEMBER 31,--------------------------------------------------------

(IN THOUSANDS)2000(1) 1999(2) 1998(3)

------------ ------------ ------------Current taxes payable:

<S> <C> <C> <C>Federal ........................ $ 47,010 $ 31,480 $ 16,423State .......................... 8,668 10,041 7,234Foreign and other .............. 2,151 6,433 4,612

Deferred income taxes ............ 32,474 27,509 31,554------------ ------------ ------------

Total .................. $ 90,303 $ 75,463 $ 59,823============ ============ ============

</TABLE>

----------(1) Excludes a $2.8 million income tax expense related to extraordinary gains.

(2) Excludes a $0.5 million income tax expense related to extraordinary gains.

(3) Excludes a $2.1 million income tax benefit related to discontinuedoperations and a $19.9 million income tax expense related to netextraordinary gains.

F-12

39

The following is a reconciliation of income taxes reported in theconsolidated statements of income:

<TABLE><CAPTION>

YEAR ENDED DECEMBER 31,----------------------------------------------

(IN THOUSANDS)2000 1999 1998

-------- -------- --------<S> <C> <C> <C>Tax expense at statutory rates .............. $ 81,888 $ 67,586 $ 57,557State income taxes .......................... 9,315 7,795 7,967Tax effect of tax-exempt earnings ........... (2,687) (2,612) (4,765)Nondeductible goodwill ...................... 4,229 1,968 1,423Other ....................................... (2,442) 726 (2,359)

-------- -------- --------Total ............................. $ 90,303 $ 75,463 $ 59,823

======== ======== ========</TABLE>

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

<TABLE><CAPTION>

DECEMBER 31,-----------------------------

2000 1999--------- ---------

(IN THOUSANDS)<S> <C> <C>Deferred income tax assets:

Net operating loss carryforwards .................... $ 20,007 $ 14,363Asset valuation reserves ............................ 5,493 7,141Nondeductible accruals .............................. 41,894 46,209Tax credits ......................................... 3,381 3,311Other ............................................... 6,469 2,158

--------- ---------77,244 73,182

Deferred income tax liabilities:Depreciation and amortization ....................... (118,886) (69,509)Tax credit basis differences ........................ (6,251) (6,251)Basis differences in unconsolidated affiliates ...... (21,046) (16,239)

--------- ---------(146,183) (91,999)

--------- ---------Net deferred income tax liability ........... $ (68,939) $ (18,817)



========= =========</TABLE>

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

<TABLE><CAPTION>

DECEMBER 31,-----------------------------

2000 1999--------- ---------

(IN THOUSANDS)<S> <C> <C>Current assets ................... $ 54,634 $ 27,005Noncurrent assets ................ 41 501Noncurrent liabilities ........... (123,614) (46,323)

--------- ---------Total .................. $ (68,939) $ (18,817)

========= =========</TABLE>

At December 31, 2000, we had approximately $45.0 million of net operatinglosses and approximately $7.9 million of tax credits available for carry over tofuture years. The losses are subject to certain limitations and will expirebeginning in 2008.

No valuation allowance has been recorded as management believes it is morelikely than not that all of the deferred tax assets will be realized.

F-13

4011. LONG-TERM DEBT

<TABLE><CAPTION>

DECEMBER 31,-----------------------------

2000 1999----------- -----------

(IN THOUSANDS)<S> <C> <C>Parent-level credit facility ................ $ -- $ 635,500Subsidiary debt obligations:

Suiza Dairy Group credit facility ......... 1,095,000Receivable-backed loan .................... 150,000Foreign subsidiary term loan .............. 39,519Uncommitted line of credit ................ 20,000Other lines of credit ..................... 24,655Industrial development revenue bonds ...... 8,845 9,330Capital lease obligations and other ....... 39,905 42,583

----------- -----------1,353,269 712,068

Less current portion ........................ (128,224) (22,671)----------- -----------

Total ............................. $ 1,225,045 $ 689,397=========== ===========

</TABLE>

Terminated Senior Credit Facility -- In connection with our acquisition ofSouthern Foods Group effective January 1, 2000, we replaced our then existingsenior credit facility with two new facilities, as described under "Parent-LevelCredit Facility" and "Suiza Dairy Group Credit Facility" below.

Parent-Level Credit Facility -- Effective January 1, 2000 we entered into anew parent credit facility, which replaced our then existing senior creditfacility. The new facility, which expires in January 2005, provides us with arevolving line of credit of up to $300 million to be used for general corporateand working capital purposes, including the financing of future acquisitions. Asof December 31, 2000, no funds were borrowed under this facility, but there were$4.0 million of issued but undrawn letters of credit outstanding. See "CreditFacility Terms" below for a description of the terms of the parent creditfacility.

Suiza Dairy Group Credit Facility -- Simultaneous with the closing of ouracquisition of Southern Foods Group, Suiza Dairy Group entered into a new $1.61billion credit facility with a group of lenders which expires in January 2005.The Suiza Dairy Group credit facility provides an $805 million revolving line ofcredit, a $625 million term loan and a $180 million term loan. At closing, SuizaDairy Group borrowed approximately $1.1 billion under this facility and



distributed a portion of the borrowings to us and to Dairy Farmers of America.We used our portion of the distribution to repay our then existing senior creditfacility and certain other obligations. At December 31, 2000, there wereoutstanding borrowings of $1.095 billion under this facility, in addition to$17.8 million of issued but undrawn letters of credit. See "Credit FacilityTerms" below for a description of the terms of the Suiza Dairy Group creditfacility.

Credit Facility Terms -- Amounts outstanding under the Suiza Dairy Groupcredit facility and our parent-level credit facility bear interest at a rate perannum equal to one of the following rates, at our option:

o a base rate equal to the higher of the Federal Funds rate plus 50 basispoints or the prime rate, plus a margin that varies from 25 to 125basis points for the Suiza Dairy Group credit facility and 0 to 75basis points on the new parent credit facility, depending on our ratioof defined indebtedness to EBITDA or

o the London Interbank Offering Rate ("LIBOR") computed as LIBOR dividedby the product of one minus the Eurodollar Reserve Percentage, plus amargin that varies from 125 to 225 basis points for the Suiza DairyGroup credit facility and 75 to 175 basis points on the new parentcredit facility, depending on our ratio of defined indebtedness toEBITDA.

The interest rate in effect on the Suiza Dairy Group credit facility,including the applicable interest rate margin, was 8.50% at December 31, 2000.Interest is payable quarterly or at the end of the applicable interest period.Scheduled principal payments on the $625 million term loan are due in thefollowing installments:

o $25.0 million quarterly from March 31, 2001 through December 31, 2001;



o 25% of the outstanding balance (up to $50 million) quarterly on each ofMarch 31, 2004, June 30, 2004 and September 30, 2004; and the

F-14

41

o Remaining balance on January 4, 2005.

No principal payments are due on the $805 million line of credit and the$180 million term loan until maturity on January 4, 2005.

In consideration for the revolving commitments, we pay a commitment fee onunused amounts of the Suiza Dairy Group credit facility and the parent-levelcredit facility that ranges from 25 to 50 basis points, based on our ratio ofindebtedness to EBITDA (as defined in the agreement).

The Suiza Dairy Group credit facility and the parent-level credit facilitycontain various financial and other restrictive covenants and requirements thatwe maintain certain financial ratios, including a leverage ratio (computed asthe ratio of the aggregate outstanding principal amount of defined indebtednessto EBITDA, as defined separately by each agreement) and an interest coverageratio (computed as the ratio of EBITDA to interest expense as defined separatelyby each agreement). In addition, both facilities require that we maintain aminimum level of net worth as defined separately by each agreement. Thefacilities also contain limitations on liens, investments, the incurrence ofadditional indebtedness and acquisitions, and prohibit certain dispositions ofproperty and restrict certain payments, including dividends. The creditfacilities are secured by capital stock of certain of our subsidiaries.

Receivable-Backed Loan - On June 30, 2000 we entered into a $150 millioncredit facility secured by certain subsidiary accounts receivable. Pursuant tothis transaction, we pledged receivables to a multi-seller asset-backed conduitsponsored by a major financial institution. We used the portion of the proceedsattributable to Suiza Dairy Group and its subsidiaries to pay down higher costborrowings under the Suiza Dairy Group credit facility. The loan bears interestat a variable rate based on the commercial paper yield as defined in theagreement. The interest rate on the receivable-backed loan at December 31, 2000was 7.13%. In February 2001, we increased our receivable-backed loan from $150million to $175 million, and used the proceeds to pay down higher-costborrowings under the Suiza Dairy Group credit facility.

Foreign Subsidiary Term Loan - In connection with our acquisition of LecheCelta, in February 2000, our Spanish subsidiary obtained a 7 billion pesetanon-recourse loan from a Spanish lender, all of which was borrowed at closing



and used to finance a portion of the purchase price. The loan, which is securedby the stock of Leche Celta, will expire on February 21, 2007, bears interest ata variable rate based on the ratio of Leche Celta's debt to EBITDA (as definedin the corresponding loan agreement), and requires semi-annual principalpayments beginning in August 2001. The interest rate in effect on this loan atDecember 31, 2000 was 7.13%.

Uncommitted Line of Credit - On October 4, 2000, Suiza Dairy Group enteredinto an agreement with First Union National Bank pursuant to which Suiza DairyGroup may borrow up to $20.0 million from time to time on an uncommitted basis.Loans outstanding under the agreement are unsecured and bear interest at afloating rate of interest, adjusted daily. There is no commitment fee associatedwith this facility. Principal amounts borrowed under this agreement will matureone year from the date of the agreement. On December 31, 2000, Suiza Dairy Grouphad an outstanding balance of $20.0 million under this line of credit at aninterest rate of 8.56%.

Other Lines of Credit - Leche Celta, our Spanish subsidiary, is our onlysubsidiary with a currently outstanding line of credit separate from the creditfacilities described above. Leche Celta's existing line of credit, which is inthe principal amount of 2.5 billion pesetas, was obtained on July 12, 2000 inreplacement of a pre-existing line of credit, bears interest at a variableinterest rate based on the ratio of Leche Celta's debt to EBITDA ( as defined inthe corresponding loan agreement), is secured by our stock in Leche Celta andwill expire in June 2007. No funds were drawn on this line of credit at December31, 2000. Our French and German subsidiaries, which we sold in March and May2000, respectively, also had lines of credit. Those lines of credit wereterminated upon completion of the divestitures.

Industrial Development Revenue Bonds - Certain of our subsidiaries haverevenue bonds outstanding which require annual sinking fund redemptionsaggregating $0.7 million and are secured by irrevocable letters of credit issuedby financial institutions, along with first mortgages on certain real propertyand equipment. Interest on these bonds is due semiannually at interest ratesthat vary based on market conditions which, at December 31, 2000 ranged from5.20% to 5.45%.

Other Subsidiary Debt - Other subsidiary debt includes various promissorynotes for the purchase of property, plant, and equipment and capital leaseobligations. The various promissory notes payable provide for interest at

F-15

42

varying rates and are payable in monthly installments of principal and interestuntil maturity, when the remaining principal balances are due. Capital leaseobligations represent machinery and equipment financing obligations which arepayable in monthly installments of principal and interest and are collateralizedby the related assets financed.

Southern Foods Group, which we acquired in January 2000, had $113.8 millionprincipal amount of 9 7/8% senior notes outstanding when we completed ouracquisition. As a result of the acquisition, we were required to offer torepurchase these senior notes at 101% of face value. All senior notes weretendered and were redeemed on March 24, 2000.

Scheduled Maturities -- The scheduled maturities of long-term debt, whichinclude capitalized lease obligations, at December 31, 2000, were as follows (inthousands):

<TABLE>

<S> <C>2001.......................... $ 128,2242002.......................... 142,7102003.......................... 309,4472004.......................... 175,5682005.......................... 579,457Thereafter.................... 17,863

------------Total............... $ 1,353,269

============</TABLE>

Interest Rate Agreements - We have interest rate derivative agreements inplace, including interest rate swaps and collars, that have been designated ashedges against our variable interest rate exposure on our loans under the SuizaDairy Group credit facility.

These derivative agreements provided hedges for loans under our Suiza DairyGroup credit facility by limiting or fixing the LIBOR interest rates specifiedin the Suiza Dairy Group credit facility at the interest rates noted below until



the indicated expiration dates of these interest rate derivative agreements.

The following table summarizes our various interest rate agreements as ofDecember 31, 2000 and 1999:

<TABLE><CAPTION>

NOTIONAL AMOUNT----------------------

2000 1999----------- --------

(IN THOUSANDS)<S> <C> <C>Interest rate caps with an interest limit of 8% expiring March 2000 .............. $ -- $ 60,000Interest rate swaps with an interest range of 6.03% to 6.14% expiring betweenSeptember 2000 and December 2003 ................................................. 275,000 435,000Interest rate collars with an interest range of 6.08% to 7.50% expiring betweenDecember 2002 and June 2003 ...................................................... 100,000 100,000</TABLE>

These derivative agreements were previously designated as hedges forborrowings under our terminated senior credit facility. In connection with therepayment of amounts owed under our terminated senior credit facility thesederivative agreements were marked to fair market value, which resulted in a gainof $6.5 million, net of income taxes, which, along with a loss from thewrite-off of unamortized deferred loan costs related to this facility wasreported as an extraordinary gain from the extinguishment of debt during thefirst quarter of 2000. These derivative agreements have been redesignated ashedges under the Suiza Dairy Group credit facility and their recorded assetvalue is being amortized on a straight-line basis over the remaining lives ofthe respective agreements. The amortization is reported as a component of totalconsolidated interest expense. For a discussion of the treatment of derivativeagreements effective January 1, 2001 see Note 1 - Recently Issued AccountingPronouncements.

We have also entered into certain additional interest rate swap agreementswith a notional amount of $550.0 million in the fourth quarter of 2000, whichare intended to provide hedges against variable interest rate exposure on loansunder Suiza Dairy Group's credit facility. These agreements, which becameeffective January 2, 2001, are interest rate swaps with an interest range of6.44% to 6.78% expiring between December 2001 and December 2006.

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

<TABLE><CAPTION>

EURIBOR INTERESTEFFECTIVE DATE RATE LIMITS NOTIONAL AMOUNTS EXPIRATION DATE

---------------------- ----------------- ----------------------------------------------- ----------------<S> <C> <C> <C>November 23, 2000 5.54% 1,500,000,000 pesetas (approximately $8.4 million) November 2003November 23, 2000 5.6% 2,000,000,000 pesetas (approximately $11.2 million) November 2004</TABLE>

F-16

43

We are exposed to market risk under these arrangements due to thepossibility of interest rates on the credit facilities falling below the rateson our interest rate derivative agreements. Credit risk under these arrangementsis remote since the counterparties to our interest rate derivative agreementsare major financial institutions.

12. MANDATORILY REDEEMABLE TRUST ISSUED PREFERRED SECURITIES

In connection with our acquisition of Land-O-Sun in February 1998, we issued$100 million of company-obligated 5% mandatorily redeemable convertiblepreferred securities of a Delaware business trust. On January 4, 2000, inconnection with the Southern Foods transaction, we redeemed the 5% mandatorilyredeemable convertible preferred securities in the amount of $100,638,889, whichincludes the principal repayment and accrued interest.

On March 24, 1998, we also completed the sale of $600 million ofcompany-obligated 5.5% mandatorily redeemable convertible preferred securitiesof a Delaware business trust in a private placement to "qualified institutionalbuyers" under Rule 144A under the Securities Act of 1933, as amended. The 5.5%preferred securities mature 30 years from the date of issue. These trust issuedpreferred securities, which are recorded net of related fees and expenses, areconvertible at the option of the holders into an aggregate of approximately 7.7



million shares of our common stock, subject to adjustment in certaincircumstances. These preferred securities are also redeemable, at our option, atany time after three years from their issue date at specified amounts and aremandatorily redeemable at their liquidation preference amount of $50 per shareat maturity or upon occurrence of certain specified events.

13. STOCKHOLDERS' EQUITY

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

Preferred Stock -- The rights and preferences of preferred stock areestablished by our Board of Directors upon issuance. The Series A preferredstock previously outstanding represented 11,691 shares of preferred stock with astated and redemption value of $320.00 per share, provided for cumulativedividends at a rate of 8% and was redeemable only at our option. On September29, 1998, we redeemed all outstanding shares of Series A preferred stock for thestated value of $320.00 per share, plus accumulated unpaid dividends, for atotal cost of $3.8 million.

Stock Option and Restricted Stock Plans -- We have stock options and sharesof restricted stock outstanding under three plans. Only one of these plans hasshares remaining available for issuance. This plan, the Suiza Foods Corporation1997 Stock Option and Restricted Stock Plan, provides for grants of stockoptions and restricted stock to employees, officers, directors and consultantsto acquire 7.5 million shares. Exercise prices of stock options will approximateor be above fair market value on the grant date. The options vest in accordancewith provisions set forth in the applicable option agreements.

F-17

44

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

<TABLE><CAPTION>

WEIGHTED AVERAGEOPTIONS EXERCISE PRICE

---------- ----------------<S> <C> <C>

Outstanding at December 31, 1997 .... 5,688,241 $ 19.70Granted ........................... 1,444,412 49.40Canceled .......................... (75,447) 39.99Exercised ......................... (2,349,335) 15.72

----------

Outstanding at December 31, 1998 .... 4,707,871 30.56Granted ........................... 1,078,169 35.22Canceled .......................... (208,021) 42.70Exercised ......................... (980,768) 15.13

----------

Outstanding at December 31, 1999 .... 4,597,251 34.68Granted ........................... 1,366,900 38.27Canceled .......................... (206,701) 42.21Exercised ......................... (1,231,179) 20.79

----------

Outstanding at December 31, 2000 .... 4,526,271 $ 38.96==========

Exercisable at December 31, 1998 .... 3,157,266 $ 21.80Exercisable at December 31, 1999 .... 2,927,217 30.17Exercisable at December 31, 2000 .... 2,400,853 38.50

</TABLE>

The following table summarizes information about options outstanding andexercisable at December 31, 2000:

<TABLE><CAPTION>

OPTIONS OUTSTANDING OPTIONS EXERCISABLE------------------------------------------------------------ ---------------------------------

RANGE OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGEEXERCISE PRICES NUMBER REMAINING EXERCISE PRICE NUMBER EXERCISE PRICE

OUTSTANDING CONTRACTUAL LIFE EXERCISABLE------------------ ---------------- ---------------------- -------------------- --------------- -----------------<S> <C> <C> <C> <C> <C>$ 0 to $16.75 201,281 4.60 $11.16 201,281 $11.1617.25 to 34.50 1,157,522 6.48 30.00 976,590 29.25



35.38 to 65.25 3,167,468 7.82 44.00 1,222,982 50.38

</TABLE>

We have elected to follow Accounting Principles Board Opinion No. 25 andrelated interpretations in accounting for our stock options. All options grantedto date have been to employees, officers or directors. Accordingly, nocompensation expense has been recognized since stock options granted under theseplans were at exercise prices which approximated or exceeded market value at thegrant date. Had compensation expense been determined for stock option grantsusing fair value methods provided for in SFAS No. 123, Accounting forStock-Based Compensation, our pro forma net income and net income per commonshare would have been the amounts indicated below:

<TABLE><CAPTION>

YEAR ENDED DECEMBER 31,---------------------------------------------------------

2000 1999 1998------------- ------------- -------------

(IN THOUSANDS, EXCEPT SHARE DATA)<S> <C> <C> <C>Compensation cost ........................... $ 27,278 $ 18,861 $ 34,198Net income:

As reported ............................... 118,719 109,731 131,606Pro forma ................................. 104,272 98,245 110,745

Net income per share:As reported-- basic ....................... 4.21 3.34 3.98As reported-- diluted ..................... 3.82 3.13 3.58Pro forma-- basic ......................... 3.70 2.99 3.36Pro forma-- diluted ....................... 3.43 2.86 3.08

Stock option share data:Stock options granted during period ....... 1,366,900 1,078,169 1,444,412Weighted average option fair value ........ $ 20.57(a) $ 18.00(b) $ 29.23(c)

</TABLE>

----------

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

F-18

45

(b) Calculated in accordance with the Black-Scholes option pricing model, usingthe following assumptions: expected volatility of 40%; expected dividendyield of 0%; expected option term of four to ten years and risk-free ratesof return as of the date of grant of 5.1% based on the yield of ten-yearU.S. Treasury securities.

(c) Calculated in accordance with the Black-Scholes option pricing model, usingthe following assumptions: expected volatility of 40%, expected dividendyield of 0%, expected option term of four to ten years and risk-free ratesof return as of the date of grant of 5.5% based on the yield of ten-yearU.S. treasury securities.

Rights Agreement -- On February 27, 1998, our board of directors declared adividend distribution of the right to purchase one share of our common stock onthe terms and conditions set forth in the Rights Agreement (a "Right") for eachshare of our common stock outstanding ten days subsequent to the announcement byany person of such person's acquisition of or intent to acquire a beneficialownership of 15% or more in Suiza Foods Corporation. At any time prior to suchdate, a required majority may redeem the Rights in whole, but not in part, at aprice of $0.01 per Right. The Rights will expire on March 18, 2008, unless ourboard of directors extends the term of, or redeems, the Rights.

Earnings Per Share -- Basic earnings per share is based on the weightedaverage number of common shares outstanding during each period. Diluted earningsper share is based on the weighted average number of common shares outstandingand the effect of all dilutive common stock equivalents during each period. Thefollowing table reconciles the numerators and denominators used in thecomputations of both basic and diluted EPS:

<TABLE><CAPTION>

YEAR ENDED DECEMBER 31,-------------------------------------------------



2000 1999 1998------------ ------------ ------------

<S> <C> <C> <C>Basic EPS computation:

Numerator:Income from continuing operations .......................... $ 113,751 $ 108,827 $ 103,069Less preferred stock dividends ............................. (237)

------------ ------------ ------------Income applicable to common stock .......................... $ 113,751 $ 108,827 $ 102,832

============ ============ ============Denominator:

Average common shares ...................................... 28,195,043 32,861,218 32,953,290Basic EPS from continuing operations .......................... $ 4.03 $ 3.31 $ 3.12

Diluted EPS computation:Numerator:

Income from continuing operations .......................... $ 113,751 $ 108,827 $ 103,069Less preferred stock dividends ............................. (237)Net effect on earnings from conversion of mandatorily

redeemable convertible preferred securities .............. 21,334 24,501 18,732------------ ------------ ------------

Income applicable to common stock .......................... $ 135,085 $ 133,328 $ 121,564============ ============ ============

Denominator:Average common shares -- basic ............................. 28,195,043 32,861,218 32,953,290Stock option conversion .................................... 793,680 901,151 1,838,193Dilutive effect of conversion of mandatorily redeemable

convertible preferred securities ......................... 7,682,541 9,096,123 7,174,081------------ ------------ ------------

Average common shares -- diluted .............................. 36,671,264 42,858,492 41,965,564============ ============ ============

Diluted EPS from continuing operations ........................ $ 3.68 $ 3.11 $ 2.90</TABLE>

Share Repurchases -- On September 15, 1998, our Board of Directorsauthorized an open market share repurchase program of up to $100 million of ourcommon stock. On September 28, 1999, the Board increased the program by $100million to $200 million and on November 17, 1999 authorized a further increaseto $300 million. We fulfilled the $300 million authorization during the secondquarter of 2000, and on May 19, 2000, the Board increased the program by $100million to $400 million and on November 2, 2000 authorized a further increase to$500 million. Set forth in the chart below is a summary of the stock we haverepurchased pursuant to this program through December 31, 2000.

F-19

46

<TABLE><CAPTION>

NO. OF SHARES PURCHASEPERIOD REPURCHASED PRICE

------------------------------- ------------- --------------<S> <C> <C>

Third Quarter 1998 ............ 1,000,000 $ 30.4 millionFourth Quarter 1998 ........... 510,400 15.6 millionSecond Quarter 1999 ........... 79,700 3.0 millionThird Quarter 1999 ............ 1,850,515 66.7 millionFourth Quarter 1999 ........... 3,486,508 128.4 millionFirst Quarter 2000 ............ 688,800 27.2 millionSecond Quarter 2000 ........... 966,065 42.2 millionThird Quarter 2000 ............ 1,587,000 77.0 millionFourth Quarter 2000 ........... 40,000 2.1 million

------------- --------------Total ............... 10,208,988 $392.6 million

============= ==============</TABLE>

Subsequent to December 31, 2000, we have repurchased an additional $6.1million or 123,334 shares and $101.3 million remains available for spendingunder this program.

These repurchased shares were treated as effectively retired in theconsolidated financial statements.

14. OTHER COMPREHENSIVE INCOME

Comprehensive income comprises net income plus all other changes in equityfrom non-owner sources. The amount of income tax (expense) benefit allocated toeach component of other comprehensive income during the year ended December 31,2000 and 1999 are included below.

<TABLE><CAPTION>



PRE-TAX TAXINCOME BENEFIT NET(LOSS) (EXPENSE) AMOUNT

-------- --------- --------(IN THOUSANDS)

<S> <C> <C> <C>Cumulative translation adjustment ............................. $ 7,005 $ (2,732) $ 4,273Minimum pension liability adjustment .......................... 120 (47) 73

-------- -------- --------Accumulated other comprehensive income, December 31, 1998 ..... 7,125 (2,779) 4,346Cumulative translation adjustment ............................. (18,277) 7,493 (10,784)

-------- -------- --------Accumulated other comprehensive income, December 31, 1999 ..... $(11,152) $ 4,714 $ (6,438)Cumulative translation adjustment ............................. (2,381) 931 (1,450)Reclassification adjustment for disposal ...................... 11,139 (4,362) 6,777

-------- -------- --------Accumulated other comprehensive income, December 31, 2000 ..... $ (2,394) $ 1,283 $ (1,111)

======== ======== ========</TABLE>

15. EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS

We sponsor various defined benefit and defined contribution retirementplans, including various employee savings and profit sharing plans, andcontribute to various multi-employer pension plans on behalf of our employees.Substantially all full-time union and non-union employees who have completed oneor more years of service and have met other requirements pursuant to the plansare eligible to participate in these plans. During 2000, 1999 and 1998, ourretirement and profit sharing plan expenses were as follows:

<TABLE><CAPTION>

YEAR ENDED DECEMBER 31,---------------------------------------

2000 1999 1998--------- --------- ---------

(IN THOUSANDS)<S> <C> <C> <C>Defined benefit plans ........................... $ 2,482 $ 3,994 $ 3,176Defined contribution plans ...................... 6,792 7,572 7,077Multi-employer pension plans .................... 5,599 4,937 3,987

--------- --------- ---------$ 14,873 $ 16,503 $ 14,240========= ========= =========

</TABLE>

Defined Benefit Plans -- The benefits under our defined benefit plans arebased on years of service and employee compensation. Our funding policy is tocontribute annually the minimum amount required under ERISA regulations. Planassets consist principally of investments made with insurance companies under agroup annuity contract.

F-20

47

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

<TABLE>

DECEMBER 31,--------------------------

2000 1999--------- ---------

(IN THOUSANDS)<S> <C> <C>Change in benefit obligation

Benefit obligation at beginning of year .................. $ 71,673 $ 148,219Service cost ........................................... 2,274 4,140Interest cost .......................................... 6,573 5,052Assumption change ...................................... (1,498)Plan amendments ........................................ 1,381Actuarial (gain) loss .................................. 1,802 (6,878)Acquisitions ........................................... 18,724 4,944Disposition of packaging operations .................... (1,412) (76,134)Benefits paid .......................................... (7,994) (6,279)Plan curtailments ...................................... (3,727)Other .................................................. 76 107

--------- ---------Benefit obligation at end of year ........................ 89,370 71,673



--------- ---------Change in plan assets

Fair value of plan assets at beginning of year ........... 79,166 136,577Actual return on plan assets ........................... 1,221 10,033Acquisitions ........................................... 18,644 5,577Disposition of US plastic packaging operations ......... (68,639)Employer contribution .................................. 1,679 1,809Benefits paid .......................................... (7,994) (6,279)Other .................................................. 37 88

--------- ---------Fair value of plan assets at end of year ................. 92,753 79,166

--------- ---------Funded status .............................................. 3,383 7,494

Unrecognized net transition obligation ................... 1,317 1,931Unrecognized prior service cost .......................... 2,596 1,517Unrecognized net (gain)loss .............................. (7,799) (17,186)Minimum liability adjustment ............................. (1,651)

--------- ---------Net amount recognized ...................................... $ (2,154) $ (6,244)

========= =========

Amounts recognized in the consolidated balance sheets atDecember 31 of each year consist of:Prepaid benefit cost ..................................... $ 2,125 $ 1,775Accrued benefit liability ................................ (4,279) (8,364)Intangible asset ......................................... 345

--------- ---------Net amount recognized ...................................... $ (2,154) $ (6,244)

========= =========Weighted-average assumptions as of December 31:

Discount rate ............................................ 7.75% 7.75%Expected return on plan assets ........................... 6.75-9.50% 6.75-9.00%Rate of compensation increase ............................ 0-5.00% 0-4.00%

</TABLE>

<TABLE><CAPTION>

YEAR ENDED DECEMBER 31,-----------------------------------2000 1999 1998

------- ------- -------(IN THOUSANDS)

<S> <C> <C> <C>Components of net periodic benefit cost (income)

Service cost ............................................. $ 2,274 $ 4,151 $ 4,057Interest cost ............................................ 6,573 5,052 5,842Expected return on plan assets ........................... (8,204) (6,157) (6,890)Amortization of unrecognized transition obligation ....... 140 188 194Amortization of prior service cost ....................... 147 138 109Amortization of unrecognized net gain .................... (622) (3) (13)Recognized net actuarial gain from curtailment ........... (3,899) (670)

------- ------- -------Net periodic benefit cost (income) ......................... $(3,591) $ 3,369 $ 2,629

======= ======= =======</TABLE>

The projected benefit obligation, accumulated benefit obligation, and fairvalue of plan assets for the pension plan with accumulated benefit obligationsin excess of plan assets were $32.7 million, $32.7 million, and $30.4 million,respectively, as of December 31, 2000, and $7.6 million, $6.1 million and $4.9million, respectively, as of December 31, 1999, excluding pension plans relatedto the disposed U.S. packaging operations.

Defined Contribution Plans -- Certain of our non-union personnel may electto participate in savings and profit sharing plans sponsored by us. These plansgenerally provide for salary reduction contributions to the plans on behalf ofthe participants of between 1.0% and 17.0% of a participant's annualcompensation and provide for employer matching and profit sharing contributionsas determined by our Board of Directors. In addition, certain

F-21

48union hourly employees are participants in company-sponsored definedcontribution plans which provide for employer contributions in various amountsranging from $21 to $39 per pay period per participant.

Multi-Employer Pension Plans -- Certain of our subsidiaries contribute tovarious multi-employer union pension plans, which are administered jointly bymanagement and union representatives and cover substantially all full-time andcertain part-time union employees who are not covered by our other plans. TheMulti-Employer Pension Plan Amendments Act of 1980 amended ERISA to establish



funding requirements and obligations for employers participating inmulti-employer plans, principally related to employer withdrawal from ortermination of such plans. We could, under certain circumstances, be liable forunfunded vested benefits or other expenses of jointly administeredunion/management plans. At this time, we have not established any liabilitiesbecause withdrawal from these plans is not probable or reasonably possible.

16. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

Certain of our subsidiaries provide health care benefits to certain retireeswho are covered under specific group contracts. As defined by the specific groupcontract, qualified covered associates may be eligible to receive major medicalinsurance with deductible and coinsurance provisions subject to certain lifetimemaximums.

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

<TABLE><CAPTION>

DECEMBER 31,----------------------2000 1999

------- -------(IN THOUSANDS)

<S> <C> <C>Change in benefit obligation:

Benefit obligation at beginning of year ............. $ 5,156 $ 3,948Service cost ...................................... 29 44Interest cost ..................................... 450 235Actuarial loss .................................... 1,340 84Plan amendments ................................... (566)Acquisition ....................................... 1,110 1,179Benefits paid ..................................... (627) (334)

------- -------Benefit obligation at end of year ..................... $ 6,892 $ 5,156Fair value of plan assets at end of year .............. -- --

------- -------Funded status ......................................... (6,892) (5,156)

Unrecognized prior service cost ..................... (566)Unrecognized net (gain)/loss ........................ 218 (772)

------- -------Net amount recognized -- accrued benefit liability .... $(7,240) $(5,928)

======= =======Weighted-average assumptions as of December 31:

Discount rate ....................................... 7.75% 7.50%Health Care Inflation:

Initial rate ........................................ 7.12-9.50% 7.68%Ultimate rate ....................................... 5.00-6.00% 4.75%Year of ultimate rate achievement ................... 2005-2015 2005

</TABLE>

<TABLE><CAPTION>

DECEMBER 31,-----------------------------2000 1999 1998----- ----- -----

(IN THOUSANDS)<S> <C> <C> <C>Components of Net Periodic Benefit Cost:Service and interest cost ........................ $ 479 $ 278 $ 289Amortization of unrecognized net gain ............ (51) (40) (21)Recognized net actuarial loss .................... 65

----- ----- -----Net periodic benefit cost ........................ $ 493 $ 238 $ 268

===== ===== =====</TABLE>

Assumed health care cost trend rates have a significant effect on theamounts reported for the health care plans. A one-percentage-point change inassumed health care cost trend rates would have the following effects:

<TABLE><CAPTION>

1-PERCENTAGE- 1-PERCENTAGE-POINT INCREASE POINT DECREASE----------------- ----------------

(IN THOUSANDS)<S> <C> <C>

Effect on total of service and interest cost components.... $ 24 $ (21)Effect on post-retirement obligation....................... $536 (466)

</TABLE>



F-22

49

17. PLANT CLOSING AND OTHER COSTS

Plant closing costs -- As part of an overall integration and cost reductionstrategy, we recorded plant closing and other non-recurring costs during 2000and 1999 in the amount of $3.4 million and $12.6 million, respectively. Inaddition, our share of Consolidated Container's restructuring charges wereincome of $0.8 million in 2000 and expenses of $4.9 million during 1999. Theseamounts were reported as an adjustment to equity in earnings of unconsolidatedaffiliates.

The charges recorded for our integration and cost reduction programs in 2000reflect several approved efficiency and integration efforts includingrestructuring of our corporate office departments, elimination of a productionshift and certain maintenance activities at our Puerto Rican operation, andclosing of our Hartford, Connecticut plant.

During 1999, we recorded charges related to the closing of four plants withconsolidation of production into other plants, the disposition of a small cheeseprocessing plant, consolidation of administrative offices within one of ourregions and severance costs incurred at the corporate office as well as theEuropean and Puerto Rican operations.

The principal components of the plans approved during 2000 and 1999 includethe following:

o Workforce reduction as a result of plant closings, plantrationalizations and consolidation of administrative functions. Theplans included an overall reduction of 205 people in 2000 and 315people in 1999, primarily plant employees associated with the plantclosings and rationalization. The costs were charged to our earnings inthe period that the plan was established in detail and employeeseverance and benefits had been appropriately communicated. All exceptsix employees had been severed as of December 31, 2000.

o Shutdown costs include those costs that are necessary to prepare theplant facilities for closure.

o Additional costs to be incurred after shutdown included leaseobligations or termination costs, utilities and property taxes aftershutdown of the plant.

o Write-downs of property, plant and equipment and other assets areprimarily for asset impairments as a result of facilities that are nolonger used in operations. The impairments relate primarily to ownedbuilding, land and equipment at the facilities which are being sold andwere written down to their estimated fair value.

Activity with respect to the plant closing and other non-recurring costs for2000 is summarized below:

<TABLE><CAPTION>

BALANCE AT BALANCE ATDECEMBER 31, DECEMBER 31,

1999 CHARGES PAYMENTS 2000------------- ------- -------- ------------

(IN THOUSANDS)<S> <C> <C> <C> <C>Cash Charges:

Workforce reduction costs ...................... $ 3,073 $ 2,176 $(4,070) $ 1,179Shutdown costs ................................. 468 564 (669) 363Lease obligations after shutdown ............... 438 95 (415) 118Other .......................................... 40 159 (199)

------- ----- ------- -------Subtotal ......................................... $ 4,019 2,994 $(5,353) $ 1,660

======= ======= =======Noncash charges:

Write-down of property, plant and equipment .... 394-------

Total charges .................................... $ 3,388=======

</TABLE>

F-23

50



Activity with respect to the plant closing and other non-recurring costs for1999 is summarized below:

<TABLE><CAPTION>

BALANCE ATDECEMBER 31,

CHARGES PAYMENTS 1999------- -------- -------

(IN THOUSANDS)<S> <C> <C> <C>

Cash Charges:Workforce reduction costs ....................... $ 4,188 $(1,115) $ 3,073Shutdown costs .................................. 779 (311) 468Lease obligations after shutdown ................ 575 (137) 438Other ........................................... 234 (194) 40

------- ------- -------Subtotal .......................................... 5,776 $(1,757) $ 4,019

======= =======Noncash charges:

Write-down of property, plant and equipment ..... 6,790-------

Total charges ..................................... $12,566=======

</TABLE>

There have not been significant adjustments to the plan and the majority offuture cash requirements to reduce the liability at December 31, 2000 areexpected to be completed within a year.

Acquired facility closing costs -- As part of our purchase priceallocations, we accrued costs in 2000 and 1999 pursuant to plans to exit certainactivities and operations of acquired businesses in order to rationalizeproduction and reduce costs and inefficiencies. Several plants were closed inconnection with our acquisitions of Broughton Foods, New England Dairies andSouthern Foods. Production from these plants was moved to our other facilities.

The principal components of the plans include the following:

o Workforce reduction as a result of plant closings included an overallreduction of 282 and 340 plant personnel during 2000 and 1999,respectively. The costs incurred were charged against our acquisitionliabilities for these costs. All except 35 employees had beenterminated as of December 31, 2000.

o Shutdown costs include those costs that are necessary to clean andprepare the plant facilities for closure.

o Additional costs to be incurred after shutdown included leaseobligations or termination costs, utilities and property taxes aftershutdown of the plant.

Activity with respect to these acquisition liabilities for 2000 issummarized below:

<TABLE><CAPTION>

ACCRUED ACCRUEDCHARGES AT CHARGES AT

DECEMBER 31, DECEMBER 31,1999 ACCRUALS PAYMENTS 2000

------------ -------- -------- ------------(IN THOUSANDS)

<S> <C> <C> <C> <C>Workforce reduction costs .... $ 624 $ 1,268 $ (895) $ 997Shutdown costs ............... 332 9,735 (2,796) 7,271

------- ------- ------- -------Total ........................ $ 956 $11,003 ($3,691) $ 8,268

======= ======= ======= =======</TABLE>

Activity with respect to these acquisition liabilities for 1999 issummarized below:

<TABLE><CAPTION>

ACCRUEDCHARGES ATDECEMBER 31,

ACCRUALS PAYMENTS 2000-------- -------- -------



(IN THOUSANDS)<S> <C> <C> <C>Workforce reduction costs .............. $ 3,888 $(3,264) $ 624Shutdown costs ......................... 1,035 (703) 332Other .................................. 112 (112) 0

------- ------- -------Total .................................. $ 5,035 ($4,079) $ 956

======= ======= =======</TABLE>

F-24

51

18. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE><CAPTION>

YEAR ENDED DECEMBER 31,------------------------------------

2000 1999 1998-------- -------- --------

(IN THOUSANDS)<S> <C> <C> <C>Cash paid for interest and financing charges, net of

capitalized interest ............................................... $142,205 $ 87,548 $ 74,989Cash paid for taxes .................................................. 31,883 40,003 17,908Non-cash transactions:

Issuance of notes payable and common and preferred stockin connection with business and property acquisitions ........... -- 3,193 138,547

Issuance of mandatorily redeemable preferred securities, minoritypartnership interests and subsidiary preferred and commonsecurities in connection with acquisitions ...................... 340,336 18,500 201,447

</TABLE>

19. COMMITMENTS AND CONTINGENCIES

Leases -- We lease certain property, plant and equipment used in ouroperations under both capital and operating lease agreements. Such leases, whichare primarily for machinery and equipment and vehicles, have lease terms rangingfrom one to 20 years. Certain of the operating lease agreements require thepayment of additional rentals for maintenance, along with additional rentalsbased on miles driven or units produced. Rent expense, including additionalrent, was $66.9 million, $45.1 million and $48.0 million for the years endedDecember 31, 2000, 1999 and 1998, respectively.

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

<TABLE><CAPTION>

DECEMBER 31,-----------------------

2000 1999-------- --------

(IN THOUSANDS)<S> <C> <C>Buildings and improvements ....................... $ 2,102 $ 12,115Machinery and equipment .......................... 10,770 13,549Less accumulated amortization .................... (4,267) (9,160)

-------- --------$ 8,605 $ 16,504======== ========

</TABLE>

Future minimum payments at December 31, 2000, under noncancelable capitaland operating leases with terms in excess of one year are summarized below:

<TABLE><CAPTION>

CAPITAL OPERATINGLEASES LEASES

--------- ----------(IN THOUSANDS)

<S> <C> <C>2001 ......................................... $ 1,312 $ 52,9502002 ......................................... 1,160 44,819



2003 ......................................... 1,113 38,1682004 ......................................... 988 30,8072005 ......................................... 814 25,844Thereafter ................................... 244 52,098

-------- --------Total minimum lease payments ................. 5,631 $244,686

========Less amount representing interest ............ (597)

--------Present value of capital lease obligations ... $ 5,034

========</TABLE>

Litigation -- We and our subsidiaries are parties, in the ordinary course ofbusiness, to certain claims and litigation. In our opinion, the settlement ofsuch matters is not expected to have a material adverse impact on our financialposition, results of operations or cash flows.

F-25

52

Employment Agreements -- We have entered into employment agreements withcertain key management personnel which provide for minimum compensation levelsand incentive bonuses, along with provisions for termination benefits in certaincircumstances and for certain severance payments in the event of a change incontrol.

20. FAIR VALUE OF FINANCIAL INSTRUMENTS

Pursuant to SFAS No. 107, "Disclosure About Fair Value of FinancialInstruments," we are required to disclose an estimate of the fair value of ourfinancial instruments as of December 31, 2000 and 1999. SFAS No. 107 defines thefair value of financial instruments as the amount at which the instrument couldbe exchanged in a current transaction between willing parties.

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

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

<TABLE><CAPTION>

2000 1999-------------------------------- ----------------------------------CARRYING VALUE FAIR VALUE CARRYING VALUE OF FAIR VALUE

OF ASSET LIABILITY LIABILITY ASSET-------------- ---------- ----------------- ----------

(IN THOUSANDS)<S> <C> <C> <C> <C>Interest rate agreements

effective in 2000............... $ 3,696 $(3,967) $(4,313) $5,745Interest rate agreements

effective in 2001............... (12,311)</TABLE>

Included in Note 1 - Recently Issued Accounting Pronouncements is adiscussion of the treatment of interest rate agreements effective January 1,2001.

21. BUSINESS AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

Prior to the third quarter of 1999, we had two reportable segments,including "dairy" and "packaging." As a result of the sale of a majorityinterest in our U.S. plastic packaging operations effective July 2, 1999, asdiscussed in Note 5, we no longer have a reportable packaging segment undercurrent accounting rules. Our two European packaging businesses have beenincluded in the packaging segment until their disposition in March and May 2000.

Effective with the acquisition of Southern Foods Group and the formation ofSuiza Dairy Group we began a realignment of our businesses which has resulted inthe separation of our previous dairy segment into two reportable segments: SuizaDairy Group and Morningstar Foods. Our Suiza Dairy Group segment, which consistsof Suiza Dairy Group, L.P., manufactures and distributes fluid milk, ice creamand novelties, half-and-half and whipping cream, sour cream, cottage cheese, andyogurt as well as fruit juices and other flavored drinks and bottled water.



Morningstar Foods, which consists of our wholly-owned subsidiary MorningstarFoods Inc., manufactures dairy and non-dairy coffee creamers, whipping cream andpre-whipped toppings, specialty products such as lactose-reduced milk and soymilk, as well as certain refrigerated and extended shelf-life products. OurPuerto Rico and Spanish operations do not meet the definition of a segment andare reported in "Corporate/Other." All periods presented have been reclassifiedto conform with these changes.

The accounting policies of the segments are the same as those described inthe summary of significant accounting policies. We evaluate performance based onoperating profit not including nonrecurring gains and losses and foreignexchange gains and losses.

We do not allocate income taxes or management fees to segments. In addition,there are no significant noncash items other than depreciation and amortizationin reported profit or loss. The amounts in the following tables are the amountsobtained from reports used by our executive management team for the year endedDecember 31:

F-26

53

<TABLE><CAPTION>

2000 1999 1998----------- ----------- -----------

<S> <C> <C> <C>Net sales from external customers:

Suiza Dairy Group ........................ $ 4,660,329 $ 3,101,800 $ 1,960,611Morningstar Foods ........................ 704,246 655,159 611,714Packaging ................................ 42,286 489,814 504,745Corporate/Other .......................... 349,442 235,226 243,870

----------- ----------- -----------Total .................................... $ 5,756,303 $ 4,481,999 $ 3,320,940

=========== =========== ===========Intersegment sales:

Suiza Dairy Group ........................ $ 14,680 $ 8,838 $ 8,223Morningstar Foods ........................ 60,213 19,370 9,768Packaging ................................ -- 18,674 29,379Corporate/Other .......................... -- -- --

----------- ----------- -----------Total .................................... $ 74,893 $ 46,882 $ 47,370

=========== =========== ===========

Operating income:Suiza Dairy Group (1) .................... $ 289,630 $ 164,575 $ 121,888Morningstar Foods (2) .................... 100,944 83,641 67,298Packaging (3) ............................ 415 50,402 56,030Corporate/Other (4) ...................... (22,926) (21,744) (2,760)

----------- ----------- -----------Subtotal ................................. 368,063 276,874 242,456

Other items:Interest expense and financing charges ... (146,181) (87,817) (82,295)Equity in earnings of investees .......... 11,453 2,630 78Other, net ............................... 630 1,416 4,212

----------- ----------- -----------Income before income tax.................. $ 233,965 $ 193,103 $ 164,451

=========== =========== ===========

Depreciation and amortization:Suiza Dairy Group ........................ $ 105,717 $ 64,046 $ 44,157Morningstar Foods ........................ 22,849 19,644 16,336Packaging ................................ 1,529 23,020 22,309Corporate/Other .......................... 14,888 9,935 8,977

----------- ----------- -----------Total .................................... $ 144,983 $ 116,645 $ 91,779

=========== =========== ===========

Assets:Suiza Dairy Group ........................ $ 2,912,231 $ 1,750,389 $ 1,551,493Morningstar Foods ........................ 424,819 458,450 400,561Packaging ................................ -- 196,792 825,455Corporate/Other .......................... 443,428 253,291 236,274

----------- ----------- -----------Total .................................... $ 3,780,478 $ 2,658,922 $ 3,013,783

=========== =========== ===========

Capital expenditures:Suiza Dairy Group ........................ $ 90,901 $ 104,023 $ 66,927Morningstar Foods ........................ 28,162 20,344 25,288Packaging ................................ 1,313 23,650 72,323



Corporate/Other .......................... 16,500 39,625 12,332----------- ----------- -----------

Total .................................... $ 136,876 $ 187,642 $ 176,870=========== =========== ===========

</TABLE>

----------

(1) Operating income includes plant closing and other nonrecurring charges of$2.1 million and $8.7 million in 2000 and 1999, respectively. Operatingincome in 2000 includes litigation settlement costs of $7.5 million.

(2) Operating income includes plant closing and other nonrecurring charges of$0.5 million in 1999.

(3) Operating income includes plant closing and other nonrecurringcharges of $0.2 million in 1999.

(4) Operating income includes corporate office severance, plant closing andother nonrecurring charges of $1.3 million and $3.2 million in 2000 and1999, respectively.

<TABLE><CAPTION>

REVENUES LONG-LIVED ASSETS------------------------------------------ --------------------------

2000 1999 1998 2000 1999---------- ---------- ---------- ---------- ----------

(IN THOUSANDS)<S> <C> <C> <C> <C> <C>Geographic Information

United States .............. $5,364,575 $4,002,144 $2,904,498 $2,723,408 $1,810,874Puerto Rico ................ 226,661 235,226 243,870 127,487 124,199Europe ..................... 165,067 244,629 172,572 111,611 83,941

---------- ---------- ---------- ---------- ----------Total .............. $5,756,303 $4,481,999 $3,320,940 $2,962,506 $2,019,014

========== ========== ========== ========== ==========</TABLE>

F-27

54

We have no one customer within any segment which represents greater than tenpercent of our consolidated revenues.

22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The table set forth below is a summary of the unaudited quarterly results ofoperations for 2000 and 1999 (in thousands, except per share data). As a resultof the sale of our U.S. packaging operations to Consolidated Container Companyon July 2, 1999 in exchange for cash and a 43.1% interest in ConsolidatedContainer Company, the sales, gross profit and operating expenses of thisoperation subsequent to July 2, 1999 are not included in the table but areinstead consolidated onto a single line, "equity in earnings of unconsolidatedaffiliates" within income from continuing operations.

<TABLE><CAPTION>

QUARTER-------------------------------------------------------------------------

FIRST SECOND THIRD FOURTH---------------- ------------- ------------- -------------

<S> <C> <C> <C> <C>2000Net sales ............................ $ 1,394,141 $ 1,434,354 $ 1,439,947 $ 1,487,861

Gross profit ......................... 340,158 360,218 354,320 371,540Income before extraordinary gain(1) .. 20,594 33,533 31,189 28,435Net income(1) ........................ 25,562(2) 33,533 31,189 28,435Basic earnings per common share(3):

Income before extraordinary gain .. 0.71 1.16 1.13 1.05Net income .......................... 0.88 1.16 1.13 1.05

Diluted earnings per common share(3):Income before extraordinary gain .... 0.69 1.04 1.01 .95Net income .......................... 0.82 1.04 1.01 .95

1999Net sales .............................. $ 1,153,186 $ 1,118,844 $ 1,082,060 $ 1,127,909Gross profit ........................... 232,559 262,949 247,650 251,766Income before extraordinary gain(4) .... 20,873 32,147 30,449 25,358Net income(4) .......................... 20,873 32,147 30,449 26,262(5)



Basic earnings per common share(3):Income before extraordinary gain .... 0.62 0.95 0.90 0.83Net income .......................... 0.62 0.95 0.90 0.86

Diluted earnings per common share(3):Income before extraordinary gain .... 0.60 0.87 0.83 0.78Net income .......................... 0.60 0.87 0.83 0.80

</TABLE>

----------

(1) The results for the first, second, and third quarters of 2000 include plantclosing and other non-recurring charges of $0.7 million, $0.8 million and$0.3 million, respectively. Results in the second quarter include definedbenefit plan curtailment gains of $3.6 million. Results in the fourthquarter include a charge of $5.0 million for litigation settlement costsand a gain of $0.4 million related to plant closing credits at ConsolidatedContainer. All amounts are net of income taxes and minority interest.

(2) Results for the first quarter of 2000 include an extraordinary gain relatedto interest rate derivatives which became unhedged, net of an extraordinaryloss for the write-off of deferred financing costs.

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

(4) The results for the second, third and fourth quarters of 1999 include plantclosing and other non-recurring charges of $2.9 million, $3.2 million(including $0.9 million related to Consolidated Container), and $5.0 million(including $2.0 million related to Consolidated Container), respectively.All amounts are net of income taxes.

(5) The results for the fourth quarter of 1999 include an extraordinary gainfrom the resolution of contingencies related to the sale of our packaged icebusiness in 1998.

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55

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Incorporated herein by reference to our proxy statement (to be filed) forour May 17, 2001 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


25

56

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

FINANCIAL STATEMENTS

The following consolidated financial statements are filed as part of thisreport or are incorporated herein as indicated:

<TABLE><CAPTION>

PAGE



--------

<S> <C>Independent Auditors' Report......................................................................... F-1Consolidated Balance Sheets as of December 31, 2000 and 1999......................................... F-2Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998............... F-3Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000,1999 and 1998....................................................................................... F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999and 1998............................................................................................. F-5Notes to Consolidated Financial Statements........................................................... F-6

</TABLE>

EXHIBITS

See Index to Exhibits.

FINANCIAL STATEMENT SCHEDULES

Independent Auditors' Report

Schedule II -- Valuation and Qualifying Accounts

26

57

REPORTS ON FORM 8-K

None

By: /s/ BARRY A. FROMBERG--------------------------------

Barry A. FrombergExecutive Vice President and

Chief Financial Officer

Dated April 2, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, thisReport has been signed below by the following persons in the capacities and onthe dates indicated.

<TABLE><CAPTION>

NAME TITLE DATE---- ----- ----

<S> <C> <C>

/s/ GREGG L. ENGLES Chief Executive Officer and------------------------- Chairman of the Board April 2, 2001

Gregg L. Engles

/s/ PETE SCHENKEL-------------------------

Pete Schenkel Vice Chairman of the Board April 2, 2001

/s/ HECTOR M. NEVARES-------------------------

Hector M. Nevares Vice Chairman of the Board April 2, 2001

/s/ ALAN BERNON-------------------------

Alan Bernon Director April 2, 2001

/s/ TOM DAVIS Director April 2, 2001-------------------------

Tom Davis

/s/ STEPHEN L. GREEN-------------------------

Stephen L. Green Director April 2, 2001

/s/ JOSEPH S. HARDIN, JR.-------------------------

Joseph S. Hardin, Jr. Director April 2, 2001



/s/ JOHN MUSE-------------------------

John Muse Director April 2, 2001

/s/ P. EUGENE PENDER-------------------------

P. Eugene Pender Director April 2, 2001

/s/ JIM TURNER-------------------------

Jim Turner Director April 2, 2001</TABLE>

27

58

INDEPENDENT AUDITORS' REPORT

To the Board of DirectorsSuiza Foods CorporationDallas, Texas

We have audited the consolidated financial statements of Suiza FoodsCorporation and subsidiaries (the "Company") as of December 31, 2000 and 1999and for each of the three years in the period ended December 31, 2000, and haveissued our report thereon dated February 8, 2001 (March 30 as to Note 3); suchreport is included elsewhere in this Form 10-K. Our audits also included theconsolidated financial statement schedule of Suiza Foods Corporation andsubsidiaries, listed in Item 14. This consolidated financial statement scheduleis the responsibility of the Company's management. Our responsibility is toexpress an opinion based on our audits. In our opinion, such consolidatedfinancial statement schedule, when considered in relation to the basic financialstatements taken as a whole, presents fairly in all material respects theinformation set forth therein.

DELOITTE & TOUCHE LLPDallas, TexasFebruary 8, 2001

28

59

SCHEDULE II

SUIZA FOODS CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTSYEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

(IN THOUSANDS)

Allowance for doubtful accounts deducted from accounts receivable:

<TABLE><CAPTION>

RECOVERIESOF WRITE-OFF

BALANCE -- ACCOUNTS OFBEGINNING CHARGED TO WRITTEN UNCOLLECTIBLE BALANCE

YEAR OF YEAR INCOME ACQUISITIONS DISPOSITIONS OFF ACCOUNTS END OF YEAR--------- ----------- ------------ ------------- ------------ ----------- ------------- ------------

<S> <C> <C> <C> <C> <C> <C> <C>1998 3,589 4,260 13,836 47 2,429 19,3031999 19,303 4,766 1,646 1,188 158 5,836 18,8492000 18,849 10,277 8,314 2,776 215 10,708 24,171

</TABLE>

29



60

INDEX TO EXHIBITS

<TABLE><CAPTION>

EXHIBITNUMBER DESCRIPTION------- -----------

<S> <C>2.1 -- Amended and Restated Reorganization Agreement (incorporated

by reference from our Registration Statement on Form S-1 (FileNo. 333-1858)).

3.1 -- Certificate of Incorporation dated September 19, 1994(incorporated by reference from our Quarterly Report on Form10-Q for the quarter ended June 30, 1997 (File No. 1-12755).

3.2 -- Certificate of Amendment to Certificate of Incorporationdated March 27, 1995 (incorporated by reference from ourQuarterly Report on Form 10-Q for the quarter ended June 30,1997 (File No. 1-12755)).

3.3 -- Certificate of Correction of Certificate of Amendment toCertificate of Incorporation Dated June 6, 1995 (incorporatedby reference from our Quarterly Report on Form 10-Q for thequarter ended June 30, 1997 (File No. 1-12755)).

3.4 -- Certificate of Amendment to Certificate of Incorporationdated February 29, 1996 (incorporated by reference from ourQuarterly Report on Form 10-Q for the quarter ended June 30,1997 (File No. 1-12755)).

3.5 -- Certificate of Amendment to Certificate of Incorporationdated May 15, 1997 (incorporated by reference from ourQuarterly Report on Form 10-Q for the quarter ended June 30,1997 (File No. 1-12755)).

3.6 -- Certificate of Amendment of Certificate of Incorporation(incorporated by reference from our Quarterly Report on Form10-Q for the quarter ended June 30, 1998 (File No. 1-12755)).

3.7 -- Amended and Restated Bylaws (incorporated by reference fromour Quarterly Report on Form 10-Q for the quarter ended June30, 1999 (File No. 1-12755)).

4.1 -- Specimen of Common Stock Certificate (incorporated byreference to our Registration Statement On Form S-1 (File No.333-1858)).

4.2 -- Registration Rights Agreement (incorporated by reference toour Registration Statement on Form S-1 (File No. 333-1858)).

4.3 -- Rights Agreement dated March 6, 1998 among us and HarrisTrust & Savings Bank, as rights agent, which includes asExhibit A the Form of Rights Certificate (incorporated byreference from the Registration Statement on Form 8-A filed onMarch 10, 1998 (File No. 1-12755)).

4.4 -- Certificate of Trust of Suiza Capital Trust II(incorporated by reference from our Quarterly Report on Form10-Q for the quarter ended March 31, 1998 (File No. 1-12755)).

4.5 -- Amended and Restated Declaration of Trust of Suiza CapitalTrust II, dated as of March 24, 1998, among us, as Sponsor,Wilmington Trust Company, as Property Trustee, WilmingtonTrust Company, as Delaware Trustee, and Tracy L. Noll, J.Michael Lewis and Joseph B. Armes, as Regular Trustees(incorporated by reference from our Quarterly Report on Form10-Q for the quarter ended March 31, 1998 (File No. 1-12755)).

4.6 -- Indenture for the 5.5% Convertible Subordinated Debentures,dated as of March 24, 1998, among us and Wilmington TrustCompany, as Indenture Trustee (incorporated by reference fromour Quarterly Report on Form 10-Q for the quarter ended March31, 1998 (File No. 1-12755)).

4.7 -- Form of 5.5% Preferred Securities (incorporated byreference from our Quarterly Report on Form 10-Q for thequarter ended March 31, 1998 (File No. 1-12755)).



4.8 -- Form of 5.5% Convertible Subordinated Debenture(incorporated by reference from our Quarterly Report on Form10-Q for the quarter ended March 31, 1998 (File No. 1-12755)).

</TABLE>

30

61

<TABLE><CAPTION>


<S> <C>4.9 -- Preferred Securities Guarantee Agreement, dated as of March

24, 1998, between us, as Guarantor, and Wilmington TrustCompany, as Guarantee Trustee (incorporated by reference fromour Quarterly Report on Form 10-Q for the quarter ended March31, 1998 (File No. 1-12755)).

4.10 -- Registration Rights Amendment, dated March 24, 1998,between us, Suiza Capital Trust II, and Donaldson, Lufkin,Jenrette Securities Corporation, Bear, Stearns & Co. Inc. andJ.P. Morgan & Co. (incorporated by reference from ourQuarterly Report on Form 10-Q for the quarter ended March 31,1998 (File No. 1-12755)).

4.11 -- Registration Rights Agreement, dated as of January 1, 2000,between Suiza Foods Corporation, Dairy Farmers of America,Inc. and Mid-Am Capital, L.L.C. (incorporated by referencefrom our Current Report on Form 8-K dated January 11, 2000,File No. 1-12755).

*10.1 -- Suiza Foods Corporation Exchange Stock Option andRestricted Stock Plan (incorporated by reference to ourRegistration Statement on Form S-1 (File No. 333-1858)).

*10.2 -- Suiza Foods Corporation 1995 Stock Option and RestrictedStock Plan (incorporated by reference to our RegistrationStatement on Form S-1 (File No. 333-18263)).

*10.3 -- Second Amended and Restated 1997 Stock Option andRestricted Stock Plan (incorporated by reference from ourRegistration Statement on Form S-8 filed August 2, 2000 (FileNo. 1-12755)).

*10.4 -- Executive Deferred Compensation Plan (incorporated byreference from our Quarterly Report on Form 10-Q for thequarter ended June 30, 1999 (File No. 1-12755)).

*10.5 --Amendment No. 1 to Executive Deferred Compensation and Plan(incorporated by reference to Exhibit 10.3 to our RegistrationStatement filed February 11, 2000) (File No. 1-12755).

*10.6 -- Amended and Restated 1997 Employee Stock Purchase Plan(incorporated by reference from our Quarterly Report on Form10-Q for the quarter ended September 30, 2000. (File No.1-12755)).

*10. 7 -- Country Fresh, Inc. 1989 Stock Option Plan (incorporated byreference from our Annual Report on Form 10-K for the yearended December 31, 1997 (File No. 1-12755)).

</TABLE>

31

62

<TABLE><CAPTION>EXHIBITNUMBER DESCRIPTION------ -----------

<S> <C>10.8 -- Stockholders Agreement dated July 31, 1997 among us,

Franklin Plastics, Peter M. Bernon and Alan J. Bernon(incorporated by reference from our Quarterly Report on Form10-Q for the quarter ended June 30, 1997, as amended onOctober 24, 1997 (File No. 1-12755)).



10.9 -- Agreement and Plan of Merger dated as of September 28, 1997by and among us, SF Acquisition Corp. and The MorningstarFoods Group Inc. (incorporated by reference from ourRegistration Statement on Form S-4 (File No. 333-37869)).

10.10 -- Agreement and Plan of Merger dated as of January 14, 1998by and among us, CC Acquisition Corp. and Continental CanCompany, Inc. (incorporated by reference from our RegistrationStatement on Form S-4 (File No. 333-46519)).

10.11 -- Amended and Restated Declaration of Trust of Suiza CapitalTrust, dated as of February 20, 1998 (incorporated byreference from our Current Report on Form 8-K filed on March9, 1998 (File No. 1-12755)).

10.12 -- Indenture, dated as of February 20, 1998, between us, asIssuer, and Wilmington Trust Company, as Trustee (incorporatedby reference from our Current Report on Form 8-K filed onMarch 9, 1998 (File No. 1-12755)).

10.13 -- 5% Convertible Subordinated Debenture due 2018, issued byus to Suiza Capital Trust on February 20, 1998 (incorporatedby reference from our Current Report on Form 8-K filed onMarch 9, 1998 (File No. 1-12755)).

10.14 -- Certificate for Preferred Securities of Suiza CapitalTrust, issued to DFA Investment Company on February 20, 1998(incorporated by reference from our Current Report on Form 8-Kfiled March 9, 1998 (File No. 1-12755)).

10.15 -- Contribution and Merger Agreement by and among Suiza FoodsCorporation, Franklin Plastics, Inc. and affiliates, VestarPackaging LLC, Reid Plastics Holdings, Inc. and affiliates,Consolidated Container Holdings LLC, Consolidated ContainerCompany LLC and Reid Plastics Group LLC dated as of April 29,1999, as amended (incorporated by reference from our CurrentReport on Form 8-K dated July 19, 1999, File No. 1-12755).

10.16 -- Amendment No. 1 to Contribution and Merger Agreement datedJune 28, 1999 (incorporated by reference from our CurrentReport on Form 8-K dated July 19, 1999, File No. 1-12755).

10.17 -- Amended and Restated Contribution Agreement, Plan of Mergerand Purchase Agreement among us and several other entitiesrelating to our acquisition of Southern Food, Group, L.P.(incorporated by reference from our Quarterly Report on Form10-Q for the quarter ended September 30, 1999) (File No.1-12755).

10.18 -- Amended and Restated Limited Liability Company Agreement ofConsolidated Container Holdings, LLC (incorporated byreference from our Current Report on Form 8-K dated July 19,1999, File No. 1-12755).

10.19 -- Credit Agreement dated as of January 4, 2000 among SuizaDairy Group, L.P. and Southern Foods Group, L.P. as Borrowerscertain domestic subsidiaries of the parent borrower, theLenders parties thereto, First Union National Bank asAdministrative Agent, Bank One, NA as Syndication Agent, Bankof America, N.A. and Fleet National Bank as Co-DocumentationAgents and First Union Securities, Inc. and Bank One CapitalMarket, Inc., as Co-Book Runners (incorporated by referencefrom our Current Report on Form 8-K dated January 11, 2000,File No. 1-12755).

10.20 -- Credit Agreement dated as of January 4, 2000 among SuizaFoods Corporation as Borrower, certain domestic subsidiariesof the Borrower as Guarantors, the Lenders parties thereto,First Union National Bank as Administrative Agent, Bank One,NA as Syndication Agent, Bank of America, N.A. and FleetNational Bank as Co- Documentation Agents and First UnionSecurities, Inc. and Bank One Capital Markets, Inc., asCo-Book Runners (incorporated by reference from our CurrentReport on Form 8-K dated January 11, 2000, File No. 1-12755).

10.21 -- Second Amended and Restated Limited Partnership of SuizaDairy Group, L.P. (filed herewith).

*10.22 -- Form of Severance Agreement for our dairy executiveofficers (incorporated by reference from our Annual Report onForm 10-K for the year ended December 31, 1999).

</TABLE>

32



63

<TABLE><CAPTION>


<S> <C>*10.23 -- Form of Severance Agreement for certain senior officers

(incorporated by reference from our Annual Report on Form 10-Kfor the year ended December 31, 1999).

*10.24 -- Form of Severance Agreement for certain other officers(incorporated by reference from our Annual Report on Form 10-Kfor the year ended December 31, 1999).

10.25 -- Amendment No. 1 to Credit Agreement between Suiza FoodsCorporation and certain Lenders party thereto (incorporated byreference from our Quarterly Report on Form 10-Q for thequarter ended September 30, 2000) (File No. 1-12755).

10.26 -- First Amendment to Credit Agreement between Suiza DairyGroup, L.P. and certain Lenders party thereto (incorporated byreference from our Quarterly Report on Form 10-Q for thequarter ended September 30, 2000) (File No. 1-12755).

11 -- Computation of Per Share Earnings (filed herewith).

21 -- List of Subsidiaries (filed herewith).

23 -- Consent of Deloitte & Touche LLP (filed herewith).</TABLE>

----------

* Management or compensatory contract

33



1EXHIBIT 10.21

SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT

OF

SUIZA DAIRY GROUP, L.P.

2


OF


TABLE OF CONTENTS

<TABLE><CAPTION>

PAGE----

<S> <C> <C>ARTICLE I ORGANIZATIONAL MATTERS........................................................................1

1.1 Formation.......................................................................................11.2 Name............................................................................................11.3 Registered Office and Principal Office of Partnership; Addresses of Partners....................11.4 Term............................................................................................21.5 Assumed Name Certificate........................................................................21.6 Ownership.......................................................................................21.7 No Individual Authority.........................................................................21.8 Title to Partnership Property...................................................................21.9 Limits of Partnership...........................................................................2

ARTICLE II DEFINITIONS...................................................................................2

ARTICLE III PURPOSE......................................................................................11

3.1 Purposes and Scope.............................................................................11

ARTICLE IV CAPITAL CONTRIBUTIONS........................................................................11

4.1 Initial Capital Contributions..................................................................114.2 Non-Contemplated Contributions.................................................................124.3 New Investment Contributions...................................................................134.4 Capital Accounts...............................................................................144.5 Interest.......................................................................................174.6 No Withdrawal..................................................................................174.7 Limitation on Capital Contributions and Loans..................................................17

ARTICLE V ALLOCATIONS..................................................................................17



5.1 Allocation of Profits and Losses...............................................................175.2 Special Allocations............................................................................195.3 Curative Allocations...........................................................................215.4 Tax Allocations: Code Section 704(c)...........................................................215.5 Other Allocation Rules.........................................................................22

</TABLE>

i

3

<TABLE>

<S> <C> <C>ARTICLE VI DISTRIBUTIONS................................................................................22

6.1 Distributions of Available Cash................................................................226.2 Amounts Withheld...............................................................................236.3 Excess Distributions...........................................................................236.4 Tax Distributions..............................................................................236.5 Payments Not Deemed Distributions..............................................................24

ARTICLE VII MANAGEMENT OF THE PARTNERSHIP................................................................24

7.1 Management Committee...........................................................................247.2 Major Decisions................................................................................257.3 Approval of Major Decisions....................................................................267.4 Officers.......................................................................................277.5 Certificate of Limited Partnership; Qualifications to do Business..............................277.6 Compensation and Reimbursement of Partner Expenses;

Other Agreements with Partners.................................................................277.7 Outside Activities; Noncompetition.............................................................287.8 Partnership Funds..............................................................................297.9 Transactions with Affiliates...................................................................307.10 Indemnification................................................................................307.11 Liability of the Partnership...................................................................307.12 Suiza Foods Board Seat.........................................................................30

ARTICLE VIII RIGHTS AND OBLIGATIONS OF PARTNERS...........................................................30

8.1 Limitation of Liability........................................................................308.2 Return of Capital..............................................................................31

ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS.......................................................31

9.1 Records and Accounting.........................................................................319.2 Fiscal Year....................................................................................319.3 Reports........................................................................................319.4 Documents......................................................................................31

ARTICLE X TAX MATTERS..................................................................................32

10.1 Tax Matters Partner............................................................................3210.2 Annual Tax Returns.............................................................................3210.3 Notice and Limitations on Authority............................................................3310.4 Tax Elections..................................................................................3310.5 Actions in Event of Audit......................................................................3310.6 Organizational Expenses........................................................................3410.7 Taxation as a Partnership......................................................................34

ARTICLE XI TRANSFERS OF PARTNER INTERESTS...............................................................34

11.1 Transfer Restrictions..........................................................................3411.2 Consent of the Management Committee............................................................34



11.3 Tax Opinion....................................................................................3411.4 Registration...................................................................................3411.5 Prohibited Transfers...........................................................................35

</TABLE>

ii

4

<TABLE>

<S> <C> <C>11.6 Rights of Assignee.............................................................................3511.7 Admission as a Partner.........................................................................3511.8 Distributions and Allocations in Respect of Transferred Partner Interests......................3611.9 Suiza Buy-Out Option...........................................................................3611.10 DFA Registration Right.........................................................................3711.11 VOV Put Right..................................................................................37

ARTICLE XII DISSOLUTION AND LIQUIDATION..................................................................37

12.1 Dissolution....................................................................................3712.2 Continuation of the Partnership................................................................3812.3 Liquidation....................................................................................3812.4 Reserves.......................................................................................3912.5 Distribution in Kind...........................................................................4012.6 Disposition of Documents and Records...........................................................4012.7 Negative Capital Accounts......................................................................4012.8 Filing of Certificate of Cancellation..........................................................4012.9 Return of Capital..............................................................................4012.10 Waiver of Partition............................................................................40

ARTICLE XIII AMENDMENT OF AGREEMENT.......................................................................41

13.1 Amendment Procedures...........................................................................41

ARTICLE XIV GENERAL PROVISIONS...........................................................................41

14.1 Addresses and Notices..........................................................................4114.2 Titles and Captions............................................................................4214.3 Pronouns and Plurals...........................................................................4214.4 Further Action.................................................................................4214.5 Binding Effect.................................................................................4214.6 Integration....................................................................................4214.7 No Third Party Beneficiary.....................................................................4214.8 Waiver.........................................................................................4314.9 Counterparts...................................................................................4314.10 Applicable Law.................................................................................4314.11 Invalidity of Provisions.......................................................................4314.12 Confidentiality................................................................................43

</TABLE>

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OF


This AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT of SUIZA DAIRYGROUP, L.P. (the "Agreement") is entered into as of the 29th day of December2000, to be effective as of the 31st day of March, 2000 (the "Effective Date"),by and among Suiza Dairy Group GP, L.L.C., a Delaware limited liability



company, as the General Partner ("Suiza GP" or the "General Partner"), andSuiza Dairy Group Holdings, Inc., a Nevada corporation ("SDG Holdings"), DairyFarmers of America, Inc., a Kansas cooperative marketing association ("DFA"),Mid-Am Capital, L.L.C., a Delaware limited liability company ("Mid-Am"), andVOV Acquisition Corporation, a Delaware corporation ("VOV") as LimitedPartners (together, the "Limited Partners," and with Suiza Management, the"Partners"), together with any Person who becomes a Partner as provided herein.

ARTICLE I

ORGANIZATIONAL MATTERS

1.1 Formation. The Partnership was formed as a limited partnership inaccordance with the Delaware Act on September 20, 1999, pursuant to theprovisions of the Delaware Act. The Partners hereby enter into this Agreement inorder to set forth the rights and obligations of the Partners and certainmatters related thereto. Except as expressly provided and permitted herein tothe contrary, the rights and obligations of the Partners and the administrationand termination of the Partnership shall be governed by the Delaware Act.

1.2 Name. The name of the Partnership shall be, and the business of thePartnership shall be conducted under the name of, "Suiza Dairy Group, L.P." ThePartnership's business may also be conducted under any additional name or namesapproved by the Management Committee from time to time.

1.3 Registered Office and Principal Office of Partnership; Addresses ofPartners.

(a) The registered office of the Partnership in the State ofDelaware shall be 1013 Centre Road, Wilmington, DE 19805, and theregistered agent for service of process on the Partnership at suchregistered office shall be Corporation Service Partnership, 1013 CentreRoad, Wilmington, DE 19805. The principal place of business of thePartnership shall be at 2515 McKinney Ave., LB 30, Suite 1200, Dallas,Texas 75201, or such other location as determined by the ManagementCommittee. The Partnership may also maintain offices at such additionallocations as the Management Committee deems advisable.

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(b) The addresses of the Partners as of the Closing Date areset forth in Section 14.1. The address of a Partner may be changed inaccordance with the requirements set forth in Section 14.1.

1.4 Term. The existence of the Partnership commenced on theCommencement Date, and the Partnership shall continue in existence until thedissolution of the Partnership pursuant to the express provisions of Article XIIhereof (other than a dissolution that is followed by the reconstitution of thePartnership pursuant to Section 12.2).

1.5 Assumed Name Certificate. The Partners shall execute and file anyassumed or fictitious name certificate or certificates or any similar documentsrequired by law to be filed in connection with the formation and operation ofthe Partnership.

1.6 Ownership. The interest of each Partner in the Partnership shall bepersonal property for all purposes. All property and interests in property, realor personal, owned by the Partnership shall be deemed owned by the Partnershipas an entity, and no Partner, individually, shall have any ownership of suchproperty or interest except by having an ownership interest in the Partnershipas a Partner. Each of the Partners irrevocably waives, during the term of thePartnership and during any period of its liquidation following any dissolution,any right that it may have to maintain any action for partition with respect toany of the assets of the Partnership.

1.7 No Individual Authority. No Partner, acting alone, shall have any



authority to act for, or to undertake or assume, any obligation, debt, duty orresponsibility on behalf of any other Partner or the Partnership except asotherwise expressly provided in this Agreement.

1.8 Title to Partnership Property. It is the desire and intention ofthe Partners that legal title to all property of the Partnership shall be heldand conveyed in the name of the Partnership.

1.9 Limits of Partnership. The relationship between the parties heretoshall be limited to the carrying on of the business of the Partnership inaccordance with the terms of this Agreement. Such relationship shall beconstrued and deemed to be a limited partnership for the sole and limitedpurpose of carrying on such business. Except as otherwise provided for orcontemplated in this Agreement, nothing herein shall be construed to create apartnership between the Partners or to authorize any Partner to act as generalagent for any other Partner.

ARTICLE II

DEFINITIONS

The following definitions shall for all purposes, unless otherwiseclearly indicated to the contrary, apply to the terms used in this Agreement.

"Adjusted Capital Account" means, with respect to any Partner, aspecial account maintained for such Partner, the balance of which shall equalsuch Partner's Capital Account

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balance, increased by the amount (if any) of such Partner's share of thePartnership Minimum Gain and Partner Minimum Gain of the Partnership.

"Adjusted Capital Account Deficit" means, with respect to any Partner,the deficit balance, if any, in such Partner's Capital Account as of the end ofthe relevant Fiscal Year, after giving effect to the following adjustments:

(a) Credit to such Capital Account any amounts which suchPartner is obligated to restore pursuant to any provision of thisAgreement or is deemed to be obligated to restore pursuant toRegulations Section 1.704-1(b)(2)(iv)(c), the penultimate sentence ofRegulations Section 1.704-2(g)(1), or the penultimate sentence ofRegulations Section 1.704-2(i)(5); and

(b) Debit to such Capital Account the items described inRegulations Section 1.704-1(b)(2)(ii)(d)(4), (5), and (6).

The foregoing definition of Adjusted Capital Account Deficit is intended tocomply with Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpretedconsistently therewith.

"Affiliate" means, with respect to a particular Person, any otherPerson directly or indirectly Controlling, Controlled by, or under commonControl with such Person.

"Agreement" means this Limited Partnership Agreement of Suiza DairyGroup, L.P., as it may be further amended, supplemented or restated from time totime in accordance with the terms of this Agreement.

"Available Cash" of the Partnership as of any date means all cash fundsof the Partnership on hand as of such date after: (a) payment of allexpenditures of any kind, including operating expenses and capital expenditures,that are due and payable as of such date or that are expected to become due andpayable in the next 30 days; and (b) provision for adequate reserves (workingcapital and capital), with the amount of such reserves to be determined by theManagement Committee (acting reasonably and in good faith).



"Book Depreciation" has the meaning set forth in Section 4.4(b)(v).

"Book Value" has the meaning set forth in Section 4.4(c).

"Business Day" means Monday through Friday of each week, except that alegal holiday recognized as such by the government of the United States shallnot be regarded as a Business Day.

"Capital Account" means the capital account maintained for a Partnerpursuant to Section 4.4.

"Capital Contribution" means, with respect to any Partner, the amountof money and the initial Book Value of any property (other than money)contributed to the Partnership with respect

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to the interest in the Partnership held by such Partner, reduced by the amountof any liabilities of the Partner assumed by the Partnership or which aresecured by any property contributed by such Partner to the Partnership.

"Capital Transaction" means any transaction in which the Partnership(a) sells, assigns or otherwise conveys one or more of its Dairy Operations, or(b) refinances all, substantially all or a material portion of the Partnership'sdebt which is secured by assets of the Partnership.

"Certificate" means the Certificate of Limited Partnership of thePartnership filed with the Secretary of State of Delaware, as it may be amendedor restated from time to time.

"Closing Date" means the date of the first Amended and Restated LimitedPartnership Agreement of Suiza Dairy Group, L.P.

"Code" means the Internal Revenue Code of 1986, as amended and ineffect from time to time. All references herein to the Code shall include anycorresponding provision or provisions of succeeding law.

"Commencement Date" means the date that the Certificate of LimitedPartnership was filed with the Secretary of State of Delaware.

"Contribution Agreement" means the Contribution Agreement, Plan ofMerger, and Purchase Agreement dated as of September 20, 1999, by and amongSuiza Foods, Suiza SoCal Holdings, Inc., a Nevada corporation, Suiza GTLHoldings, Inc., a Delaware corporation, LOS Holdings, Inc., a DelawareCorporation, SDG Holdings, Suiza Management Corporation, a Delaware corporation,Suiza GP, the Suiza Companies, Suiza GTL, Suiza SoCal, Robinson Dairy, DFA, DFAInvestment, SFG, SFG Management, SFG Capital, the Partnership, Pete Schenkel,and, for the limited purposes indicated on the signature pages thereto, Mid-Am.

"Contributions" means the Contributions, as defined in the ContributionAgreement.

"Control" (and derivations thereof) means, with respect to a particularPerson, the ownership, directly or indirectly, of more than 50% of the equity orvoting interests in such Person.

"Dairy Operation" means any fluid milk processing operation, other thanany fluid milk processing operation where the primary product or products interms of sales or production is UHT milk or any other ultra pasteurized orextended shelf-life fluid milk product, or bottled water operation located inthe Territory.

"Default Rate" means a per annum interest rate equal to the lesser of:(a) ten percent (10%) per annum, compounded annually; and (b) the maximum rateof interest permitted to be charged by applicable law.



"Delaware Act" means the Delaware Revised Uniform Limited PartnershipAct, 6 Del. C. Section 17-101, et seq., as amended from time to time.

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"DFA" means Dairy Farmers of America, Inc., a Kansas cooperativemarketing association.

"DFA Companies" means SFG, SFG Management and SFG Capital.

"DFA Interests" has the meaning set forth in Section 11.9 hereof.

"DFA Investment" means DFA Investment Company, a Kansas cooperativemarketing association.

"DFA Manager" means the member of the Management Committee designatedby DFA pursuant to Section 7.1.

"DFA Parents" means DFA, DFA Investment and Mid-Am.

"DFA Partners" means DFA, Mid-Am and any assignees or transferees oftheir Partner Interests, to the extent each holds any Partner Interest in thePartnership. Any right or power granted to DFA or the DFA Partners may beexercised by DFA or, if DFA no longer owns any Partner Interests, then by anygroup of DFA Partners holding a majority of the Percentage Interests held by allDFA Persons.

"DFA Price" means, as of any date, the sum of (a) the aggregatePreferred Returns plus the aggregate Preferred Capital Balance for all DFAPartners, plus (b) the aggregate Formula Value of the DFA Partners.

"DFA Veto" means any occasion on which the Management Committee failsto approve a Major Decision proposed by Suiza due solely to a vote (or failureto vote) by the DFA Manager.

"Dissolution Event" has the meaning set forth in Section 12.1(b).

"EBITDA" means, for any period, the sum, for the Partnership and itssubsidiaries on a consolidated basis, without duplication in accordance withgenerally accepted accounting principles of the following: (a) Net Income, plus(b) income taxes, interest expense, depreciation and amortization, to the extentdeducted in calculating Net Income, plus (c) any Unusual Items of loss includedin calculating Net Income, minus (d) any Unusual Items of income included incalculating Net Income.

"Effective Date" means March 31, 2000.

"Event of Bankruptcy" means, with respect to any Partner or thePartnership, any of the following acts or events:

(a) making an assignment for the benefit of creditors;

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(b) filing a voluntary petition in bankruptcy;

(c) becoming the subject of an order for relief or beingdeclared insolvent or bankrupt in any federal or state bankruptcy orinsolvency proceeding;

(d) filing a petition or answer seeking a reorganization,



arrangement, composition, readjustment, liquidation, dissolution, orsimilar relief under any statute, law, or regulations;

(e) filing an answer or other pleading admitting or failing tocontest the material allegations of a petition filed against it in aproceeding of the type described in parts (a) through (d) of thedefinition;

(f) seeking, consenting to, or acquiescing in the appointmentof a trustee, receiver, or liquidator of all or any substantial part ofits properties; or

(g) the expiration of 90 days after the date of thecommencement of a proceeding against such Person seekingreorganization, arrangement, composition, readjustment, liquidation,dissolution, or similar relief under any statute, law, or regulation ifthe proceeding has not been previously dismissed or the expiration of60 days after the date of the appointment, without such Person'sconsent or acquiescence, of a trustee or receiver for the liquidationof such Person or of all or any substantial part of such Person'sproperties, if the appointment has not been previously vacated orstayed, or the expiration of 60 days after the date of expiration of astay, if the appointment has not been previously vacated.

"Fiscal Year" means the 12-month period ending December 31 of eachyear; provided that the initial Fiscal Year shall be the period beginning on theCommencement Date and ending December 31, 1999, and the last Fiscal Year shallbe the period beginning on January 1 of the calendar year in which the finalliquidation and termination of the Partnership is completed and ending on thedate such final liquidation and termination is completed (to the extent anycomputation or other provision hereof provides for an action to be taken on aFiscal Year basis, an appropriate proration or other adjustment shall be made inrespect of the initial and final Fiscal Years to reflect that such periods areless than full calendar year periods).

"Formula Value" for a particular Partner as of a particular date means(a) the Percentage Interest of such Partner, multiplied by (b) the sum of (i)7.5 times the EBITDA of the Partnership over the 12 full calendar monthsimmediately preceding such date, minus (ii) any indebtedness for borrowed moneyof the Partnership, including the Preferred Interests, as of such date;provided, that the Formula Value shall not be less than the average annualEBITDA computed over the 24 months preceding the date of determination.

"Indemnitee" has the meaning set forth in Section 7.10.

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"Independent Accountants" means any of the five largest nationallyrecognized accounting firms in the United States, as selected by the ManagementCommittee. Deloitte & Touche LLP shall be the initial Independent Accountant.

"Limited Partner" means SDG Holdings, DFA, Mid-Am, VOV and any otherPerson who is admitted as a Limited Partner in the Partnership on and after theEffective Date and whose admission has been reflected on the books and recordsof the Partnership.

"Liquidator" has the meaning set forth in Section 14.3.

"Losses" has the meaning set forth in Section 4.4(b).

"Major Decision" has the meaning set forth in Section 7.2.

"Management Committee" means the management committee of the GeneralPartner, whose members will be designated by Suiza and DFA in accordance withSection 7.1 hereof.



"Mergers" means the Mergers, as defined in the Contribution Agreement,pursuant to which the Suiza Companies will be merged into the Partnership orinto one or more limited liability companies owned, directly or indirectly, bythe Partnership.

"Mid-Am" means Mid-Am Capital, L.L.C., a Delaware limited liabilitycompany.

"Net Income" of a Person means the net income of such Person,determined in accordance with generally accepted accounting principles, appliedin a manner consistent with the manner in which Suiza Foods (or its successor)calculates its consolidated net income at such time.

"Nonrecourse Deductions" has the meaning set forth in Section1.704-2(b)(1) of the Regulations.

"Partner" means SDG Holdings, DFA, Mid-Am, VOV and any other Person whois admitted as a Partner in the Partnership on and after the Effective Date andwhose admission has been reflected on the books and records of the Partnership.

"Partner Interest" means the interest of a Partner in the Partnership,including, without limitation, such Partner's right: (a) to a distributive shareof the Profits, Losses, and other items of income, gain, loss, deduction, andcredit of the Partnership; (b) to a distributive share of the assets of thePartnership; and (c) with respect to certain Partners, to participate in themanagement and operation of the Partnership as provided in this Agreement.

"Partner Minimum Gain" shall mean partner nonrecourse debt minimum gainas determined under the rules of Regulations Section 1.704-2(i).

"Partner Nonrecourse Deduction" has the meaning set forth inRegulations Section 1.704-2(i)(1) and (2).

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"Partnership" means Suiza Dairy Group, L.P., a Delaware limitedpartnership established by filing of the Certificate with the Secretary of Stateof Delaware.

"Partnership Estimated Net Taxable Income" has the meaning set forth inSection 6.4(a).

"Partnership Minimum Gain" has the meaning set forth in RegulationsSection 1.704-2(d).

"Percentage Interest" means the percentage interest of a RegularPartner in certain allocations of Profits, Losses, and other items of income,gain, loss, or deduction and certain distributions of cash and property. Theinitial Percentage Interest of each Regular Partner is set forth below:

<TABLE><CAPTION>

REGULAR PARTNER INITIAL PERCENTAGE INTEREST--------------- ---------------------------<S> <C>SDG Holdings 66.1%DFA 33.8%Suiza Management 0.1%

-----TOTAL 100.0%

=====</TABLE>

The Percentage Interest of a Regular Partner may be adjusted pursuantto Section 4.3 hereof. After such adjustment, the Percentage Interest of such



Regular Partner, as adjusted, shall constitute such Regular Partner's PercentageInterest for all purposes under this Agreement. Mid-Am, Suiza Preferred Partner,and VOV shall not have Percentage Interests.

"Person" means an individual, corporation, partnership, limitedliability company, trust, estate, unincorporated organization, association, orother entity.

"Preferred Capital Balance" means: (a) with respect to Suiza PreferredPartner, the excess of (i) $176,272,000 plus the amount of the Preferred CapitalBalance of any additional Partner Interests issued to Suiza Preferred Partnerpursuant to Section 4.3(a), over (ii) total Preferred Capital BalanceDistributions to Suiza Preferred Partner since the Closing Date; (b) withrespect to Mid-Am, the excess of (i) $90,000,000, over (ii) total PreferredCapital Balance Distributions to Mid-Am since the Closing Date; and (c) withrespect to VOV, the excess of (i) $ 48,537,569.00, over (ii) total PreferredCapital Balance Distributions to VOV since the Effective Date.

"Preferred Capital Balance Distribution" means any distribution of cashto the Priority Partners which reduces their respective Preferred CapitalBalances. Each Preferred Capital Balance Distribution shall (a) be made to thePriority Partners in proportion to their Preferred Capital Balances, and (b) beidentified by the Managers as a Preferred Capital Balance Distribution and not adistribution under Section 6.1(a) or (b) hereof. With the approval of theManagement Committee in accordance with the provisions of Section 7.3 hereof, aPreferred Capital Balance Distribution may be made at any time.

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"Preferred Return" means, with respect to a particular PriorityPartner, an aggregate amount, computed like simple interest, compoundedannually, at a rate equal to 10% per annum on such Priority Partner's PreferredCapital Balance, except that with respect to VOV, the rate shall equal 8% perannum, or as contemplated by Section 4.3(a), reduced by distributions made tosuch Priority Partner pursuant to Section 6.1(b) below.

"Priority Partner" means Suiza Preferred Partner, Mid-Am, VOV and anypermitted successors and assigns thereof.

"Profits" has the meaning set forth in Section 4.4(b).

"Regular Partner" means the Suiza Regular Partners, DFA, and any otherPartner with a Percentage Interest greater than zero that may be admitted to theCompany in accordance with this Agreement.

"Regulations" means the Treasury Regulations promulgated under theCode, as amended and in effect (including corresponding provisions of anysucceeding regulations).

"Regulatory Allocations" has the meaning set forth in Section 5.3.

"Robinson Dairy" means Robinson Dairy, Inc., a Colorado corporation.

"Settlement Notice" has the meaning set forth in Section 7.10(c).

"Schenkel" means Pete Schenkel.

"SFG" means Southern Foods Group, L.P., a Delaware limited partnership.

"SFG Management" means SFG Management Limited Liability Company, aDelaware limited liability company.

"SFG Capital" means SFG Capital Corporation, a Delaware corporation.

"Suiza" means Suiza Management and any assignees or transferees of itsPartner Interests, to the extent each holds any Partner Interest in the



Partnership. Any right or power granted to Suiza Management or Suiza may beexercised by Suiza Management or, if Suiza Management no longer owns any PartnerInterests, then by any Persons included within the foregoing definition of"Suiza" holding a majority of the Percentage Interests held by all Personsincluded within such definition.

"SDG Holdings" means Suiza Dairy Group Holdings, Inc., a Nevadacorporation.

"Suiza Common Stock" means the common stock, $.01 par value per share,of Suiza Foods, or any securities issued in exchange for or in substitution ofsuch common stock in connection with any merger, consolidation, recapitalizationor similar event.

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"Suiza Companies" means the following companies and any additionaldairy operations contributed by the Suiza Parents pursuant to the ContributionAgreement: Broughton Foods Company, an Ohio corporation; Burger Dairy Company,an Indiana corporation; CFI-TMP, Inc., a Michigan corporation; Country DeliteFarms, Inc., a Delaware corporation; Country Fresh, Inc., a Michigancorporation; Country Fresh Wesley, Inc., a Michigan corporation; Dairy Fresh,Inc., a Delaware corporation; Dairy Products of Michigan, Inc., a Michigancorporation; East Coast Ice Cream, LLC, a Michigan limited liability company;Frostbite Brands, Inc., a Michigan corporation; Land-O-Sun Dairies, LLC, aDelaware limited liability company, LFD Holding Company, a Delaware corporation;London Farms Dairy, Inc., a Delaware corporation; Louis Trauth Dairy, Inc., aDelaware corporation; Model Dairy, Inc., a Delaware corporation; Northern FallsWater Company, Inc., a Delaware corporation; Oberlin Farms Dairy, Inc., an Ohiocorporation; Southeastern Juice Packers, Inc., a Michigan corporation; and VeldaFarms, Inc., a Delaware corporation.

"Suiza Foods" means Suiza Foods Corporation, a Delaware corporation.

"Suiza GP" means Suiza Dairy Group GP, LLC, a Delaware limitedliability company.

"Suiza GTL" means Suiza GTL, LLC, a Delaware limited liability company.

"Suiza Managers" means the members of the Management Committeedesignated by Suiza pursuant to Section 7.1.

"Suiza Parents" means Suiza Foods, Suiza SoCal Holdings, Inc., a Nevadacorporation, Suiza GTL Holdings, Inc., a Delaware corporation, LOS Holdings,Inc., a Delaware Corporation, and SDG Holdings.

"Suiza Preferred Partner" means SDG Holdings as the holder of aPreferred Capital Balance and as the owner of rights to distributions in respectthereof under Section 6.1(a), and allocations of Profits and Losses inconnection therewith.

"Suiza Regular Partners" means Suiza Management and SDG Holdings as theholders of Percentage Interests greater than zero and as the owner of rights todistributions under Section 6.1(b) hereof, and allocations of Profits and Lossesin connection therewith.

"Suiza SoCal" means Suiza SoCal, LLC, a Delaware limited liabilitycompany.

"Tax Matters Partner" has the meaning set forth in Section 11.1.

"Territory" means the continental United States, Alaska and Hawaii.

"Territory Dairy Investment" means any acquisition after the ClosingDate of a Dairy Operation located in the Territory, whether through assetpurchase, stock purchase, merger or otherwise.



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"Unusual Items" of income or loss mean any extraordinary items ofincome or loss, any nonoperating gains or losses resulting from the sale ofassets, any merger or acquisition expenses and any restructuring charges.

"VOV" means VOV Acquisition Corporation, a Delaware corporation.

ARTICLE III

PURPOSE

3.1 Purposes and Scope. Subject to the provisions of this Agreement,the purposes of the Partnership are to:

(a) acquire (i) the operations of the DFA Companies, the SuizaCompanies, Suiza GTL, Suiza SoCal and Robinson Dairy through theMergers and the Contributions and (ii) such other assets andliabilities as are contemplated to be acquired by the Partnershippursuant to the terms of the Contribution Agreement;

(b) own, operate, manage, maintain, improve, develop,purchase, sell, exchange, and otherwise acquire or dispose of DairyOperations in the Territory;

(c) borrow money in furtherance of any or all of theobjectives of the Partnership business, and to secure the same bymortgage, pledge, or other liens; and

(d) do any and all other acts or things which may beincidental or necessary to carry on the business of the Partnership asherein contemplated. The Partnership shall not engage in any otherbusiness or activity not intended to implement the foregoing withoutthe prior written consent of the Management Committee.

ARTICLE IV

CAPITAL CONTRIBUTIONS

4.1 Initial Capital Contributions. Prior to the date of this Agreement,the Suiza Parents owned, directly or indirectly, all of the outstanding equityinterests in each of the Suiza Companies (except Land-O-Sun Dairies, LLC) andRobinson Dairy, 75% of the outstanding common member interests and $120 millionaggregate stated amount of preferred member interests in Suiza GTL, 75% of theoutstanding common member interests and $95 million aggregate stated amount ofpreferred member interests in Suiza SoCal, and, together with DFA Investment,all of the outstanding equity interests in Land-O-Sun Dairies, LLC. Prior to thedate of this Agreement, the DFA Parents owned, directly or indirectly, all ofthe outstanding limited partner interests in the Partnership, 25% of theoutstanding common member interests and $40 million aggregate stated amount ofpreferred member interests in Suiza GTL, 25% of the outstanding common memberinterests and $21 million aggregate stated amount of preferred member interestsin Suiza SoCal, and $20 million stated amount of preferred interests inLand-O-Sun Dairies, LLC. Prior to the date of this Agreement, Suiza Managementhas been the sole

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general partner of the Partnership. The DFA Parents and Schenkel own, directlyor indirectly, all of the outstanding equity interests in SFG, SFG Managementand SFG Capital. Pursuant to the Contribution Agreement, (i) the Partnership



purchased from Schenkel the entire equity interests in SFG held by Schenkel forthe sum of $99 million in cash; (ii) Suiza Management purchased from Schenkelall of the member interests in SFG Management owned by Schenkel for the sum of$1 million in cash; (iii) DFA contributed its member interest in SFG Managementto the Partnership; (iv) the DFA Parents contributed, or caused the contributionof, their equity interests in SFG, their membership interests in Suiza GTL andin Suiza SoCal, the SFG Subordinated Notes held by them, and their preferredinterests in Land-O-Sun Dairies, LLC to the Partnership in exchange for commonand preferred limited partner interests in the Partnership; (v) the SuizaParents contributed or merged the Suiza Companies and Robinson Dairy into, andcontributed their membership interests in Suiza GTL and Suiza SoCal to, thePartnership in exchange for common and preferred limited partner interests inthe Partnership; (vi) Suiza Management contributed 90% of the member interestsin SFG Management it purchased from Schenkel to the Partnership in respect ofits .1% general partner interest in the Partnership; and (vii) DFA made anadditional cash contribution to, or Suiza Foods received an additional cashdistribution from, a loan from, or additional preferred interests in, thePartnership in respect of certain additional Dairy operations contributed by theSuiza Parents as contemplated therein, including, without limitation, theoperations of Robinson Dairy. Subject to adjustments made within 30 days afterthe Closing Date to the balance of any such Partner's Capital Account as of theClosing Date, it is hereby agreed that (a) Mid-Am's Capital Account as of theClosing Date was equal to $90 million, (b) Suiza Preferred Partner's CapitalAccount as of the Closing Date was equal to $176.272 million, (c) SDG Holdings'Capital Account plus Suiza Management's Capital Account as of the Closing Datewas equal to .662 times, and DFA's Capital Account as of the Closing was equalto .338 times, the aggregate Capital Accounts of all of the Partners, and (d)VOV's Capital Account as of the Effective Date shall be equal to the amount ofits Preferred Capital Balance as of the Effective Date.

4.2 Non-Contemplated Contributions.

(a) If the Management Committee approves (in accordance withthe Major Decision provisions of Section 7.3) any additional CapitalContributions beyond those described in Section 4.1, the Partnershipshall deliver a written notice to all of the Partners (although onlyPartners shall be required to make, and can make, such additionalCapital Contributions) (a "Contribution Notice") requesting suchadditional Capital Contributions. Each Contribution Notice shallspecify the following information:

(i) the aggregate amount of Capital Contributionsrequested in the Contribution Notice;

(ii) the amount of additional cash funds each Partneris required to contribute to the Partnership (which CapitalContributions shall be made by the Partners in proportion totheir Percentage Interests);

(iii) the date on which such additional CapitalContributions are due, which date shall be approved in advanceby the Management Committee; and

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(iv) wiring or other instructions for the bankaccount into which the required Capital Contribution is to bedeposited.

(b) Any Capital Contributions made pursuant to Section 4.2(a)shall be spent by the Partnership in accordance with the generaldirections of the Management Committee, as approved in connection withthe approval of such Capital Contributions.

(c) Except as provided in Sections 4.1 and 4.3 hereof and inthe foregoing provisions of this Section 4.2, no Partner shall be



required to make any Capital Contribution.

4.3 New Investment Contributions.

(a) If the Management Committee decides to make a TerritoryDairy Investment and determines that it is desirable to purchase thetarget business (i) in a qualified stock purchase (within the meaningof Section 338 of the Code) followed by a Section 338(h)(10) election,(ii) in a transaction taxed as taxable purchase of the target's stock,or (iii) in a transaction qualifying as a reorganization under Section368 of the Code, Suiza Foods shall carry out the purchase and shalltransfer the assets and liabilities of the acquired business to thePartnership. If the acquisition is effected by a transaction as towhich a Section 338(h)(10) election is made, the Partnership shall loanthe purchase price (including the related acquisition costs andexpenses recorded as purchase price) to Suiza Foods, and the transferof the assets and liabilities of the acquired business shall constituterepayment of the loan that funded the acquisition. If the acquisitionis effected by a transaction taxed as a taxable purchase of thetarget's stock, the Partnership shall loan the purchase price(including the related acquisition costs and expenses recorded aspurchase price) to Suiza Foods, and Suiza Foods shall transfer theassets and liabilities of the acquired business in exchange for apreferred Partner Interest with a Preferred Capital Balance equal tothe amount of the loan and a Preferred Return equal to the interestrate on the loan from the Partnership to Suiza Foods. If theacquisition is effected by a transaction qualifying as a reorganizationunder Section 368 of the Code, Suiza Foods, through SDG Holdings, shalltransfer the assets and liabilities of the acquired business to thePartnership as a capital contribution. In such event, DFA shall elect(i) whether to contribute to the Partnership an amount of cash equal toDFA's Percentage Interest multiplied by the value (determined using theclosing trading price on the date issued) of the Suiza Common Stocktransferred to the stockholders of the acquired corporation, plus therelated acquisition costs and expenses recorded as purchase price, anddivided by the SDG Holdings' Percentage Interests, or (ii) whether,with the mutual agreement of the Partners, the Partnership shall loanthe purchase price (including the related acquisition costs andexpenses recorded as purchase price) to Suiza Foods, and Suiza Foodsshall transfer the assets and liabilities of the acquired business inexchange for a preferred Partner Interest with a Preferred CapitalBalance equal to the amount of the loan and a Preferred Return equal tothe interest rate on the loan from the Partnership to Suiza Foods. IfDFA elects not to contribute such amount of cash and the Partnershipdoes not make a loan to Suiza Foods in exchange for such additionalpreferred Partner Interest,

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SDG Holdings' Percentage Interest shall be increased to equal thequotient (expressed as a percentage) of (i) the Formula Value for SDGHoldings immediately prior to the acquisition, plus the value(determined using the closing trading price on the date issued) of theSuiza Common Stock transferred to the stockholders of the acquiredcorporation, plus the related cash purchase price, if any, acquisitioncosts and expenses recorded as purchase price, divided by (ii) thetotal Formula Value for all Partners immediately prior to thePartnership's participation in the relevant Territory Dairy Investment,plus the value (determined using the closing trading price on the dateissued) of the Suiza Common Stock transferred to the stockholders ofthe acquired corporation, plus the related cash purchase price, if any,acquisition costs and expenses recorded as purchase price, and DFA'sPercentage Interest shall be correspondingly reduced.

(b) Notwithstanding any provision in this Agreement to thecontrary, if Suiza desires for the Partnership to participate in a



Territory Dairy Investment and the Management Committee rejects suchTerritory Dairy Investment due solely to a DFA Veto, then, in additionto any other options available to Suiza as a result of such DFA Veto(i.e., its rights under Sections 7.7(b)(iii) and 11.9), Suiza may, inits sole discretion, cause the Partnership to participate in suchTerritory Dairy Investment if Suiza (and any other Partners who agreeto participate) make any and all Capital Contributions necessary toenable the Partnership to participate in such Territory DairyInvestment (a "New Investment Contribution") (which New InvestmentContribution shall be treated as being made by SDG Holdings). Each timeSDG Holdings (and any other Partners) makes a New InvestmentContribution, the Percentage Interest of each Partner shall be adjustedto equal the quotient (expressed as a percentage) of (i) the FormulaValue for such Partner immediately prior to the Partnership'sparticipation in the relevant Territory Dairy Investment, plus theamount of the New Investment Contributions (if any) made by suchPartner with respect to the relevant Territory Dairy Investment,divided by (ii) the total Formula Value for all Partners immediatelyprior to the Partnership's participation in the relevant TerritoryDairy Investment, plus the total amount of the total New InvestmentContributions made by all Partners with respect to the relevantTerritory Dairy Investment.

4.4 Capital Accounts.

(a) Maintenance Rules. The Partnership shall maintain for eachPartner a separate Capital Account in accordance with this Section 4.4,which shall control the division of assets upon liquidation of thePartnership as provided in Section 12.3. The Capital Account shall bemaintained in accordance with the following provisions:

(i) Such Capital Account shall be increased by thecash amount or Book Value of any property contributed by suchPartner to the Partnership pursuant to this Agreement, suchPartner's allocable share of Profits and any items in thenature of income or gain which are specially allocated to suchPartner pursuant to Section 5.2 or Section 5.3 hereof, and theamount of any Partnership liabilities assumed by such Partneror which are secured by any property distributed to suchPartner.

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(ii) Such Capital Account shall be decreased by thecash amount or Book Value of any property distributed to suchPartner pursuant to this Agreement, such Partner's allocableshare of Losses and any items in the nature of deductions orlosses which are specially allocated to such Partner pursuantto Section 5.2 or Section 5.3 hereof, and the amount of anyliabilities of the Partner assumed by the Partnership or whichare secured by any property contributed by such Partner to thePartnership.

(iii) In the event all or a portion of an interest inthe Partnership is transferred in accordance with the terms ofthis Agreement, the transferee shall succeed to the CapitalAccount of the transferor to the extent it relates to thetransferred interest; provided, however, that if the transfercauses a termination of the Partnership under Section708(b)(1)(B) of the Code, then the Partnership shall be deemedto have contributed its assets to a new limited partnership inexchange for interests in the new limited partnership,followed by a distribution of the interests in the new limitedpartnership to the Partnership and liquidation of thePartnership. Such deemed liquidation and reconstitution shallnot cause the Partnership to be dissolved or reconstituted for



purposes other than maintenance of the Capital Accounts andfederal income tax, unless otherwise provided in Article XII.

The foregoing provisions and the other provisions of this Agreementrelating to the maintenance of Capital Accounts generally are intendedto comply with Section 1.704-1(b) of the Regulations and shall beinterpreted and applied in a manner consistent with such Regulations.If the Management Committee reasonably determines that it is prudent tomodify the manner in which the Capital Accounts, or any increases ordecreases to the Capital Accounts, are computed in order to comply withsuch Regulations, the Management Committee may authorize suchmodifications, provided that it does not have any effect on the amountsdistributable to any Person pursuant to Section 12.3 hereof upon thedissolution of the Partnership.

(b) Definition of Profits and Losses. "Profits" and "Losses"mean, for each Fiscal Year or other period, an amount equal to thePartnership's taxable income or loss for such year or period,determined in accordance with Code Section 703(a) (for this purpose,all items of income, gain, loss or deduction required to be statedseparately pursuant to Code Section 703(a)(1) shall be included intaxable income or loss), with the following adjustments:

(i) Income of the Partnership that is exempt fromfederal income tax and not otherwise taken into account incomputing Profits and Losses pursuant to this Section 4.4(b)shall be added to such taxable income or loss;

(ii) Any expenditures of the Partnership described inCode Section 705(a)(2)(B), or treated as Code Section705(a)(2)(B) expenditures pursuant to Regulations Section1.704-1(b)(2)(iv)(i), and not otherwise taken into

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account in computing Profits and Losses pursuant to thisSection 4.4(b) shall be subtracted from such taxable income orloss;

(iii) In the event the Book Value of any Partnershipasset is adjusted pursuant to Section 4.4(c)(ii) or Section4.4(c)(iii), the amount of such adjustment shall be taken intoaccount as gain or loss from the disposition of such asset forpurposes of computing Profits and Losses;

(iv) Gain or loss resulting from any disposition ofproperty with respect to which gain or loss is recognized forfederal income tax purposes shall be computed by reference tothe Book Value of the property disposed of, notwithstandingthat the adjusted tax basis of such property differs from itsBook Value;

(v) In lieu of the deduction for depreciation, costrecovery or amortization taken into account in computing suchtaxable income or loss, there shall be taken into account"Book Depreciation" as defined in this Section 4.4(b)(v)."Book Depreciation" for any asset means for any Fiscal Year orother period an amount that bears the same ratio to the BookValue of that asset at the beginning of such Fiscal Year orother period as the federal income tax depreciation,amortization or other cost recovery deduction allowable forthat asset for such year or other period bears to the adjustedtax basis of that asset at the beginning of such year or otherperiod. If the federal income tax depreciation, amortization,or other cost recovery deduction allowable for any asset forsuch year or other period is zero, then Book Depreciation for



that asset shall be determined with reference to suchbeginning Book Value using any reasonable method selected bythe Management Committee; and

(vi) Notwithstanding any other provision of thisSection 4.4(b), any items that are specially allocatedpursuant to Section 5.2 or Section 5.3 shall not be taken intoaccount in computing Profits and Losses.

(c) Definition of Book Value. "Book Value" means for any assetthe asset's adjusted basis for federal income tax purposes, except asfollows:

(i) The initial Book Value of any asset contributedby a Partner to the Partnership shall be the gross fair marketvalue of such asset, as determined by the ManagementCommittee.

(ii) The Book Values of all Partnership assets shallbe adjusted to equal their respective gross fair marketvalues, as determined by the Management Committee, as of thefollowing times: (A) the acquisition of an additional interestin the Partnership by any new or existing Partner in exchangefor more than a de minimis capital contribution if theManagement Committee reasonably determines that suchadjustment is necessary or appropriate to reflect the relativeeconomic interests of the Partners in the Partnership; (B) thedistribution by the

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Partnership to a Partner of more than a de minimis amount ofPartnership property as consideration for an interest in thePartnership if the Management Committee reasonably determinesthat such adjustment is necessary or appropriate to reflectthe relative economic interests of the Partners in thePartnership; and (C) the liquidation of the Partnership withinthe meaning of Regulation Section 1.704-1(b)(2)(ii)(g);

(iii) The Book Value of any Partnership assetdistributed to any Partner shall be the gross fair marketvalue of such asset on the date of distribution, as determinedby the Management Committee.

(iv) The Book Values of Partnership assets shall beincreased (or decreased) to reflect any adjustment to theadjusted basis of such assets pursuant to Code Section 734(b)or Code Section 743(b), but only to the extent that suchadjustments are taken into account in determining CapitalAccounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)and Section 5.2(d) hereof; provided, however, that Book Valuesshall not be adjusted pursuant to this Section 4.4(c)(iv) tothe extent the Management Committee determines that anadjustment pursuant to Section 4.4(c)(ii) is necessary orappropriate in connection with a transaction that wouldotherwise result in an adjustment pursuant to this Section4.4(c)(iv).

(v) If the Book Value of an asset has been determinedor adjusted pursuant to Section 4.4(c)(i), Section 4.4(c)(ii),or Section 4.4(c)(iv) hereof, such Book Value shall thereafterbe adjusted by the Book Depreciation taken into account withrespect to such asset for purposes of computing Profits andLosses.

4.5 Interest. Except as otherwise provided in this Agreement, no



interest shall be paid by the Partnership on Capital Contributions or onbalances in Capital Accounts.

4.6 No Withdrawal. No Partner shall be entitled to withdraw any part ofits Capital Contribution or its Capital Account or to receive any distributionfrom the Partnership, except as provided in Articles IV, VI, and XII.

4.7 Limitation on Capital Contributions and Loans. Except asspecifically provided in this Article IV, Article VIII, or Article XII hereof,no Partner may contribute capital, loan, or advance money to the Partnership.

ARTICLE V

ALLOCATIONS

5.1 Allocation of Profits, Losses and Certain Deductions.

(a) Allocation of Profit Generally. After giving effect to theallocations set forth in Section 5.2 and Section 5.3, and after givingeffect to all distributions of cash or

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property (other than cash or property to be distributed pursuant toArticle XII), Profits for any Fiscal Year shall be allocated to thePartners in the following manner:

(i) First, to each Partner with a negative balance inits Adjusted Capital Account, pro rata in accordance with suchnegative Adjusted Capital Account balances, until suchnegative Adjusted Capital Account balances have beeneliminated;

(ii) Next, to SDG Holdings and from DFA in an amountequal to (W) DFA's Percentage Interest multiplied by (X) theamount of any income or gain allocated to SDG Holdings duringthe Fiscal Year pursuant to Section 5.4 arising out of aTerritory Dairy Investment effected by either a transactiontaxed as a taxable acquisition of the target corporation'sstock or a transaction qualifying as a reorganization underSection 368 of the Code ("COB Acquisition"), plus any loss ordeduction allocated to SDG Holdings pursuant to Section 5.4arising out of a COB Acquisition that has not previously beentaken into account in a computation pursuant to this Section5.1(a)(ii), multiplied by (Y) the sum of the highest marginalfederal income tax rate applicable to corporations for theFiscal Year and the highest marginal state income tax rateapplicable to Suiza Foods for the Fiscal Year, expressed as apercentage, divided by (Z) one minus the sum of the highestmarginal federal income tax rate applicable to corporationsfor the Fiscal Year and the highest marginal state income taxrate applicable to Suiza Foods for the Fiscal Year, expressedas a percentage.

(iii) Next, to each Priority Partner in the minimumamount necessary to cause such Priority Partner's positiveAdjusted Capital Account balance to equal the sum of suchPriority Partner's (A) Preferred Return plus (B) PreferredCapital Balance, in proportion to such deficiencies;

(iv) Next, to the Partners in proportion to theirPercentage Interests.

(b) Allocation of Losses.



(i) After giving effect to the provisions of Section5.2 and Section 5.3, and subject to the limitation set forthin Section 5.1(b)(ii), Losses for any Fiscal Year shall beallocated to the Partners in the following manner:

(A) First, to the Partners until each oftheir Adjusted Capital Account balances is reduced tozero dollars ($0), in proportion to their AdjustedCapital Account balances;

(B) Next, in the minimum amount necessary tocause each Priority Partner's positive AdjustedCapital Account balance to equal the sum of suchPriority Partner's Preferred Return and PreferredCapital Balance, in proportion to the excess of eachsuch Priority Partner's

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Adjusted Capital Account over the amount of itsPreferred Return and Preferred Capital Balance;

(C) Next, to each Priority Partner, inproportion to their positive Adjusted Capital Accountbalances, until such positive Adjusted CapitalAccount balances have been eliminated; and

(D) Next, to the Partners in proportion totheir Percentage Interests.

(ii) Notwithstanding anything to the contrary inSection 5.1(b)(i):

(A) The Losses allocated pursuant to Section5.1(b)(i) hereof to any Partner for any Fiscal Yearshall not exceed the maximum amount of Losses thatmay be allocated to such Partner without causing suchPartner to have an Adjusted Capital Account Deficitat the end of such Fiscal Year.

(B) If some but not all of the Partnerswould have an Adjusted Capital Account Deficit as aconsequence of an allocation of Losses pursuant toSection 5.1(b)(i) hereof, the limitations set forthin this Section 5.1(b)(ii) shall be applied byallocating Losses pursuant to this Section 5.1(b)(ii)only to those Partners who would not have an AdjustedCapital Account Deficit as a consequence of receivingsuch an allocation of Losses (with the allocation ofsuch Losses among such Partners to be determined bythe Management Committee, based on the allocationthat is most likely to effectuate the distributionpriorities set forth in Section 6.1 hereof).

(C) If no Partner may receive an additionalallocation of Losses pursuant to Section5.1(b)(ii)(B) above, such additional Losses notallocated pursuant to Section 5.1(b)(ii)(B) shall beallocated solely to the Partners in proportion totheir Percentage Interests.

(c) Allocation of Certain Deductions. Any deductions allocatedto the Partnership by SFG that arise out of payment of bond tenderpremiums by SFG with respect to the SFG Subordinated Notes (as definedin the Contribution Agreement) shall be allocated to DFA in an amountequal to the amount of such bond tender premium economically borne by



DFA pursuant to Section 2.6 of the Contribution Agreement.

5.2 Special Allocations.

(a) Minimum Gain Chargeback--Partnership NonrecourseLiabilities. If there is a net decrease in Partnership Minimum Gainduring any Fiscal Year, certain items of income and gain shall beallocated (on a gross basis) to the Partners in the amounts and mannerdescribed in Regulations Section 1.704-2(f) and (j)(2)(i) and (ii),subject to the

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exemptions set forth in Regulations Section 1.704-2(f)(2), (3), (4),and (5). This Section 5.2(a) is intended to comply with the minimumgain chargeback requirement (set forth in Regulations Section1.704-2(f)) relating to Partnership nonrecourse liabilities (as definedin Regulations Section 1.704-2(b)(3)) and shall be so interpreted.

(b) Minimum Gain Chargeback--Partner Nonrecourse Debt. Ifthere is a net decrease in Partner Minimum Gain during any PartnershipFiscal Year, certain items of income and gain shall be allocated (on agross basis) as quickly as possible to those Partners who had a shareof the Partner Minimum Gain (determined pursuant to Regulations Section1.704-2(i)(5)) in the amounts and manner described in RegulationsSection 1.704-2(i)(4), (j)(2)(ii), and (j)(2)(iii). This Section 5.2(b)is intended to comply with the minimum gain chargeback requirement (setforth in Regulations Section 1.704-2(i)(4)) relating to partnernonrecourse debt (as defined in Regulations Section 1.704-2(b)(4)) andshall be so interpreted.

(c) Qualified Income Offset. If, after applying Section 5.2(a)and Section 5.2(b), any Partner has an Adjusted Capital AccountDeficit, items of Partnership income and gain shall be speciallyallocated (on a gross basis) to each such Partner in an amount andmanner sufficient to eliminate, to the extent required by theRegulations, the Adjusted Capital Account Deficit of such Partner asquickly as possible.

(d) Optional Basis Adjustments. To the extent an adjustment tothe adjusted tax basis of any Partnership asset pursuant to CodeSections 734(b) or 743(b) is required, pursuant to Regulations Section1.704-1(b)(2)(iv)(m), to be taken into account in determining CapitalAccounts, the amount of such adjustment to the Capital Accounts shallbe treated as an item of gain (if the adjustment increases the basis ofthe asset) or loss (if the adjustment decreases such basis) and suchgain or loss shall be specially allocated to the Partners in a mannerconsistent with the manner in which their Capital Accounts are requiredto be adjusted pursuant to such Section of the Regulations.

(e) Nonrecourse Deductions. Nonrecourse Deductions for anyFiscal Year shall be specially allocated among the Partners inproportion to their Percentage Interests.

(f) Partner Nonrecourse Deductions. Partner nonrecoursedeductions shall be allocated pursuant to Regulations Section1.704-2(b)(4) and (i)(1) to the Partner who bears the economic risk ofloss with respect to the deductions.

(g) Special Allocation: Economic Sharing Arrangement.Notwithstanding anything to the contrary in this Article V, thePartners acknowledge and agree that the manner in which distributionsare to be made pursuant to Section 6.1 correctly reflects the Partners'economic sharing arrangement in the Partnership. To the extent thatallocations of Profits, Losses, and other items of income, gain, loss,and deduction set forth in this Article V (other than this Section



5.2(g)) could produce an economic sharing arrangement among thePartners different than that described in Section 6.1, then thePartnership shall specially allocate items of gross income, gain, loss,and deduction among the Partners in any manner that may be required tocause the allocations of Profits,

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Losses, and other items of income, gain, loss, and deduction describedin Article V to be consistent with the economic sharing arrangementdescribed in Section 6.1.

5.3 Curative Allocations. The allocations set forth in Section5.1(b)(ii) and Section 5.2(a) through Section 5.2(f) hereof (the "RegulatoryAllocations") are intended to comply with certain requirements of theRegulations. It is the intent of the Partners that, to the extent possible, allRegulatory Allocations shall be offset either with other Regulatory Allocationsor with special allocations of other items of Partnership income, gain, loss, ordeduction pursuant to this Section 5.3. Therefore, notwithstanding any otherprovisions of this Article V (other than the Regulatory Allocations), theManagement Committee shall make such offsetting special allocations ofPartnership income, gain, loss, or deduction in whatever manner it determinesappropriate so that, after such offsetting allocations are made, each Partner'sCapital Account balance is, to the extent possible, equal to the Capital Accountbalance such Partner would have had if the Regulatory Allocations were not partof the Agreement and all Partnership items were allocated pursuant to Section5.1(a), Section 5.1(b)(i), and Section 5.2(g) hereof. In exercising itsdiscretion under this Section 5.3, the Management Committee shall take intoaccount future Regulatory Allocations under Sections 5.2(a) and 5.2(b) that,although not yet made, are likely to offset other Regulatory Allocationspreviously made under Sections 5.2(e) and 5.2(f).

5.4 Tax Allocations: Code Section 704(c).

(a) In accordance with Code Section 704(c) and the Regulationsthereunder, income, gain, loss and deduction with respect to anyproperty contributed to the capital of the Partnership shall, solelyfor tax purposes, be allocated among the Partners so as to take accountof any variation between the adjusted basis of such property to thePartnership for federal income tax purposes and its initial Book Value(computed in accordance with Section 4.4(c)(i) hereof).

(b) If the Book Value of any Partnership asset is adjustedpursuant to Section 4.4(c)(ii) hereof, subsequent allocations ofincome, gain, loss, and deduction with respect to such asset shall takeaccount of any variation between the adjusted basis of such asset forfederal income tax purposes and its Book Value in the same manner asunder Code Section 704(c) and the Regulations thereunder.

(c) Any elections or other decisions relating to suchallocation shall be made by the Management Committee.

(d) Allocations pursuant to this Section 5.4 are solely forpurposes of federal, state, and local taxes and shall not affect or inany way be taken into account in computing any Person's CapitalAccount, Adjusted Capital Account, or share of Profits, Losses, andother items or distributions pursuant to any provision of thisAgreement.

(e) It is intended that the allocations in Sections 5.1, 5.2,5.3 and 5.4 effect an allocation for federal income tax purposesconsistent with Section 704 of the Code and comply with any limitationsor restrictions therein.

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5.5 Other Allocation Rules.

(a) For purposes of determining the Profits, Losses, or anyother item allocable to any period, Profits, Losses, and any such otheritem shall be determined on a daily, monthly, or other basis, asdetermined by the Management Committee using any permissible methodunder Code Section 706 and the Regulations thereunder.

(b) For federal income tax purposes, every item of income,gain, loss and deduction shall be allocated among the Partners inaccordance with the allocations under Sections 5.1, 5.2, 5.3, and 5.4.

(c) The Partners are aware of the income tax consequences ofthe allocations made by this Article V and hereby agree to be bound bythe provisions of this Article V in reporting their shares ofPartnership income and loss for income tax purposes.

(d) The Partners agree that the Partners' Percentage Interestsrepresent the Partners' respective interests in Partnership profits forpurposes of allocating excess nonrecourse liabilities (as defined inRegulations Section 1.752-3(a)(3)) pursuant to Regulations Section1.752-3(a)(3).

ARTICLE VI

DISTRIBUTIONS

6.1 Distributions of Available Cash. The Management Committee shallreview the Partnership's accounts at the end of each calendar quarter todetermine whether distributions are appropriate. Subject to Section 17-607 ofthe Delaware Act, the Management Committee shall authorize such distributions ofAvailable Cash as it may determine in its sole discretion; provided, however, tothe extent there is sufficient Available Cash to make distributions underSection 6.1(a) hereof, such distributions shall be made. All such distributionsof cash shall be made in the manner set forth below:

(a) First, to SDG Holdings in an amount equal to (W) DFA'sPercentage Interest multiplied by (X) the amount of any income or gainallocated to SDG Holdings during the Fiscal Year pursuant to Section5.4 arising out of a Territory Dairy Investment effected by either atransaction taxed as a taxable acquisition of the target corporation'sstock or a transaction qualifying as a reorganization under Section 368of the Code ("COB Acquisition"), plus any loss or deduction allocatedto SDG Holdings pursuant to Section 5.4 arising out of a COBAcquisition that has not previously been taken into account in acomputation pursuant to Section 5.1(a)(ii), multiplied by (Y) the sumof the highest marginal federal income tax rate applicable tocorporations for the Fiscal Year and the highest state income taxapplicable to Suiza Foods during the Fiscal Year, expressed as apercentage, divided by (Z) one minus the sum of the highest marginalfederal income tax rate applicable to corporations for the Fiscal Yearand the highest state

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income tax rate applicable to Suiza Foods during the Fiscal Year,expressed as a percentage.

(b) First, to each Priority Partner with a Preferred Return,in proportion to the Preferred Return of each such Priority Partner, inan amount up to the Preferred Return of each such Priority Partner; and

(c) Next, to the Partners in proportion to their Percentage



Interests.

(d) Notwithstanding anything to the contrary above, (i) anyPreferred Capital Account Balance Distribution made by the Partnershipshall be treated as a distribution by the Partnership in reduction ofthe Priority Partners' Preferred Capital Balances but shall not be madeor taken into account under clause (a) or (b) above; and (ii) ifAvailable Cash is derived from a transaction that occurs in connectionwith the dissolution, termination and liquidation of the Partnership,any Available Cash that is derived from or attributable to such atransaction shall be distributed to the Partners in accordance withSection 12.3 hereof.

6.2 Amounts Withheld. Notwithstanding any other provision of thisAgreement to the contrary, each Partner hereby authorizes the Partnership towithhold and to pay over, or otherwise pay, any withholding or other taxespayable by the Partnership with respect to such Partner as a result of suchPartner's participation in the Partnership. If and to the extent that thePartnership shall be required to withhold or pay any such taxes, such Partnershall be deemed for all purposes of this Agreement to have received a paymentfrom the Partnership as of the time such withholding or tax is paid, whichpayment shall be deemed to be a distribution with respect to such Partner'sPartner Interest to the extent that the Partner (or any successor to suchPartner's Partner Interest) is entitled to receive a distribution. Anywithholdings authorized by this Section 6.2 shall be made at the maximumapplicable statutory rate under the applicable tax law unless the Partnershipshall have received an opinion of counsel or other evidence satisfactory to theManagement Committee to the effect that a lower rate is applicable, or that nowithholding is applicable.

6.3 Excess Distributions. To the extent that the aggregate of actualand deemed distributions to a Partner under this Article VI for any periodexceeds the distributions to which such Partner is entitled for such period, theamount of such excess shall be considered a loan from the Partnership to suchPartner. Such loan shall bear interest (which interest shall be treated as anitem of income to the Partnership) at the Default Rate, accruing from and afterthe date which is ten (10) days after a Partner, on behalf of the Partnership,makes demand for repayment of any such excess, and such interest shall accrueuntil discharged by such Partner by repayment, which shall be made out ofdistributions to which such Partner would otherwise be subsequently entitled ifthe Partner does not otherwise repay such loan.

6.4 Tax Distributions.

(a) Notwithstanding anything to the contrary in Section 6.1,the Managers shall cause the Partnership from time to time todistribute to each Partner an amount

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equal to the excess of (i) the Partnership's Estimated Net TaxableIncome (defined below) for the applicable Fiscal Year (or portionthereof) to which such distribution relates which is allocable to suchPartner, multiplied by the maximum marginal federal income and thestate tax rate applicable to the relevant corporation in effect duringthe Fiscal Year to which such distribution relates, over (ii) the sumof distributions already made to such Partner during the relevantFiscal Year. For these purposes, "Partnership Estimated Net TaxableIncome" means the excess of (Y) the estimate of the aggregate amount ofitems of taxable income and gain of the Partnership for the applicableFiscal Year (or portion thereof) to which such distribution relates,over (Z) the estimate of the aggregate amount of items of taxablededuction and loss for such Fiscal Year (or portion thereof) to whichsuch distribution relates. The Managers shall determine the PartnershipEstimated Net Taxable Income and each Partner's allocable share ofPartnership Estimated Net Taxable Income. The Partners acknowledge and



agree that the sole purpose of this Section 6.4(a) is to enable thePartnership to distribute sufficient cash to each Partner to permiteach Partner to timely satisfy its estimated income tax obligations, ifany, arising from the Partner's allocable share of the Partnership'staxable income. The Manager shall make such distributions on or aboutApril 15, June 15, September 15 and December 15 of each year and/or onany other date that similarly coincides with the due date of anyestimated income tax obligation of any Partner.

(b) Notwithstanding any provision in this Section 6.4 to thecontrary, no distributions shall be made pursuant to this Section 6.4to the extent there is not sufficient Available Cash to make suchdistributions.

(c) For purposes of this Agreement, amounts distributed to thePartners pursuant to Section 6.4 shall be deemed to be advancedistributions of amounts to be distributed pursuant to Section 6.1.

6.5 Payments Not Deemed Distributions. Any amounts paid pursuant toSection 7.6 shall not be considered distributions for purposes of thisAgreement.

ARTICLE VII

MANAGEMENT OF THE PARTNERSHIP

7.1 Management Committee.

(a) The Partnership shall be managed by the ManagementCommittee of the General Partner, which will consist of threeindividuals (the "Managers"). Two Managers shall be designated bySuiza, and one Manager shall be designated by DFA, and the GeneralPartner shall cause such persons to be elected to the ManagementCommittee. Suiza and DFA shall have the right to designate replacementsof those Managers designated by them. Each Manager designated by Suizamust be a director, officer or employee of Suiza, and each Managerdesignated by DFA must be a director, officer or employee of DFA. Theinitial Suiza Managers shall be Gregg L. Engles and Tracy L. Noll, andthe initial DFA Manager shall be Gary E. Hanman. Suiza may

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designate one of the Suiza Managers as the Chairman of the ManagementCommittee, and such Manager will preside (when present) at all meetingsof the Management Committee.

(b) The limited liability company agreement of the GeneralPartner shall be in substantially the form attached hereto as ExhibitA.

7.2 Major Decisions. The term "Major Decision" means any decision bythe Management Committee with respect to any of the following matters:

(a) admitting any Person as a Partner of the Partnership;

(b) accepting or requiring any Partner to make any additionalCapital Contribution to the Partnership or otherwise issuing additionalequity interests in the Partnership except for Capital Contributionsspecified in Section 4.3 of less than $100 million;

(c) incurring indebtedness for borrowed money (which expresslyexcludes trade payables incurred in the ordinary course of business) inexcess of $250 million;

(d) selling, leasing, pledging or granting a security interestor encumbrance in all or substantially all of the Partnership's assets,



except in connection with the incurrence of indebtedness for borrowedmoney that does not involve a Major Decision under the precedingparagraph;

(e) approving an increase in the annual capital expenditurebudget of $50 million or more over the previous annual capitalexpenditure budget for the Partnership or making any capitalexpenditure, or series of related capital expenditures, in excess of$50 million that are not contemplated by a previously approved capitalexpenditure budget;

(f) acquiring (whether through an asset purchase, merger,equity purchase or otherwise) any Dairy Operations or other assets(excluding acquisitions of raw materials and supplies in the ordinarycourse of business) having a value, individually or in the aggregatefor any series of related transactions, in excess of $250 million;

(g) selling or otherwise disposing of any Dairy Operations orother assets (excluding sales or other dispositions of inventory in theordinary course of business) having a value, individually or in theaggregate for any series of related transactions, in excess of $250million;

(h) consenting to the transfer of a Partner Interest pursuantto Section 11.2;

(i) except as otherwise permitted in Section 7.6(b) or Section7.9, entering into any transaction or agreement between the Partnershipand a Partner or an Affiliate of a Partner, including any change in thepercentage used to determine the Management Fee

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in Section 7.6(b), except for loans specified in Section 4.3 of lessthan $100 million between the Partnership and a Partner or an Affiliateof a Partner;

(j) making any material election or other decision pursuant toSection 5.4(c), which relates to Code Section 704(c);

(k) any change in the purpose or scope of the Partnershippursuant to Article III; (l) amending or granting a waiver with respectto this Agreement;

(m) authorizing any consolidation, dissolution, or liquidationof the Partnership or any merger in which the Partnership does notsurvive;

(n) executing or delivering any assignment for the benefit ofcreditors of the Partnership;

(o) filing any voluntary petition in bankruptcy orreceivership with respect to the Partnership; or

(p) making a Preferred Capital Balance Distribution, and theamount of any such Preferred Capital Balance Distribution.

7.3 Approval of Major Decisions. Notwithstanding any contraryprovisions of Section 7.1, the limited liability company agreement of theGeneral Partner shall provide the following with respect to approval of MajorDecisions:

(a) Any Major Decision must be approved by unanimous vote ofthe Managers present and entitled to vote at a meeting of theManagement Committee at which a quorum is present.



(b) The Management Committee may not approve any MajorDecision unless at least one Suiza Manager and one DFA Manager arepresent at the meeting; provided that the Suiza Manager entitled tovote may approve any Major Decision at a meeting at which no DFAManager is present if the following provisions have been satisfied withrespect to such meeting:

(i) the notice of such meeting included a statementindicating that a Major Decision would be addressed at suchmeeting and describing in general terms the nature of suchMajor Decision; and

(ii) if no DFA Manager is present at the originallyscheduled meeting, the meeting is adjourned, and a secondnotice is delivered to DFA and to the DFA Manager, marked"CONFIDENTIAL/URGENT" indicating the time at which the meetingwill be reconvened and including a statement notifying DFA andthe DFA Manager that if the DFA Manager fails to attend thereconvened meeting

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specified in the second notice, then the Major Decision to beconsidered at such meeting may be approved without any vote bythe DFA Manager. This second notice shall be delivered atleast two Business Days prior to the date of the reconvenedmeeting. At such reconvened meeting, the only business thatmay be conducted is that described in the notice of suchmeeting.

7.4 Officers. The officers of the General Partner shall include aPresident, a Secretary and such other officers as the Management Committee inits discretion may appoint, and such officers will have any powers delegated tothem by the Management Committee (subject to any limitations on the authority ofthe Management Committee set forth in this Agreement). The initial President ofthe General Partner shall be Pete Schenkel. The President of the General Partnerand certain other key employees of the General Partner and Partnership, asdetermined from time to time by the Management Committee, shall be entitled toreceive options (the "New Options") to purchase Suiza Common Stock on termsconsistent with Suiza Foods' stock option program for executives then in effect.At the time that any New Options are granted, the Partnership shall pay to SuizaFoods in cash the value of such New Options determined under the Black-Scholesformula using the closing trading price of Suiza Common Stock on the date uponwhich such New Options are granted (the "Black-Scholes Prepayment"). Certaincurrent employees of the Suiza Companies, Suiza GTL, Suiza SoCal and RobinsonDairy hold options to purchase Suiza Common Stock (the "Existing Options"). Whenany New Options or Existing Options are exercised, the Partnership shallpurchase from Suiza Foods for cash the number of shares of Suiza Common Stockthat the persons exercising such options are entitled to receive at a priceequal to the closing trading price of Suiza Common Stock on the date upon whichsuch options are exercised, minus the amount of any Black-Scholes Prepaymentmade with respect to such options, and shall transfer such shares to theexercising optionees. If any New Options expire without being exercised, SuizaFoods shall repay to the Partnership the amount of any Black-Scholes Prepaymentmade with respect to such New Options.

7.5 Certificate of Limited Partnership; Qualifications to do Business.The President or another officer of the General Partner shall cause to be filedon behalf of and at the Partnership's expense such certificates or documents(including, without limitation, copies, renewals, amendments or restatements ofthe Certificate) as may be determined by such officer to be reasonable andnecessary or appropriate for the qualification and operation of a limitedpartnership in the State of Delaware and in any other state in which thePartnership may elect to do business.

7.6 Compensation and Reimbursement of Partner Expenses; Other



Agreements with Partners .

(a) Except as provided in Section 7.6(b) and Section 7.10, noPartner shall be compensated for any services rendered to thePartnership by such Partner or its designees on the ManagementCommittee. Notwithstanding anything to the contrary in this Agreement,each Partner shall be reimbursed for out-of-pocket expenses that suchPartner makes for or on behalf of the Partnership, to the extent suchexpenses are authorized by the Management Committee.

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(b) Suiza Management and DFA will perform corporate overheadservices for the Partnership of substantially the same type and tosubstantially the same extent provided by Suiza Management to the SuizaCompanies, Suiza GTL, Suiza SoCal and Robinson Dairy, and by DFA to SFGand to SFG Management, prior to the date hereof (the "Services"). Inconsideration for the Services, the Partnership shall pay SuizaManagement and DFA a quarterly management fee (the "Management Fee"),payable within 45 days after the end of each calendar quarter. From theClosing Date through December 31, 2000, the quarterly Management Feepayable to Suiza Management and to DFA will be $7,500,000 and $250,000,respectively (pro rated for any partial quarter). Thereafter, thequarterly Management Fee payable to Suiza Management and to DFA will bean amount equal to .164% and .005%, respectively, of the Partnership'sbudgeted gross revenues for that quarter, which percentage will bereviewed annually by the Management Committee and may be changedannually, which changes, other than changes caused by a material changein the duties and responsibilities of a party providing services or bya material increase in the costs of providing services, may be madeonly in accordance with Section 7.2(i).

(c) Suiza Foods, the Partnership and DFA will enter into oneor more milk supply agreements pursuant to which DFA will provide rawmilk to certain Dairy Operations of the Partnership and to TheMorningstar Group, Inc.

7.7 Outside Activities; Noncompetition.

(a) Subject to Section 7.7(b), a Partner, any Affiliates of aPartner, and any director, officer, partner, or employee of a Partneror any Affiliate thereof, may have business interests and engage inbusiness activities in addition to those relating to the Partnershipand may engage in any businesses and activities for its own account andfor the accounts of others without having or incurring any obligationto offer any interest in or funds from such properties, businesses oractivities to the Partnership or any Partner, and no other provision ofthis Agreement shall be deemed to prohibit the Partners or any suchother Person from conducting such other businesses and activities.Neither the Partnership nor any Partner shall have any rights by virtueof this Agreement or the limited liability Partnership relationshipcreated hereby in any business Partnerships of the other Partner or anyAffiliate of such Partner or any director, officer, partner, oremployee of the other Partner or any Affiliate thereof.

(b) No Partner may, directly or indirectly, engage orparticipate in any Dairy Operations within the Territory; providedthat:

(i) nothing in this Section 7.7(b) shall restrict thebusiness operations of any current affiliate of DFA that isnot Controlled by DFA;

(ii) nothing in this Section 7.7(b) shall beconstrued as preventing any Partner from (A) engaging in anybusiness after the Closing Date that it engaged in within the



Territory prior to the Closing Date solely through entitiesother than the DFA Companies, or the Suiza Companies andRobinson Dairy, (as

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applicable), including without limitation the businessoperations of The Morningstar Group, Inc. and itssubsidiaries, Continental Can Company, Inc. and itssubsidiaries, and Horizon Organic Holding Corporation; (B)engaging in any business outside the Territory, includingSuiza Foods' dairy operations in Puerto Rico; (C) engaging inany business within the Territory in products and services notprovided by the Partnership; or (D) being a passive investoror security holder of an interest constituting less than 5% ofthe equity ownership, voting rights or debt of any of theforegoing; and

(iii) if Suiza desires for the Partnership toparticipate in a Territory Dairy Investment and the ManagementCommittee rejects such Territory Dairy Investment due to a DFAVeto, then Suiza or any of its Affiliates may engage orparticipate in such Territory Dairy Investment on terms whichare no more favorable to Suiza or such Affiliate than thoserejected by the Management Committee due to such DFA Veto, andthereafter Suiza or such Affiliate may operate the DairyOperations acquired in such Territory Dairy Investment.

(c) The Partners acknowledge and agree that their respectiveobligations under Section 7.7(b) are a material inducement andcondition to this Agreement and the obligations of the partieshereunder and that the restrictions and remedies contained in thisSection 7.7 are reasonable as to time, geographic area and scope ofactivity and do not impose a greater restraint than is necessary toprotect the goodwill and other legitimate business interests of thePartnership. It is the intent of all parties hereto that the foregoingrestrictions against unlawful and unfair competitive activities begiven the fullest effect consistent with applicable law.

(d) If the provisions of Section 7.7(b) are found by a courtof competent jurisdiction to contain unreasonable or unnecessarylimitations as to time, geographic area or scope of activity, then suchcourt is hereby directed to reform such provisions to the minimumextent necessary to cause the limitations contained therein as to time,geographical area and scope of activity to be reasonable andenforceable.

(e) The Partners acknowledge and agree that the Partnershipwould be irreparably harmed by any violation of their respectiveobligations under Section 7.7(b) and that, in addition to all otherrights or remedies available at law or in equity, the parties will beentitled to injunctive and other equitable relief to prevent or enjoinany such violation, without posting any bond whatsoever.

7.8 Partnership Funds. The funds of the Partnership shall be depositedin such segregated money-market Partnership account or Partnership accounts asare designated by the President. The officers of the Partnership shall beauthorized to sign checks or drafts against any Partnership account, andrepresentatives of Suiza shall be listed as an alternate signatory with respectto any such account. Any withdrawals from or charges against such accounts maybe made by officers or agents of the Partnership in accordance with the terms ofthe Agreement.

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7.9 Transactions with Affiliates. Except as otherwise permitted inSection 4.3, Section 7.6(b) and Section 7.6(c) and except for any transaction oragreement approved as a Major Decision pursuant to Section 7.3, the Partnershipmay not enter into any transaction or agreement with any Partner or anyAffiliate of a Partner if the terms of such transaction or agreement arematerially less favorable to the Partnership than the terms that could beobtained by the Partnership through an arms-length transaction or agreement withan unrelated party.

7.10 Indemnification. The Partnership shall indemnify and hold harmlessthe General Partner and any director, officer, employee, agent, orrepresentative of the General Partner, against all liabilities, losses, anddamages incurred by any of them by reason of any act performed or omitted to beperformed in the name of or on behalf of the Partnership, or in connection withthe Partnership's business, including attorneys' fees and any amounts expendedin the settlement of any claims or liabilities, losses, or damages, to thefullest extent permitted by the Delaware Act. The Partnership shall indemnifyand hold harmless any Limited Partner, employee, agent, or representative of thePartnership, any Person who is or was serving at the request of the Partnershipacting through the General Partner as a director, officer, partner, trustee,employee, agent, or representative of another corporation, partnership, jointventure, trust, or other enterprise, but in no event shall such indemnificationexceed the indemnification permitted by the Delaware Act. Notwithstandinganything to the contrary in this Section 7.10, in no event shall LimitedPartners be subject to personal liability by reason of the indemnificationprovisions of this Agreement.

7.11 Liability of the Partners.

(a) Neither the Partners nor their respective owners,directors, officers, employees, or agents nor their designated Managersshall be liable to the Partnership or to the other Partners for errorsin judgment or for any acts or omissions that do not constitute grossnegligence or willful or wanton misconduct.

(b) Each Partner may exercise any of the powers granted tothem by this Agreement and perform any of the duties imposed upon themhereunder either directly or by or through agents.

7.12 Suiza Foods Board Seat. For so long as the DFA Partners own atleast 10 % of the Partner Interests, Suiza shall nominate an individualdesignated by DFA for election to the Board of Directors of Suiza Foods.

ARTICLE VIII

RIGHTS AND OBLIGATIONS OF PARTNERS

8.1 Limitation of Liability. The Limited Partners shall have noliability under this Agreement except as provided in Article IV and Sections6.3, 7.7, 11.9, 11.10 and 14.12 of this Agreement.

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8.2 Return of Capital. No Partner shall be entitled to the withdrawalor return of its Capital Contribution, except to the extent, if any, thatdistributions made pursuant to this Agreement or upon termination of thePartnership may be considered as such by law and then only to the extentprovided for in this Agreement.

ARTICLE IX

BOOKS, RECORDS, ACCOUNTING AND REPORTS



9.1 Records and Accounting. The officers of the Partnership shall keepor cause to be kept appropriate books and records with respect to thePartnership's business (including without limitation, any books, records,statements, or information required to be maintained by the Partnership underthe Delaware Act), which shall at all times be kept at the principal office ofthe Partnership or such other office as the Management Committee may approve forsuch purposes. Any books and records maintained by the Partnership in theregular course of its business, including books of account and records ofPartnership proceedings, may be kept on, or be in the form of, punch cards,magnetic tape, photographs, micrographics or any other information storagedevice, provided that the books and records so kept are convertible into clearlylegible written form within a reasonable period of time. The books of thePartnership shall be maintained for financial reporting purposes on the accrualbasis of accounting.

9.2 Fiscal Year. The Fiscal Year of the Partnership shall be thecalendar year for tax and accounting purposes.

9.3 Reports.

(a) The officers of the Partnership shall deliver to eachPartner, not later than 90 days following the end of each Fiscal Year,a balance sheet, an income statement, and an annual statement of sourceand application of funds of the Partnership for such Fiscal Year.

(b) No later than 45 days after the last day of each fiscalquarter during the term of this Agreement, the officers of thePartnership shall use reasonable efforts to cause the Partnership toprepare, or cause to be prepared and delivered to each Partner abalance sheet together with a profit and loss statement for such fiscalquarter together with a cumulative profit and loss statement for theyear- end with comparative statements for the previous year ifapplicable.

9.4 Documents. Each Partner shall have the right to inspect, review andmake copies (with such copies at Partnership expense) of documents relating tothe business of the Partnership.

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ARTICLE X

TAX MATTERS

10.1 Tax Matters Partner. Suiza shall be the "Tax Matters Partner" forFederal income tax purposes pursuant to Section 6231 of the Code with respect toeach applicable taxable year of the Partnership. Suiza is authorized to dowhatever is necessary to qualify as such.

10.2 Annual Tax Returns.

(a) Suiza shall prepare or cause the Independent Accountantsto prepare, at the Partnership's expense, and shall timely file, orcause the timely filing of, all tax returns and shall, on behalf of thePartnership, timely file, or cause the timely filing of, all otherwritings required by any governmental authority having jurisdiction torequire such filing. Suiza shall submit the proposed returns to eachPartner for its review and approval no later than 15 days prior to thedue date of the returns, after giving effect to any extensions of timeunless an extension would effectively make or make unavailable amaterial tax election.

(b) If a Partner disagrees with the treatment of anypartnership item (within the meaning of Section 6231(a)(3) of the Codeand Regulations) on a tax return of the Partnership, then such Partnershall give written notice to Suiza. If, after good faith consultation,



an agreement regarding the treatment of such item cannot be reachedwithin ten (10) days after the receipt of notice, the Partnership shallseek written advice from a mutually agreed upon independent tax counselor mutually agreed upon Independent Accountants. Such advice shallrecommend the treatment which is consistent with the terms of thisAgreement, the respective interests of the Partners, and for whichthere exists substantial authority in support thereof. Such recommendedtreatment shall be the one reported on the return.

(c) Without the prior approval of the Management Committee, noPartner shall file an amended return of the Partnership or a requestfor an administrative adjustment under Section 6227 of the Code, norshall any Partner (other than the Tax Matters Partner, as providedherein) commence any administrative or judicial proceeding relating toa return of the Partnership. If, after good faith consultation, suchapproval is not provided, no Partner shall file such return or request,or commence such proceeding unless a mutually agreed upon independenttax counsel renders an opinion that there is substantial authority forthe proposed treatment of the tax items with respect to which suchreturn, request, or proceeding relates. Nothing herein shall beconstrued to prevent a Partner from undertaking any administrative orjudicial proceeding with respect to its own return.

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10.3 Notice and Limitations on Authority.

(a) Each Partner shall notify the other Partners upon receiptof any notice regarding a material audit or tax examination of thePartnership and upon any request for material information by UnitedStates federal, state, local, or other tax authorities.

(b) Suiza shall, within ten (10) days after the receiptthereof, forward to each Partner a photocopy of any materialcorrespondence relating to the Partnership received from the InternalRevenue Service. Suiza shall, within ten (10) days thereof, advise eachPartner in writing of the substance of any material conversationaffecting the Partnership held with any representative of the InternalRevenue Service.

(c) Suiza shall have all the authority granted by the Code andRegulations to the Tax Matters Partner, including the authority:

(i) to enter into a settlement agreement with theInternal Revenue Service which purports to bind Partners otherthan the Tax Matters Partner;

(ii) to file a petition as contemplated in Section6226(a) or 6228 of the Code;

(iii) to intervene in any action as contemplated inSection 6226(b)(5) of the Code;

(iv) to file any request contemplated in Section6227(b) of the Code; and

(v) to enter into an agreement extending the periodof limitations as contemplated in Section 6229(b)(1)(B) of theCode.

10.4 Tax Elections. Suiza shall do all acts, make all elections andtake whatever reasonable steps are required to maximize, in the aggregate, thefederal, state, and local income tax advantages available to the Partnership andshall defend all tax audits and litigation with respect thereto at the expenseof the Partnership. Suiza shall maintain the books, records, and tax returns ofthe Partnership in a manner consistent with the acts, elections and steps taken



by the Partnership. In making any election for each Fiscal Year for taxpurposes, Suiza shall make such election, to the extent reasonably possible, ina manner that maximizes the benefit and minimizes the detriment of each suchelection to each Partner.

10.5 Actions in Event of Audit. If an audit of the Partnership's taxreturns occurs, Suiza shall, at the expense of the Partnership, notify thePartners thereof, participate in the audit and contest, and settle or otherwisecompromise assertions of the auditing agent which may be adverse to thePartnership in accordance with this Article X. Suiza may, if it determines thatthe retention of accountants or other professionals would be in the bestinterests of the Partnership, retain such accountants or other professionals toassist in such audits. The Partnership shall indemnify and reimburse Suiza forall reasonable expenses, including legal and accounting fees,

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claims, liabilities, losses and damages borne by Suiza or its Affiliates whichwere incurred in connection with any administrative or judicial proceeding withrespect to any audit of the Partnership's tax returns, except to the extentcaused by the gross negligence or willful misconduct of Suiza.

10.6 Organizational Expenses. The Partnership shall elect to deductexpenses incurred in organizing the Partnership ratably over a 60-month periodas provided in Section 709 of the Code.

10.7 Taxation as a Partnership. No election shall be made by thePartnership or any Partner for the Partnership to be excluded from theapplication of any of the provisions of Subchapter K, Chapter 1 of Subtitle A ofthe Code or from any similar provisions of any state tax laws.

ARTICLE XI

TRANSFERS OF PARTNER INTERESTS

11.1 Transfer Restrictions. A Partner may not transfer any portion ofits Partner Interest unless such Partner has otherwise complied with theprovisions of Sections 11.2, 11.3, and 11.4 hereof; provided that the provisionsof Sections 11.2, 11.3 and 11.4 will not apply to (a) a transfer pursuant toSection 11.9 or 11.10; (b) a pledge by a Partner of its Partner Interest tosecure bona fide indebtedness to such Partner or its Affiliates or any transferof such Partner Interest to or by the pledgee in connection with or followingforeclosure of such pledge; or (c) a transfer by VOV of its Partner Interest toan Affiliate. For purposes of this Article XI, the term "transfer," when usedwith respect to a Partner Interest, includes a sale, assignment, gift, pledge,encumbrance, hypothecation, mortgage, exchange, or any other disposition.

11.2 Consent of the Management Committee. Except for a transfer by aPartner to an Affiliate of such Partner, the Partner Interest of a Partner maynot be transferred without the written consent of the Management Committee,which consent may be unreasonably withheld.

11.3 Tax Opinion. The transferor of any Partner Interests shall providean opinion of counsel, satisfactory to the other Partner, that the proposedassignment, transfer, or sale would not cause the termination of the Partnershipfor federal income tax purposes.

11.4 Registration. If any Partner Interest is to be assigned,transferred or sold, either: (a) such Partner Interest shall be registered underthe Securities Act of 1933, as amended, and any applicable state securitieslaws; or (b) the transferor shall provide an opinion of counsel that theproposed assignment, transfer, or sale is exempt from such registrationrequirements, which opinion shall not be deemed provided unless and until it isaccepted by the Management Committee. Except as otherwise provided in Section11.10, the Partnership and the Partners have no obligation or intentionwhatsoever either to register Partner Interests for resale under any federal or



state securities laws or to take any action which would make available to anyPerson any exemption from the registration requirements of such laws.

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11.5 Prohibited Transfers. Any transfer or purported transfer, whetherby operation of law or otherwise, of a Partner Interest shall be null and voidand of no legal effect if such transfer is prohibited by this Article XI or byother provisions of this Agreement.

11.6 Rights of Assignee.

(a) Except as provided in this Article XI, and as required byoperation of law, the Partnership shall not be obligated for anypurpose whatsoever to recognize the transfer by any Partner of aPartner Interest if such transfer violates the terms of this ArticleXI.

(b) Any transfer of Partner Interests must be in writing, maynot contravene any of the provisions of this Agreement or the DelawareAct, and must be executed by the transferor and delivered to thePartnership and recorded on the books of the Partnership. Any transferwhich contravenes any of the provisions of this Agreement or theDelaware Act shall be of no force and effect and shall not berecognized by the Partnership.

(c) A transferee of Partner Interests who is not already aPartner or is not admitted as a Partner pursuant to Section 11.7 shallhave no right to require any information or account of thePartnership's transactions or to inspect the Partnership books or tovote, but shall only be entitled to receive the allocations anddistributions to which his transferor would otherwise be entitled underthis Agreement.

(d) Any transferee who does not become a Partner and desiresto make a further transfer of such Partner Interest shall be subject toall of the provisions of this Article XI to the same extent and in thesame manner as any Partner desiring to transfer his Partner Interest.

11.7 Admission as a Partner.

(a) Subject to the other provisions of this Article XI, apermitted transferee of a Partner Interest (if such transferee is notalready a Partner) shall be admitted as a Partner only after thesatisfactory completion of items (i) through (iv) below, and ifapplicable, item (v):

(i) The transferee accepts and agrees to be bound bythe terms and provisions of this Agreement;

(ii) a counterpart of this Agreement and such otherdocuments or instruments as the Management Committee mayreasonably require is executed by the transferee to evidencesuch acceptance and agreement;

(iii) the transferee pays or reimburses thePartnership for all reasonable legal fees, filing, andpublication costs incurred by the Partnership in connectionwith the admission of the transferee as a Partner;

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(iv) the Management Committee approves the admissionof such permitted transferee, which approval may be withheldin the unreasonable discretion of such Management Committee;and

(v) if the transferee is not an individual, thetransferee provides the Partnership with evidence satisfactoryto counsel for the Partnership of the authority of suchtransferee to become a Partner under the terms and provisionsof this Agreement.

(b) The Management Committee or officers of the Partnershipshall make all official filings and publications as promptly aspracticable after the satisfaction by the transferee of the conditionscontained in this Article XI to the admission of such transferee as aPartner.

11.8 Distributions and Allocations in Respect of Transferred PartnerInterests. If any Partner Interest is sold, assigned, or transferred during anyFiscal Year without violating the provisions of this Article XI, Profits,Losses, and all other items attributable to the transferred (or adjusted)interest for such period shall be divided and allocated between the affectedPersons by taking into account their varying interests during the period inaccordance with Code Section 706(d), using any conventions permitted by law andapproved by the Management Committee. All distributions on or before the date ofsuch transfer shall be made to the transferor. Solely for purposes of makingsuch allocations and distributions in the case of a transfer, the Partnershipshall recognize such transfer not later than the end of the calendar monthduring which it is given notice of such transfer, provided that if thePartnership does not receive a notice stating the date such Partner Interest wastransferred and such other information as the Management Committee mayreasonably require within 30 days after the end of the Fiscal Year during whichthe transfer occurs, then all of such items shall be allocated, and alldistributions shall be made, to the Person who, according to the books andrecords of the Partnership, on the last day of the Fiscal Year during which thetransfer occurs, was the owner of the Partner Interest. Neither the Partnershipnor any Partner shall incur any liability for making allocations anddistributions in accordance with the provisions of this Section 11.8, whether ornot any Partner or the Partnership has knowledge of any transfer of ownership ofany interest.

11.9 Suiza Buy-Out Option.

(a) If Suiza proposes any Major Decision and the ManagementCommittee rejects such Major Decision solely due to a DFA Veto, thenSuiza, or an Affiliate of Suiza, shall have the option, exercisable bywritten notice to DFA (the "Buy-Sell Notice") within thirty (30)Business Days following the date of the DFA Veto, to purchase all thePartner Interests held by the DFA Partners (the "DFA Interests") inexchange for the DFA Price, calculated as of the date of the Buy-SellNotice. Any portion of the DFA Price may, at the election of Suiza, bepaid in shares of Suiza Common Stock; provided such Suiza Common Stockis then traded on a national securities exchange or the Nasdaq StockMarket. For purposes of this paragraph, each share of Suiza CommonStock shall be deemed to have a value equal to the average

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closing price of the Suiza Common Stock over the twenty (20) tradingdays commencing ten (10) business days preceding the date of theBuy-Sell Notice. The DFA Price will be allocated among the DFA Partnersas follows: (i) first to Priority Partners, in an amount equal to theiraggregate Preferred Returns plus their aggregate Preferred CapitalBalances, and (ii) second, to all DFA Partners, in proportion to theirPercentage Interests.



(b) If Suiza timely elects to acquire the DFA Interests inconnection with any DFA Veto, the closing of the transfer of the DFAInterests shall occur within 45 days after the date of the Buy-SellNotice or such longer period as may be necessary to satisfy applicablelegal requirements. At the closing, the DFA Partners shall assign allof their DFA Interests to Suiza, or any designated Affiliate of Suiza,by written assignment with special warranty of title in a formreasonably acceptable to Suiza. The DFA Partners shall convey theirentire interest in the Partnership, free and clear of all liens,claims, and encumbrances, and the DFA Partners shall execute anddeliver to Suiza, or any designated Affiliate of Suiza, all documentswhich may be reasonably required to give effect to the sale andpurchase of such DFA Interests. The DFA Partners shall have a right todemand a shelf registration of any Suiza Common Stock issued in paymentof the DFA Price as set forth in the Registration Rights Agreement(Suiza Common Stock) of even date herewith.

11.10 DFA Registration Right. DFA shall have a right to demandregistration of its Percentage Interest as set forth in the Registration RightsAgreement (Venture Interests) of even date herewith.

11.11 VOV Put Right. Upon written notice by VOV, or its permittedsuccessors or assigns at any time after the Effective Date, the Partnershipshall purchase VOV's Partner Interest for an amount equal to VOV's PreferredCapital Balance plus any accrued but unpaid Preferred Return as of the closingdate of such purchase, subject to the terms and conditions mutually agreed uponby the Partnership and VOV.

ARTICLE XII

DISSOLUTION AND LIQUIDATION

12.1 Dissolution.

(a) Except as set forth in this Agreement, no Partner shallhave the right to terminate this Agreement or to dissolve thePartnership by its express will or by withdrawal without the consent ofthe other Partners.

(b) The Partnership shall be dissolved upon the first to occurof any of the following events: (each such event is referred to as a"Dissolution Event"):

(i) the expiration of its term as provided in Section1.4;

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(ii) any Partner suffers an Event of Bankruptcy or isotherwise liquidated and dissolved;

(iii) an election to dissolve the Partnership isunanimously approved in writing by the Partners;

(iv) any other event occurs that, under the DelawareAct, would cause the Partnership's dissolution; or

(v) any pledgee or transferee of a pledgee of PartnerInterests having the right to vote more than 50% of thePercentage Interests elects in writing to dissolve thePartnership.

12.2 Continuation of the Partnership. Upon the occurrence of an eventdescribed in Section 12.1(b)(ii) or Section 12.1(b)(iv), the Partnership shallbe carried on without dissolution if approved by Partners holding 50% or more of



the Percentage Interests. In all other cases, upon the occurrence of an eventdescribed in Section 12.1(b), the Partnership shall be deemed to be dissolvedand reconstituted only if Partners holding 100% of the Percentage Interests(excluding for these purposes any Percentage Interests held by the Partner withrespect to which such Dissolution Event occurred) elect to continue thePartnership within 90 days of such event. If no election to continue thePartnership is made within 90 days of such event, the Partnership shall conductonly those activities necessary to wind up its affairs. If an election tocontinue the Partnership is made upon the occurrence of an event described inSection 12.1(b), then:

(a) the Partnership shall be deemed to be reconstituted andshall continue until the end of the term for which it is formed unlessearlier dissolved in accordance with this Article XII; and

(b) all necessary steps shall be taken to amend or restatethis Agreement and the Certificate of Limited Partnership, providedthat the right of Partners holding 100% of the Percentage Interests(excluding for these purposes any Percentage Interests held by aPartner with respect to which such Dissolution Event occurred) tocontinue the Partnership shall not exist and may not be exercisedunless the Partnership has received an opinion of counsel acceptable tothe Management Committee that (i) the exercise of the right would notresult in the loss of limited liability of any Partner; and (ii)neither the Partnership nor the reconstituted Partnership would betreated as an association taxable as a corporation for federal incometax purposes upon the exercise of such right to continue.

12.3 Liquidation.

(a) Upon the dissolution of the Partnership, unless anelection to continue the Partnership is made pursuant to Section 12.2,Suiza shall serve as liquidator ("Liquidator") of the Partnership.

(b) Upon dissolution or resignation of the Liquidator, asuccessor and substitute Liquidator (who shall have and succeed to allrights, powers and duties of the

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original Liquidator) shall within 30 days thereafter be approved by thePartners holding 60% of the Percentage Interests. The right to appointa successor or substitute Liquidator in the manner provided hereinshall be recurring and continuing for so long as the functions andservices of the Liquidator are authorized to continue under theprovisions hereof, and every reference herein to the Liquidator will bedeemed to refer also to any such successor or substitute Liquidatorappointed in the manner herein provided.

(c) Except as expressly provided in this Article XII, theLiquidator appointed in the manner provided herein shall have and mayexercise, without further authorization or consent of any of theparties hereto, all of the powers conferred upon the ManagementCommittee under the terms of this Agreement (but subject to all of theapplicable limitations, contractual and otherwise, upon the exercise ofsuch powers, including the limitations set forth in Section 7.3) to theextent necessary or desirable in the good faith judgment of theLiquidator to carry out the duties and functions of the Liquidatorhereunder for and during such period of time as shall be reasonablyrequired in the good faith judgment of the Liquidator to complete thewinding up and liquidation of the Partnership as provided for herein.

(d) Except as otherwise provided in this Article XII(including Section 12.5 below), the Liquidator shall liquidate theassets of the Partnership, and, after making all allocations and



distributions otherwise required by this Agreement, shall apply anddistribute the net proceeds of such liquidation in the following orderof priority:

(i) to the creditors of the Partnership, includingPartners, in the order of priority provided by applicable law;

(ii) then, to each Priority Partner with a PreferredReturn, in proportion to the Preferred Return of each suchPriority Partner, in an amount up to the Preferred Return ofeach Priority Partner;

(iii) then, to each Priority Partner, in proportionto the Preferred Capital Balance of each such PriorityPartner, in an amount up to the Preferred Capital Balance ofeach Priority Partner; and

(iv) finally, the remaining balance of theliquidation proceeds, if any, to the Partners in accordancewith their respective positive Capital Account balances, aftertaking into account all allocations of Profit, Loss and otheritems of income, gain, loss and deduction, and distributionsfor all periods, including prior distributions made pursuantto this Article XII; provided, however, that, notwithstandinganything in this Article XII to the contrary, the Liquidatormay place in escrow a reserve of cash or other assets of thePartnership for contingent liabilities in an amount determinedby the Liquidator to be appropriate for such purposes.

12.4 Reserves. After all of the assets of the Partnership have beendistributed, the Partnership shall terminate. If at any time thereafter anyfunds in any cash reserve fund referred

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to in Section 12.3(d) are released because the need for such cash reserve fundhas ended, such funds shall be distributed to the Partners in the same manner asif such distribution had been made pursuant to Section 12.3(d).

12.5 Distribution in Kind. Notwithstanding the provisions of Section12.3 which require the liquidation of the assets of the Partnership, but subjectto the order of priorities set forth therein and subject also to Section 12.4,if upon the dissolution of the Partnership the Management Committee determinesthat an immediate sale of part or all of the Partnership's assets would beimpractical or would cause undue loss to the Partners, the Liquidator may, ingood faith, defer for a reasonable time the liquidation of any assets exceptthose necessary to satisfy liabilities of the Partnership (other than those toPartners). The Liquidator may distribute to the Partners, in lieu of cash, suchPartnership assets as the Liquidator deems not suitable for liquidation. Anydistributions in kind shall be subject to such conditions relating to thedisposition and management thereof as the Liquidator and the ManagementCommittee deem reasonable and equitable. The Liquidator shall value any propertydistributed in kind based upon such property's fair market value as determinedusing such reasonable method of valuation as it may adopt.

12.6 Disposition of Documents and Records. All documents and records ofthe Partnership, including, without limitation, all financial records, vouchers,canceled checks and bank statements, shall be delivered to Suiza upontermination of the Partnership. Suiza shall retain such documents and recordsfor a period of not less than six (6) years and shall make such documents andrecords available during normal business hours to any other Partner forinspection and copying at the other Partner's cost and expense.

12.7 Negative Capital Accounts. If, after the allocations of Profit,Loss, and other items of income, gain, loss, deduction or credit under Article Vand after distributions of cash under Article VI, any Partner shall ever have a



negative balance in such Partner's Capital Account, no Partner shall have anyobligation to restore such negative balance, or to make any contribution to thecapital of the Partnership by reason thereof, and such negative balance shallunder no circumstances be considered a liability of the Partnership or of anyPartner.

12.8 Filing of Certificate of Cancellation. Upon the completion of thedistribution of Partnership property as provided in Sections 12.3, 12.4, and12.5, the Partnership shall be terminated, and the Liquidator (or the Partnersif necessary) shall cause the Certificate to be canceled and will take suchother actions as may be necessary to terminate the Partnership.

12.9 Return of Capital. No Partner shall be personally liable for thereturn of the Capital Contributions of any other Partners, or any portionthereof, it being expressly understood that any such return shall be made solelyfrom Partnership assets.

12.10 Waiver of Partition. Each Partner hereby waives any rights topartition of the Partnership property.

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ARTICLE XIII

AMENDMENT OF AGREEMENT

13.1 Amendment Procedures.

(a) Amendments to this Agreement may be proposed by anyPartner, which shall give written notice to all Partners of the text ofsuch amendment, together with a statement of the purpose of suchamendment.

(b) Proposed amendments to this Agreement shall be adopted ifthey have been approved in writing by Partners holding 90% of thePercentage Interests; provided that any amendment that affects thePreferred Partners in any material respect must also be approved inwriting by Partners with aggregate Preferred Capital Balances equal toat least 90% of the aggregate Preferred Capital Balances of allPriority Partners. The President shall, within a reasonable time afterthe adoption of any amendment to this Agreement, make official filingsor publications required or desirable to reflect such amendment,including any required filing for recordation of any parallel amendmentto the Certificate.

ARTICLE XIV

GENERAL PROVISIONS

14.1 Addresses and Notices. Any notice provided in or permitted underthis Agreement shall be made in writing and may be given or served by: (a)delivering the same in person to the party to be notified; (b) depositing thesame in the mail, postage prepaid, registered or certified with return receiptrequested, and addressed to the party to be notified at the address hereinspecified; (c) delivering the same on a prepaid basis via a nationallyrecognized courier service, such as Federal Express; or (d) sending the same byfacsimile transmission, followed by delivery of a hard copy via a nationallyrecognized courier service, such as Federal Express. If notice is deposited inthe mail pursuant to this Section 14.1, it will be deemed received on the third(3rd) Business Day after it is so deposited. Notice given in any other mannershall be deemed received only if and when actually received by the party to benotified. For the purpose of notice, the address of the parties shall be, untilchanged as hereinafter provided for, as follows:

If to any DFA Partner: with a copy to:



Dairy Farmers of America, Inc. McDermott, Will & EmeryNorthpointe Tower, Suite 1000 227 West Monroe Street10220 N. Executive Hills B-1 Chicago, Illinois 60606-5096Kansas City, MO 64153 Attention: Michael R. FayheeAttention: President and General Counsel Telecopy: (312) 984-7700Telecopy: 816-801-6593

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If to any Suiza Parent: with a copy to:

Suiza Foods Corporation Hughes & Luce, L.L.P.2515 McKinney Ave., LB 30, Suite 1200 1717 Main Street, Suite 2800Dallas, Texas 75201 Dallas, Texas 75201Attention: Chief Executive Officer Attention: William A. McCormackand General CounselTelecopy: (214) 303-3499 Telecopy: (214) 939-5849

The parties shall have the right from time to time and at any time to changetheir respective addresses and each shall have the right to specify as itsaddress any other address by at least 15 days' prior written notice to the otherparties. Each party shall have the right from time to time to specify additionalparties (not to exceed two additional parties) to whom notice hereunder must begiven by delivering to the other party 15 days' prior written notice thereof,setting forth the address of such additional parties. Notice required to bedelivered hereunder to any party shall not be deemed to be effective until theadditional parties, if any, designated by such party have been given notice in amanner deemed effective pursuant to the terms of this Section 14.1.

14.2 Titles and Captions. All article and section titles and captionsin this Agreement are for convenience only. They shall not be deemed part ofthis Agreement and in no way define, limit, extend or describe the scope orintent of any provisions hereof. Except as specifically provided otherwise,references to "Articles" and "Sections" are to Articles and Sections of thisAgreement.

14.3 Pronouns and Plurals. Whenever the context may require, anypronoun used in this Agreement shall include the corresponding masculine,feminine or neuter forms, and the singular form of nouns, pronouns and verbsshall include the plural and vice versa. The locative adverbs "hereof,""herein," "hereafter," etc. refer to this Agreement as a whole.

14.4 Further Action. The parties shall execute all documents, provideall information and take or refrain from taking action as may be necessary orappropriate to achieve the purposes of this Agreement.

14.5 Binding Effect. This Agreement shall be binding upon and inure tothe benefit of the parties hereto and their heirs, executors, administrators,successors, legal representatives, and permitted assigns.

14.6 Integration. This Agreement constitutes the entire agreement amongthe parties hereto pertaining to the subject matter hereof and supersedes allprior agreements and understandings pertaining thereto.

14.7 No Third Party Beneficiary. This Agreement is made solely andspecifically between and for the benefit of the parties hereto, and theirrespective successors and assigns subject to the express provisions hereofrelating to successors and assigns, and no other Person whatsoever shall haveany rights, interest, or claims hereunder or be entitled to any benefits underor on account of this Agreement as a third party beneficiary or otherwise. It isexpressly

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understood that the right of the Partnership or the Partners to require anyadditional Capital Contributions under the terms of this Agreement shall not beconstrued as conferring any rights or benefits to or upon any Person not a partyto this Agreement, or the holder of any obligations secured by a mortgage, deedof trust, security interest or other lien or encumbrance upon or affecting thePartnership or any interest of a Partner therein.

14.8 Waiver. No failure by any party to insist upon the strictperformance of any covenant, duty, agreement or condition of this Agreement orto exercise any right or remedy consequent upon a breach thereof shallconstitute waiver of any such breach or any other covenant, duty, agreement orcondition.

14.9 Counterparts. This Agreement may be executed in counterparts, allof which together shall constitute one agreement binding on all the partieshereto, notwithstanding that all such parties are not signatories to theoriginal or the same counterpart. Each party shall become bound by thisAgreement immediately upon affixing its signature hereto or, in the case of atransferee, upon executing and delivering such documents as required by theManagement Committee.

14.10 APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCEWITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THEPRINCIPLES OF CONFLICTS OF LAW.

14.11 Invalidity of Provisions. If any provision of this Agreement isdeclared or found to be illegal, unenforceable or void, in whole or in part,then the parties shall be relieved of all obligations arising under suchprovision, but only to extent that it is illegal, unenforceable or void, itbeing the intent and agreement of the parties that this Agreement shall bedeemed amended by modifying such provision to the extent necessary to make itlegal and enforceable while preserving its intent or, if that is not possible,by substituting therefor another provision that is legal and enforceable andachieves the same objectives.

14.12 Confidentiality. Each party to this Agreement agrees to keepconfidential the terms of this Agreement and any materials provided inconnection with this Agreement. Notwithstanding the foregoing, each party tothis Agreement may disclose the terms, and any and all materials provided inconnection with this Agreement (a) to its counsel, accountants, auditors orother agents whose custom it is to hold such information confidential, (b) asmay be required by any statute, court order, administrative order or decree ofgovernmental ruling or regulation of the United States or other applicablejurisdiction, including Internal Revenue Service auditors, or as may berequested by the Internal Revenue Service or any other governmental entity, or(c) to such other Persons as are reasonably deemed necessary by such party toprotect the interests of such party or for the purposes of enforcing suchdocuments.

SIGNATURE PAGES ARE ATTACHED HERETO

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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,have executed this Agreement as of the day and year first above written.

PARTNERS:

SUIZA DAIRY GROUP HOLDINGS, INC., aNevada corporation



By: /s/ LISA N. TYSON-----------------------------------------

Name: Lisa N. Tyson---------------------------------------

Title: Vice President--------------------------------------

DAIRY FARMERS OF AMERICA, INC., aKansas cooperative marketing association

By: /s/ DAVID A. GEISLER-----------------------------------------

Name: David A. Geisler---------------------------------------

Title: Corporate Vice President--------------------------------------

MID-AM CAPITAL, L.L.C., a Delawarelimited liability company

By: /s/ GERALD L. BOS-----------------------------------------

Name: Gerald L. Bos---------------------------------------

Title: CEO/Treasurer--------------------------------------

VOV ACQUISITION CORPORATION,a Delaware corporation

By: /s/ LISA N. TYSON-----------------------------------------

Name: Lisa N. Tyson---------------------------------------


GENERAL PARTNER:

SUIZA DAIRY GROUP GP, LLC,a Delaware limited liability company

By: /s/ LISA N. TYSON-----------------------------------------

Name: Lisa N. Tyson---------------------------------------


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EXHIBIT A

LIMITED LIABILITY COMPANY AGREEMENT OFSUIZA DAIRY GROUP GP, LLC

[see attached]

A-1



1EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

SUIZA FOODS CORPORATION(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE AMOUNTS)

<TABLE><CAPTION>

YEAR ENDED DECEMBER 31,-------------------------------------------

BASIC EPS COMPUTATION: 2000 1999 1998------------ ------------ ------------

<S> <C> <C> <C>NUMERATOR:

INCOME FROM CONTINUING OPERATIONS ........................ $ 113,751 $ 108,827 $ 103,069LESS PREFERRED STOCK DIVIDENDS ........................... (237)

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

INCOME APPLICABLE TO COMMON STOCK ........................ $ 113,751 $ 108,827 $ 102,832============ ============ ============

DENOMINATOR:AVERAGE COMMON SHARES .................................... 28,195,043 32,861,218 32,953,290

============ ============ ============

BASIC EPS FROM CONTINUING OPERATIONS ......................... $ 4.03 $ 3.31 $ 3.12============ ============ ============

DILUTED EPS CALCULATION:NUMERATOR:

INCOME FROM CONTINUING OPERATIONS ........................ $ 113,751 $ 108,827 $ 103,069LESS PREFERRED STOCK DIVIDENDS ........................... (237)NET EFFECT ON EARNINGS FROM CONVERSION OF MANDATORILY

REDEEMABLE CONVERTIBLE PREFERRED SECURITIES .......... 21,334 24,501 18,732------------ ------------ ------------

INCOME APPLICABLE TO COMMON STOCK ........................ $ 135,085 $ 133,328 $ 121,564============ ============ ============

DENOMINATOR:AVERAGE COMMON SHARES - BASIC ............................ 28,195,043 32,861,218 32,953,290STOCK OPTION CONVERSION .................................. 793,680 901,151 1,838,193DILUTIVE EFFECT OF CONVERSION OF MANDITORILY

REDEEMABLE CONVERTIBLE PREFERRED SECURITIES ............ 7,682,541 9,096,123 7,174,081------------ ------------ ------------

AVERAGE COMMON SHARES - DILUTED .......................... 36,671,264 42,858,492 41,965,564============ ============ ============

DILUTED EPS FROM CONTINUING OPERATIONS ..................... $ 3.68 $ 3.11 $ 2.90============ ============ ============

</TABLE>



1EXHIBIT 21

LIST OF SUBSIDIARIES

<TABLE><CAPTION>Name of Subsidiary State of Incorporation------------------ ----------------------<S> <C>Neptune Delaware Corporation DelawareMorningstar Receivables Corp.(1) DelawareSuiza Capital Trust II DelawareSuiza Management Corporation DelawareSuiza REIT, Inc. DelawareSuiza Dairy Group REIT, Inc. DelawareSuiza Preferred Holdings, Inc. Delaware

Suiza Dairy Group GP, LLC DelawareSuiza Dairy Group Holdings, Inc. Nevada

Suiza Dairy Group, L.P.(2) DelawareSuiza Dairy Group Aviation, LLC DelawareSuiza Receivables GP, LLC Delaware

Suiza Receivables, L.P.(3) DelawareCountry Fresh, LLC Michigan

CF Burger Dairy, LLC DelawareLondon's Farm Dairy, LLC DelawareOberlin Farms, LLC (Dairymens(TM)) Delaware

Suiza GTL, LLC DelawareNew England Dairies, LLC DelawareTuscan/Lehigh Management, L.L.C. Delaware

Tuscan/Lehigh Dairies, L.P. DelawareSuiza Southeast, LLC Delaware

Broughton Foods, LLC DelawareDairy Fresh, LLC DelawareLand-O-Sun Dairies, LLC DelawareLouis Trauth Dairy, LLC DelawareSchenkel's All Star Dairy, LLC DelawareSchenkel's All Star Delivery, LLC DelawareShenandoah's Pride, LLC DelawareVelda Farms, LLC Delaware

Suiza Southwest, LLC DelawareCountry Delite Farms, LLC DelawareModel Dairy, LLC DelawareRobinson Dairy, LLC DelawareSFG Management Limited Liability Company(4) DelawareSouthern Foods Holding Company, LLC Delaware

Southern Foods Group, L.P.(5) DelawareSFG Capital Corporation Delaware

Suiza SoCal, LLC DelawareSulphur Springs Cultured Specialties, LLC Delaware

</TABLE>

----------(1) 79% interest; Neva Plastics 21% interest(2) 66.1% Suiza Dairy Group Holdings, Inc., .1 Suiza Dairy group GP, LLC, 33.8%

Dairy Farmers of America, Inc.



(3) 99.1% interest Suiza Dairy Group, L.P., .1% interest Suiza Receivables GP,LLC

(4) 95% interest Suiza Southwest, LLC; 5% interest Suiza Management Corporation(5) 99% interest Southern Foods Holding Company, LLC; 1% interest SFG Management

Limited Liability Company

2

<TABLE><S> <C>Suiza International Holding Company Delaware

Suiza Netherlands, B.V.(6) NetherlandsLeche Celta, S.L. Spain

Lacteos de Santander, S.A. Spain

Suiza U.S. Holding Company DelawareGarrido y Compania, LLC Delaware

Garrido Alto Grande Corp. Puerto RicoMorningstar Foods Inc.(7) Delaware

Morningstar Services Inc. DelawareNeva Plastics Manufacturing Corp. DelawareSuiza Dairy Corporation DelawareSuiza Fruit Corporation Delaware

Continental Can Company, Inc. DelawareDixie Holding, Inc. New York

Dixie Union Geschaftsfuhrungs GmbH GermanyDixie Union GmbH & Co. KG Germany

Franklin Plastics, Inc.(8) DelawareConsolidated Container Holdings LLC(9) Delaware

</TABLE>

----------(6) 75% interest Suiza International Holding Company; 25% interest Neva Plastics

Manufacturing Corp.(7) 81.43% interest Suiza U.S. Holding Company; 18.57% interest Suiza Preferred

Holdings, Inc.(8) 88% interest Continental Can Company, Inc.; 12% interest Alan J. Bernon and

Peter M. Bernon(9) 43% interest Franklin Plastics, Inc.



1EXHIBIT 23

CONSENT OF DELOITTE & TOUCHE LLP

We hereby consent to the incorporation by reference in the RegistrationStatement on Form S-8 (Registration No. 333-68319), the Registration Statementon Form S-3 (Registration No. 333-69627), the Registration Statement on FormS-3, as amended by Post-Effective Amendment No. 1 (Registration No. 333-77813),the Registration Statement on Form S-8 (Registration No. 333-80641), theRegistration Statement on Form S-4, as amended by Post-Effective Amendment No. 1(Registration No. 333-29741), the Registration Statement on Form S-3, as amendedby Post-Effective Amendment No. 1 (Registration No. 333-13119), the RegistrationStatement on Form S-3, as amended by Post-Effective Amendment No. 1(Registration No. 333-29207), the Registration Statement on Form S-3(Registration No. 333-34133), the Registration Statement on Form S-3, as amendedby Post-Effective Amendment No. 2 (Registration No. 333-45749), the RegistrationStatement on Form S-3 (Registration No. 333-56613), the Registration Statementon Form S-8 (Registration No. 333-11185), the Registration Statement on Form S-8(Registration No. 333-28019), the Registration Statement on Form S-8(Registration No. 333-28021), the Registration Statement on Form S-8(Registration No. 333-41353), the Registration Statement on Form S-8,(Registration No. 333-50013), the Registration Statement on Form S-8(Registration No. 333-55969), the Registration Statement on Form S-8(Registration No. 333-30160) and the Registration Statement on Form S-8(Registration No. 333-42828), of our reports dated February 8, 2001 (March 30,2001 as to Note 3), appearing in the Annual Report on Form 10-K of Suiza FoodsCorporation for the year ended December 31, 2000.

Dallas, TexasApril 2, 2001

