SAPUTO INC. ANNEXE A4 DÉCLARATION D ACQUISITION D ENTREPRISE

Transcription

1 SAPUTO INC. ANNEXE A4 DÉCLARATION D ACQUISITION D ENTREPRISE

2 SAPUTO INC. ANNEXE A4 DÉCLARATION D ACQUISITION D ENTREPRISE Rubrique 1 Identification de la Société 1.1 Dénomination et adresse de la Société Saputo inc. 6869, boulevard Métropolitain Est Saint-Léonard (Québec) H1P 1X8 1.2 Membre de la haute direction Louis-Philippe Carrière, FCPA Vice-président exécutif, Finances et administration Téléphone : Rubrique 2 Détails de l acquisition 2.1 Nature de l entreprise acquise Le 3 janvier 2013, Saputo inc. (la «Société») a conclu l acquisition de Morningstar Foods, LLC («Morningstar»), une filiale de Dean Foods Company («Dean Foods»), aux termes d une convention d acquisition de participation datée du 2 décembre Morningstar fabrique une gamme de produits laitiers et non laitiers ayant une durée de conservation prolongée, notamment de la crème et de la crème à café, des mélanges à crème glacée, de la crème à fouetter, de la crème à fouetter en aérosol, des cafés glacés, de la crème demi-grasse, des produits laitiers à valeur ajoutée, ainsi que des produits de culture bactérienne tels que de la crème sure et du fromage cottage. Ces produits sont fabriqués sous diverses marques de commerce et marques privées et sont vendus à l échelle du pays par l intermédiaire d une équipe de vente interne et de représentants indépendants. La clientèle de Morningstar comprend des détaillants, des chaînes nationales de restaurants à service rapide, des épiceries, des magasins à grande surface et des distributeurs partout aux États-Unis. Morningstar génère des revenus annuels d environ 1,6 G$, compte environ employés et exploite 10 installations de fabrication situées dans neuf États. 2.2 Date d acquisition La date d acquisition de Morningstar est le 3 janvier Contrepartie La Société a acquis Morningstar de Dean Foods pour une contrepartie en espèces totale de $, sous réserve des ajustements du fonds de roulement habituels. Le prix d achat a été financé au moyen de la trésorerie disponible et d une nouvelle facilité d emprunt bancaire à terme de quatre ans d un montant de $. 2.4 Effet sur la situation financière L acquisition de Morningstar vient s ajouter aux activités de la Division Produits laitiers (USA) de Saputo et ses résultats devraient accroître immédiatement son bénéfice. Grâce à cette acquisition, la Société pourra tirer parti du réseau national de fabrication et de distribution de Morningstar et optimiser ses services d un océan à l autre. Cette transaction agrandit l éventail des produits proposés aux clients américains et élargit les perspectives d acquisitions futures de la Société. Actuellement, la Société ne prévoit pas effectuer ni proposer des changements significatifs à ses affaires (structure organisationnelle, personnel ou direction) ou à celles de Morningstar qui auraient une incidence sur la performance financière et la situation financière de la Société, sauf les changements qui découlent de l apport des résultats d exploitation de Morningstar à la situation financière consolidée de la Société pour les périodes se terminant après la date d acquisition, ainsi que de l inclusion d un emprunt bancaire à terme pour financer l acquisition. Page 1

3 SAPUTO INC. ANNEXE A4 DÉCLARATION D ACQUISITION D ENTREPRISE 2.5 Évaluations antérieures Aucune. 2.6 Parties à l opération L autre partie à la transaction d acquisition de Morningstar n était pas une personne informée, une personne ayant des liens avec la Société ou un membre du même groupe que celle-ci. 2.7 Date de la déclaration Le 28 mars 2013 Rubrique 3 États financiers Les états financiers qui suivent ont été joints à cette déclaration d acquisition d entreprise : 3.1 États financiers de Morningstar Foods, LLC a) Les états financiers combinés audités de Morningstar Foods, LLC pour les exercices terminés les 31 décembre 2012 et 2011, joints à titre d Annexe A. Les états financiers combinés audités (les «états financiers annuels») et les notes complémentaires de Morningstar Foods, LLC ont été préparés conformément aux principes comptables généralement reconnus des États-Unis (les «PCGR des États-Unis»), et ils sont présentés en dollars américains. Les états financiers annuels ci-joints comprennent le rapport de l auditeur indépendant et reflètent la situation financière et les résultats financiers aux 31 décembre 2012 et 2011 et pour les exercices terminés à ces dates. b) Les états financiers combinés résumés non audités de Morningstar Foods, LLC au 30 septembre 2012 et au 31 décembre 2011 et pour les périodes de neuf mois terminées les 30 septembre 2012 et 2011, joints à titre d Annexe B. Les états financiers combinés résumés intermédiaires non audités (les «états financiers intermédiaires non audités») et les notes complémentaires au 30 septembre 2012 et au 31 décembre 2011 et pour les périodes de neuf mois terminées les 30 septembre 2012 et 2011 ont également été préparés conformément aux PCGR des États-Unis, et ils sont présentés en dollars américains. 3.2 États financiers consolidés résumés pro forma non audités de la Société a) Le bilan consolidé intermédiaire résumé pro forma non audité de la Société au 31 décembre 2012, joint à titre d Annexe C. Le bilan consolidé intermédiaire résumé pro forma non audité tient compte de l acquisition comme si elle avait eu lieu le 31 décembre 2012, soit la date des plus récents états financiers consolidés intermédiaires résumés non audités publiés par la Société. Le bilan consolidé intermédiaire résumé pro forma non audité au 31 décembre 2012 a été préparé selon les méthodes comptables de la Société, qui sont conformes aux Normes internationales d information financière (les «IFRS») et sont présentées dans les états financiers consolidés au 31 mars 2012 de la Société, lesquels peuvent être obtenus sur SEDAR à l adresse b) L état consolidé résumé des résultats pro forma non audité de la Société pour l exercice terminé le 31 mars 2012, joint à titre d Annexe D. Page 2

4 SAPUTO INC. ANNEXE A4 DÉCLARATION D ACQUISITION D ENTREPRISE L état consolidé résumé des résultats pro forma non audité pour l exercice terminé le 31 mars 2012 a été préparé selon les méthodes comptables de la Société, qui sont conformes aux IFRS et sont présentées dans les états financiers consolidés au 31 mars 2012 de la Société. c) L état consolidé intermédiaire résumé des résultats pro forma non audité de la Société pour la période de neuf mois terminée le 31 décembre 2012, joint à titre d Annexe E. L état consolidé intermédiaire résumé des résultats pro forma non audité de la Société pour la période de neuf mois terminée le 31 décembre 2012 a été préparé selon les méthodes comptables de la Société, qui sont conformes aux IFRS et sont présentées dans les états financiers consolidés au 31 mars 2012 de la Société. Énoncés prospectifs Les états financiers consolidés résumés pro forma non audités présentés dans ce rapport ne reflètent pas nécessairement les résultats qui auraient été obtenus si l acquisition avait été conclue aux dates indiquées, et ils ne sont pas nécessairement représentatifs de la situation financière et des résultats futurs de la Société après l acquisition. Les états financiers consolidés résumés pro forma non audités présentés dans ce rapport ne tiennent pas compte des coûts d intégration, des économies de coûts d opération et d autres éléments qui pourraient s être produits si l acquisition avait été effectuée avant le 3 janvier Ce rapport contient des énoncés prospectifs au sens de la législation en valeurs mobilières, y compris des énoncés à l effet que la Société tire parti du réseau national de fabrication et de distribution de Morningstar et qu elle optimise ses services d un océan à l autre. Ces énoncés sont fondés, entre autres, sur les hypothèses, les attentes, les estimations, les objectifs, les projets et les intentions de la Société à la date des présentes. Ces énoncés prospectifs portent notamment sur les objectifs à court et à moyen terme de la Société, ses perspectives, ses projets commerciaux et ses stratégies pour atteindre ces objectifs, ainsi que sur ses convictions, ses projets, ses objectifs et ses attentes. Les énoncés se reconnaissent à l emploi de termes comme «pouvoir», «devoir», «croire», «prévoir», «planifier», «s attendre à», «estimer», «continuer» ou «proposer» à la forme affirmative ou négative, à l emploi du conditionnel ou du futur, et à l emploi d autres termes semblables. De par leur nature, les énoncés prospectifs sont exposés à un certain nombre de risques et d incertitudes. Les résultats réels peuvent être très différents des conclusions données dans ces énoncés prospectifs. Par conséquent, la Société ne peut garantir que les énoncés prospectifs se réaliseront. Les hypothèses, les attentes et les estimations qui ont servi à la préparation des énoncés prospectifs et les risques qui pourraient entraîner un écart important entre les résultats réels et les attentes comprennent, entre autres, la capacité de la Société à réaliser les avantages attendus de l acquisition de Morningstar, les difficultés d intégration ou d autres difficultés semblables et l efficacité de la plateforme de contrôle interne à l égard de l information financière de Morningstar, ainsi que les risques présentés dans les documents déposés par la Société auprès des organismes canadiens de réglementation des valeurs mobilières à l occasion. De plus, les ajustements finaux de la répartition du prix d achat pourraient avoir une incidence sur les justes valeurs attribuées aux actifs et aux passifs, et les résultats pourraient différer de façon importante des états financiers consolidés résumés pro forma non audités. Les énoncés prospectifs sont fondés sur les estimations, les attentes et les hypothèses actuelles de la direction, que cette dernière estime raisonnables à la date des présentes, et par conséquent, sont sujets à changement par la suite. Vous ne devez pas accorder une importance indue à ces énoncés ni vous y fier à une autre date. À moins que la législation en valeurs mobilières l exige, la Société ne s engage nullement à mettre à jour ou à réviser ces énoncés prospectifs, verbaux ou écrits, qu elle peut faire ou qui peuvent être faits pour son compte, à l occasion, à la suite d une nouvelle information, d événements à venir ou autrement. Page 3

5 Annexe A ÉTATS FINANCIERS COMBINÉS ANNUELS AUDITÉS DE MORNINGSTAR FOODS, LLC SAPUTO INC. DÉCLARATION D ACQUISITION D ENTREPRISE Page 4

6 Morningstar Foods (Defined as Morningstar Foods LLC and subsidiaries and the Dean Foods Company s Rockford facility) Combined Financial Statements as of and for the Years Ended December 31, 2012 and 2011

7 MORNINGSTAR FOODS TABLE OF CONTENTS COMBINED BALANCE SHEETS AS OF DECEMBER 31, 2012 AND COMBINED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012 AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2012 AND COMBINED STATEMENTS OF INVESTED EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012 AND COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND Page NOTES TO COMBINED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND

8 INDEPENDENT AUDITORS REPORT To the Board of Directors of Dean Foods Company Dallas, Texas We have audited the accompanying combined financial statements of Morningstar Foods (Defined as Morningstar Foods LLC and subsidiaries and the Dean Foods Company s Rockford Facility), both of which are under common ownership and common management, which comprise the combined balance sheets as of December 31, 2012 and 2011, and the related combined statements of operations, comprehensive income, invested equity and cash flows for the years then ended, and the related notes to the combined financial statements. Management s Responsibility for the Combined Financial Statements Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Morningstar Foods as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

9 Other Matter As discussed in Note 1 to the combined financial statements, the financial statements include allocations of expenses from Dean Foods Company. These allocations may not be reflective of the actual level of costs which would have been incurred had the Company operated as a separate entity from Dean Foods Company. Dallas, Texas March 7,

10 MORNINGSTAR FOODS COMBINED BALANCE SHEETS AS OF DECEMBER 31, 2012 AND 2011 (In thousands) ASSETS December 31, CURRENT ASSETS: Cash and cash equivalents $ 6,644 $ 4 Receivables, net of allowance of $189 and $501 74,667 73,847 Inventories 68,144 67,159 Deferred income taxes 16,095 4,846 Prepaid expenses and other current assets 6,084 8,547 Total current assets 171, ,403 PROPERTY, PLANT AND EQUIPMENT, Net 181, ,090 DEFERRED INCOME TAXES - 1,823 IDENTIFIABLE INTANGIBLE AND OTHER ASSETS, Net 36,102 37,342 GOODWILL 306, ,095 TOTAL ASSETS $ 695,398 $ 682,753 LIABILITIES AND INVESTED EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 97,921 $ 107,297 Related party payables ,082 Current portion of debt 97 21,837 Total current liabilities 98, ,216 LONG-TERM DEBT DEFERRED INCOME TAXES 68,556 63,419 OTHER LONG-TERM LIABILITIES 8,040 6,982 COMMITMENTS AND CONTINGENCIES (Note 15) INVESTED EQUITY: Parent s net investment 520, ,344 Accumulated other comprehensive loss (614) (372) Total invested equity 519, ,972 TOTAL LIABILITIES AND INVESTED EQUITY $ 695,398 $ 682,753 See notes to combined financial statements

11 MORNINGSTAR FOODS COMBINED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 (In thousands) Year Ended December 31, NET SALES $ 1,434,551 $ 1,402,399 NET SALES TO RELATED PARTIES 300, ,560 RELATED PARTY FEES 1,993 - Total net sales 1,736,789 1,744,959 COST OF SALES 1,457,854 1,501,640 GROSS PROFIT 278, ,319 OPERATING COSTS AND EXPENSES: Selling and distribution 93,829 85,270 General and administrative 71,872 49,119 Related party license expense 36,034 42,680 Amortization of intangibles 2,923 2,923 Facility closing and reorganization costs 3,547 - Other operating expense (income) 4,551 (19,130) Total operating costs and expenses 212, ,862 OPERATING INCOME 66,179 82,457 OTHER EXPENSE: Interest expense 6,754 6,526 Total other expense 6,754 6,526 INCOME BEFORE INCOME TAXES 59,425 75,931 INCOME TAX EXPENSE 21,146 27,330 NET INCOME $ 38,279 $ 48,601 See notes to combined financial statements

12 MORNINGSTAR FOODS COMBINED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 (In thousands) Year Ended December 31, NET INCOME $ 38,279 $ 48,601 OTHER COMPREHENSIVE LOSS, Net of tax: Net change in fair value of derivative instruments (15) - Net change in minimum pension liability (227) (294) Other comprehensive loss, net of tax (242) (294) COMPREHENSIVE INCOME $ 38,037 $ 48,307 See notes to combined financial statements

13 MORNINGSTAR FOODS COMBINED STATEMENTS OF INVESTED EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 (In thousands) Accumulated Parent s Other Total Net Comprehensive Invested Investment Loss Equity BALANCE AT DECEMBER 31, 2010 $ 554,186 $ (78) $ 554,108 Net income 48,601-48,601 Change in Parent s investment, net (132,370) - (132,370) Share-based compensation funded by Parent 1,927-1,927 Other comprehensive loss: Change in minimum pension liability, net of tax of $183 - (294) (294) BALANCE AT DECEMBER 31, ,344 (372) 471,972 Net income 38,279-38,279 Change in Parent s investment, net 7,513-7,513 Share-based compensation funded by Parent 2,472-2,472 Other comprehensive loss: Change in minimum pension liability, net of tax of $142 - (227) (227) Change in fair value of derivative instruments net of tax of $10 - (15) (15) BALANCE AT DECEMBER 31, 2012 $ 520,608 $ (614) $ 519,994 See notes to combined financial statements

14 MORNINGSTAR FOODS COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 (In thousands) Year Ended December 31, CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 38,279 $ 48,601 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,643 26,438 Share-based compensation expense funded by Parent 2,472 1,927 Loss (Gain) on divestitures and other, net 3,093 (21,301) Deferred income taxes (4,137) (2,827) Other Changes in operating assets and liabilities, net of acquisitions and divestitures: Receivables, net (820) (7,989) Inventories (985) (6,249) Prepaid expenses and other assets 1,018 3,335 Accounts payable and accrued expenses (13,222) 5,993 Related party payable (10,292) 444 Net cash provided by operating activities 41,717 48,509 CASH FLOWS FROM INVESTING ACTIVITIES: Payments for property, plant and equipment (26,464) (20,318) Proceeds from divestitures - 81,807 Proceeds from sale of fixed assets 1, Net cash (used in) provided by investing activities (25,425) 61,680 CASH FLOWS FROM FINANCING ACTIVITIES: Change in parent s net investment 12,252 (131,560) Payments on capital lease obligations (314) (224) Proceeds from receivables-backed facility 230, ,994 Payments for receivables-backed facility (252,547) (384,402) Net cash used in financing activities (9,652) (110,192) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,640 (3) CASH AND CASH EQUIVALENTS, Beginning of period 4 7 CASH AND CASH EQUIVALENTS, End of period $ 6,644 $ 4 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 6,754 $ 6,526 Cash paid for taxes, net $ 25,673 $ 29,954 See notes to combined financial statements

15 MORNINGSTAR FOODS NOTES TO COMBINED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND BUSINESS AND BASIS OF PRESENTATION Business Morningstar Foods is a leading U.S. manufacturer of extended shelf life ( ESL ) creams and creamers, beverages and cultured dairy products with an emphasis on foodservice and private label retail customers. These products include half and half, whipping cream, ice cream mix, value-added milks, sour cream and cottage cheese under an array of private labels and the Friendship brand. Unless otherwise indicated, references in the report to we, us, our or the Company refer to the Morningstar Foods operations. On December 2, 2012, Dean Foods Company ( Dean Foods ) entered into an agreement to sell Morningstar Foods LLC, which excludes Dean Foods facility located in Rockford, Illinois ( Rockford facility ). The sale closed on January 3, 2013 for $1.45 billion, and a portion of the proceeds was used by Dean Foods to retire outstanding debt under their senior secured credit facility. See Note 17 Subsequent Events. We did not receive any proceeds as part of the sale transaction. Basis of Presentation Our historical Combined Financial Statements have been prepared on a carve-out basis in accordance with U.S. generally accepted accounting principles ( GAAP ) and are derived from Dean Foods consolidated financial statements and accounting records using the historical results of operations and assets and liabilities attributed to our operations, and includes allocations of expenses from Dean Foods. Our Combined Financial Statements include Morningstar Foods LLC and its subsidiaries, along with the Rockford facility, which has historically been managed by us but is owned by another Dean Foods subsidiary. See Note 5 Property, Plant and Equipment. Our combined results are not necessarily indicative of our future performance and do not reflect what our financial performance would have been had we been a stand-alone company during the periods presented. Dean Foods historically provided certain corporate services to us, and costs associated with these functions have been allocated to us. These allocations include costs related to corporate services, such as executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury and other services, as well as stock-based compensation expense attributable to our employees and an allocation of stock-based compensation attributable to employees of Dean Foods. The costs of such services have been allocated to us based on the allocation method most relevant to the service provided, primarily based on relative percentage of total net sales, relative percentage of headcount or specific identification. The total amount of these allocations from Dean Foods was approximately $48.5 million (which includes $22.9 million of transaction costs related to the sale of the Company) and $26.8 million in the years ended December 31, 2012 and 2011, respectively. These cost allocations are primarily reflected within general and administrative expenses in our Combined Statements of Operations. Management believes these expenses have been allocated to us using a reasonable allocation methodology. The allocations may not reflect the expense we would have incurred as a stand-alone company for the periods presented. Actual costs that may have been incurred if we had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in certain areas

16 The total invested equity represents Dean Foods interest in our recorded net assets. The parent s net investment balance represents the cumulative net investment by Dean Foods in us through that date, including any prior net income or loss or other comprehensive income or loss attributed to us and contributions received from or distributions made to Dean Foods. Current income tax liabilities are deemed to be remitted in cash to Dean Foods in the period the related income tax expense is recorded. Certain transactions between us and other related parties that are subsidiaries of Dean Foods, including allocated expenses and settlement of intercompany transactions, are also included in Dean Foods net investment. Invested equity in the Combined Balance Sheets includes net receivables from affiliates of Dean Foods of $147.0 million and $157.0 million as of December 31, 2012 and 2011, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Combination The Combined Financial Statements have been prepared for the Company as it was historically managed as a component of Dean Foods. All intercompany transactions and balances have been eliminated in combination. All transactions and balances between us and other subsidiaries of Dean Foods are reported as related party transactions in the Combined Financial Statements. All sales and financing transactions with Dean Foods and its subsidiaries are considered to be settled for cash in the Combined Statement of Cash Flows at the time the transaction is recorded. Use of Estimates The preparation of our Combined Financial Statements in conformity with U.S. GAAP requires us to use our judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the Combined Financial Statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from these estimates under different assumptions or conditions. Cash and Cash Equivalents As of December 31, 2012 and 2011, cash is comprised of cash held in bank accounts. We receive day-to-day cash management services from Dean Foods. See Note 16 Related Party Transactions and Continuing Relationships. We consider temporary investments with an original maturity of three months or less to be cash equivalents. Inventories Inventories are stated at the lower of cost or market. Our products are valued using the first-in, first-out method. The costs of finished goods inventories include raw materials, direct labor, indirect production, and overhead costs. Reserves for obsolete or excess inventory are not material. Property, Plant and Equipment Property, plant and equipment are stated at acquisition cost, plus capitalized interest on borrowings during the actual construction period of major capital projects as allocated from Dean Foods. Expenditures for repairs and maintenance that do not improve or extend the life of the assets are expensed as incurred. Depreciation is calculated using the straight-line method typically over the following range of estimated useful lives of the assets: Asset Buildings Machinery and equipment Leasehold improvements Useful Life 15 to 40 years 3 to 20 years Over the shorter of the term of the applicable lease agreement or useful life - 9 -

17 Goodwill and Intangible Assets Our goodwill and identifiable intangible assets have resulted from acquisitions. Upon acquisition, the purchase price is first allocated to identifiable assets and liabilities, including customer-related intangible assets and trademarks, with any remaining purchase price recorded as goodwill. Goodwill and trademarks with indefinite lives are not amortized. A trademark is determined to have an indefinite life if it has a history of strong sales and cash flow performance that we expect to continue for the foreseeable future. If these perpetual trademark criteria are not met, the trademarks are amortized over their expected useful lives. Determining the expected life of a trademark is based on a number of factors including the competitive environment, trademark history, and anticipated future trademark support. Identifiable intangible assets, other than indefinite-lived trademarks, are typically amortized over the following range of estimated useful lives: Asset Customer relationships Certain finite-lived trademarks Noncompete agreements Useful Life 5 to 15 years 5 to 15 years Over the shorter of the term of the agreement or useful life Impairment In accordance with accounting standards related to goodwill and other intangibles assets, we do not amortize goodwill and other intangible assets determined to have indefinite useful lives. Instead, we conduct impairment tests on our goodwill and indefinite-lived trademarks annually and when circumstances indicate that the carrying value may not be recoverable. To determine whether impairment exists related to our indefinite-lived intangible assets, we primarily utilize a discounted future cash flow analysis. In evaluating goodwill for impairment, we are permitted under the accounting guidance to first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is not more likely than not that the fair value of the Company is less than its carrying value, then no further testing of the goodwill is required. However, if we conclude that it is more likely than not that the fair value of the Company is less than its carrying value, then we perform a two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment to be recognized, if any. A qualitative assessment of goodwill was performed during We assessed economic conditions and industry and market considerations, in addition to the overall financial performance of the Company. Based on the results of our assessment, we determined that it was not more likely than not that the Company had a carrying value in excess of its fair value. Accordingly, no further goodwill testing was completed, and we did not recognize any impairment charges related to goodwill during 2012 and Long-lived assets, including property, plant, and equipment and definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and prior to any goodwill impairment test. Indicators of impairment could include significant changes in business environment or the planned closure of a facility. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. In 2012, the approval and completion of

18 the closure of our Sulphur Springs, Texas cultured production facility, resulted in the write down of property, plant and equipment of $2.6 million. See Note 14 Facility Closing and Reorganization Costs. There were no indicators of impairment of long-lived assets identified in Share-Based Compensation Certain of our employees participate in share-based compensation plans sponsored by Dean Foods that are settled in Dean Foods common stock or cash. Share-based compensation expense is recognized for Dean Foods equity awards granted to our employees ratably over the vesting period based on their grant date fair value. The fair value of option awards is estimated at the date of grant using the Black-Scholes valuation model. The fair value of restricted stock unit awards is equal to the closing price of Dean Foods stock on the date of grant. Compensation expense is recognized only for equity awards expected to vest. Dean Foods estimate forfeitures at the date of grant based on its historical experience and future expectations. Share-based compensation expense is included within general and administrative expense in our Combined Statements of Operations. See Note 11 Share-Based Compensation. Employee Benefit Plans We participate in Dean Foods various employee benefit plans, which consist of Dean Foods consolidated defined benefit plan and defined contribution plan (including various employee savings and profit sharing plans), and we contribute to various multiemployer pension plans on behalf of certain of our employees. We account for our employees participation in the Dean Foods employee defined benefit plan as a multiemployer plan and record the contribution to the pension plan or allocation of net periodic pension cost associated with our employees. For our separate, stand-alone benefit plan, we recognize the overfunded or underfunded status as an asset or liability on our Combined Balance Sheets and recognize changes in the funded status in the year in which changes occur, through accumulated other comprehensive income (loss). The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation. Actuarial gains and losses and prior service costs and credits that have not been previously recognized as a component of net periodic benefit cost are recorded as a component of accumulated other comprehensive income (loss). Plan assets and obligations are measured as of December 31 of each year. See Note 13 Employee Retirement and Profit Sharing Plans. Revenue Recognition, Sales Incentives and Accounts Receivable Sales are recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, the product has been delivered to the customer, and there is a reasonable assurance of collection of the sales proceeds. Sales are recorded net of allowances for returns, trade programs and prompt pay, and other discounts. These programs include rebates, shelf-price reductions, coupons, and other trade promotional activities. These programs are considered reductions in the price of our products and thus are recorded as reductions to gross sales. Some of these incentives are recorded by estimating incentive costs based on our historical experience and expected levels of performance of the trade promotion. We maintain liabilities at the end of each period for the estimated incentive costs incurred but unpaid for these programs. Differences between estimated and actual incentive costs are normally insignificant and are recognized in earnings in the period such differences are determined. We provide credit terms to customers generally ranging up to 30 days, perform ongoing credit evaluations of our customers, and maintain allowances for potential credit losses based on our historical experience. Estimated product returns have not historically been material

19 Related Party Sales Sales to other subsidiaries of Dean Foods of raw materials and the finished products that we manufacture have been reflected as related party sales in our Combined Financial Statements. These transactions have historically taken place at an agreed upon price, which may not be equivalent to the terms that would prevail in an arm s-length transaction. Effective November 1, 2012, we entered into an agreement with The WhiteWave Foods Company ( WhiteWave ), a majority owned subsidiary of Dean Foods, which transferred to us responsibility for the sales and associated costs of its aerosol whipped topping and other non-core products. WhiteWave remits to us the cash representing the net profit collected from their product sales until such time as the sales are transitioned to us. The net effect of the agreement is reflected as related party fees in our Combined Statements of Operations. See Note 16 Related Party Transactions and Continuing Relationships. Advertising Expense We market our products through advertising, including coupons and other promotional activities. Advertising expense, which includes marketing and packaging development costs, is charged to income during the period incurred. Advertising expense totaled $2.4 million and $2.2 million during 2012 and 2011, respectively. Shipping and Handling Fees Our shipping and handling costs are included in both cost of sales and selling and distribution expense in our Combined Statements of Operations, depending on the nature of such costs. In cost of sales, we include inventory warehouse costs and product loading and handling costs at Company-owned facilities. Costs associated with shipping products to customers through third-party carriers and third-party inventory warehouse costs are included in selling and distribution expense. Shipping and handling costs totaled $66.3 million and $61.0 million during 2012 and 2011, respectively. Insurance Accruals We participate in Dean Foods various insurance programs, which consist of selected levels of property and casualty risks, primarily related to employee health care, workers compensation claims, and other casualty losses. Many of these potential losses are covered under conventional insurance programs with third-party carriers with high deductible limits. In other areas, Dean Foods is self-insured with stop-loss coverage. Accrued liabilities for incurred but not reported losses related to these retained risks are calculated based upon loss development factors, which contemplate a number of factors including claims history and expected trends. These loss development factors are developed by Dean Foods in consultation with external insurance brokers and actuaries. At December 31, 2012 and 2011, we recorded accrued liabilities related to these retained risks in the amounts of $8.4 million and $7.5 million, respectively, including both current and long-term liabilities. Research and Development Our research and development activities, which are performed at one of Dean Foods subsidiaries research and development facility, primarily consist of generating and testing new product concepts, new flavors, and packaging. Our research and development expense totaled approximately $5 million for both 2012 and 2011 and was based on an allocation of total Dean Foods research and development costs. Research and development costs are included in general and administrative expenses in our Combined Statements of Operations. Income Taxes Income taxes have been prepared on a separate return basis as if the Company was a stand-alone entity. However, as a result of being included in the Dean Foods U.S. consolidated federal income tax return and Dean Foods payment of taxes, our U.S. federal and state current income tax liabilities are included in parent s net investment in our Combined Balance Sheets. All of our operations are included in the preparation of our consolidated income tax calculation

20 Deferred income taxes arise from temporary differences between amounts recorded in the Combined Financial Statements and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred tax assets, including the benefit of net operating loss and tax credit carryforwards, are evaluated based on the guidelines for realization and are reduced by a valuation allowance if deemed necessary. We recognize the income tax benefit from an uncertain tax position when it is more likely than not that, based on technical merits, the position will be sustained upon examination, including resolutions of any related appeals or litigation processes. We recognize accrued interest related to uncertain tax positions as a component of income tax expense. Penalties, if incurred, are recognized as a component of operating income. Recently Issued Accounting Pronouncements In May 2011, in an effort to assist in the convergence of U.S. GAAP and International Financial Reporting Standards ( IFRS ), the Financial Accounting Standards Board ( FASB ) issued an Accounting Standards Update related to Fair Value Measurements: Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs. The standard expands existing disclosure requirements for fair value measurements and makes certain other amendments, including a requirement to categorize, by level in the fair value hierarchy, items that are required to be disclosed, but not measured, at fair value. We adopted this standard as of January 1, 2012, and its adoption did not have a material effect on our Combined Financial Statements. In September 2011, the FASB issued an Accounting Standards Update related to Testing Goodwill for Impairment. The new guidance permits entities to make a qualitative assessment of whether it is more likely than not that a reporting unit s fair value is less than its carrying amount before applying the two-step goodwill impairment test. Unless an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the two-step impairment test for that reporting unit. We adopted this standard as of January 1, 2012, and its adoption did not have a material effect on our Combined Financial Statements. In July 2012, the FASB issued an Accounting Standards Update related to Testing Indefinite-Lived Intangibles for Impairment. The purpose of the update is to simplify the guidance for testing indefinite-lived intangible assets for impairment and permits entities to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. Unless an entity determines, through its qualitative assessment, that is more likely than not that an indefinite-lived intangible asset is impaired, it would not be required to calculate the fair value of the asset. This standard is effective for annual and interim impairment tests of indefinite-lived intangible assets performed in fiscal years beginning after September 15, 2012, and early adoption is permitted. This standard did not have an impact on our annual indefinite-lived asset impairment testing process in 2012 as we did not elect to perform a qualitative assessment. 3. DIVESTITURES In the fourth quarter of 2010, we entered into an agreement to sell our yogurt operations. These operations did not meet the requirements to be accounted for as discontinued operations as the operations did not have discrete cash flow information and therefore did not meet the definition of a component of an entity. We completed the sale of our yogurt operations for cash proceeds of $81.9 million on April 1, 2011 and used the proceeds for additional debt repayments for Dean Foods

21 We recorded a net pre-tax gain of $19.2 million during the year ended December 31, 2011, related to this divestiture, which includes $2.1 million of related transaction costs. The gain was recorded in other operating expense (income) in our Combined Statements of Operations. 4. INVENTORIES The following table summarizes inventories, net of reserves of $229,000 and $225,000 as of December 31, 2012 and 2011 (in thousands): December 31, Raw materials and supplies $ 28,960 $ 29,537 Finished goods 39,184 37,622 Total $ 68,144 $ 67, PROPERTY, PLANT AND EQUIPMENT The following table summarizes property, plant and equipment as of December 31, 2012 and 2011 (in thousands): December 31, Land $ 9,288 $ 9,695 Buildings 102,506 98,033 Leasehold improvements 6,888 7,090 Machinery and equipment 291, ,867 Construction in progress 6,365 6, , ,311 Less accumulated depreciation (234,544) (230,221) Total $ 181,567 $ 183,090 Depreciation expense amounted to $22.7 million and $23.5 million in 2012 and 2011, respectively. Other non-cash additions for accrued property, plant and equipment were $593,000 and $313,000 in 2012 and 2011, respectively. The balances disclosed in the preceding table include amounts related to the Rockford facility, which we use in our operations. The assets related to the Rockford facility will be retained by Dean Foods when Morningstar Foods is sold. See Note 1 Business and Basis of Presentation

22 The following table summarizes the Rockford facility s property, plant and equipment as of December 31, 2012 and 2011 (in thousands): December 31, Land $ 156 $ 156 Buildings 3,524 3,492 Machinery and equipment 8,940 8,543 Construction in progress ,620 12,201 Less accumulated depreciation (7,635) (7,256) Total $ 4,985 $ 4, GOODWILL AND INTANGIBLE ASSETS The following table summarizes changes in the carrying amount of goodwill for the years ended December 31, 2012 and 2011 (in thousands): December 31, Beginning balance $ 306,095 $ 308,982 Divestitures (1) - (2,887) Ending balance $ 306,095 $ 306,095 (1) In the fourth quarter of 2010, we entered into an agreement to sell our yogurt operations. In connection with this divestiture, goodwill was allocated to these operations and recorded as assets held for sale. In the first quarter of 2011, an additional $2.9 million of goodwill was allocated to these operations. See Note 3 Divestitures. There were no accumulated goodwill impairment charges during 2012 or

23 The following table summarizes the gross carrying amount and accumulated amortization of our intangible assets other than goodwill as of December 31, 2012 and 2011 (in thousands): December 31, Gross Net Gross Net Carrying Accumulated Carrying Carrying Accumulated Carrying Amount Amortization Amount Amount Amortization Amount Intangible assets with indefinite lives: Trademarks $ 11,541 $ - $ 11,541 $ 11,541 $ - $ 11,541 Intangible assets with finite lives: Customer relationships 41,685 (20,338) 21,347 41,685 (17,415) 24,270 Noncompete agreements 410 (410) (410) - Total $ 53,636 $ (20,748) $ 32,888 $ 53,636 $ (17,825) $ 35,811 Amortization expense on intangible assets was $2.9 million for each of the years ended December 31, 2012 and Estimated aggregate intangible asset amortization expense is $2.9 million for each of the years from 2013 through 2016, and $2.7 million for ACCOUNTS PAYABLE AND ACCRUED EXPENSES The following table summarizes accounts payable and accrued expenses as of December 31, 2012 and 2011 (in thousands): December 31, Accounts payable $ 62,480 $ 74,026 Payroll and benefits 16,815 13,118 Health insurance, workers compensation and other insurance costs 2,746 2,427 Current derivative liability 956 1,476 Other accrued liabilities 14,924 16,250 Total $ 97,921 $ 107, INCOME TAXES Income taxes have been prepared on a separate return basis as if the Company was a stand-alone entity. The Company, however, is included in the Dean Foods U.S. consolidated federal income tax return and also files some U.S. state income tax returns on a combined basis with Dean Foods

24 The following table presents the components of income tax expense (benefit) (in thousands): Year Ended December 31, Current income taxes: Federal $ 22,731 $ 26,125 State 2,578 4,061 Total current income tax expense 25,309 30,186 Deferred income taxes: Federal (4,848) (1,760) State 685 (1,096) Total deferred income tax benefit (4,163) (2,856) Total income tax expense $ 21,146 $ 27,330 The following table is a reconciliation of income tax expense computed at the U.S. federal statutory tax rate to income tax expense reported in our Combined Statements of Operations (in thousands, except percentages): Year Ended December 31, Amount Percentage Amount Percentage Tax expense at statutory rate $ 20, % $ 26, % State income taxes 2, , Domestic manufacturing deduction (1,961) (3.3) (1,131) (1.5) Other (42) (0.1) Total $ 21, % $ 27, %

25 The following table summarizes the tax effects of temporary differences giving rise to deferred income tax assets (liabilities) (in thousands): December 31, Deferred income tax assets: Accrued liabilities $ 4,022 $ 3,403 Transaction costs 8,514 - State tax credit carryforwards 5,199 5,927 Receivables and inventories 3,140 3,258 Share-based compensation 2,399 2,355 State net operating loss carryforwards Other ,340 15,993 Deferred income tax liabilities: Intangible assets (45,769) (40,229) Property, plant and equipment (31,032) (32,514) (76,801) (72,743) Net deferred income tax liability $ (52,461) $ (56,750) The following table summarizes the classification of net deferred tax assets (liabilities) in our Combined Balance Sheets (in thousands): December 31, Current assets $ 16,095 $ 4,846 Noncurrent assets - 1,823 Noncurrent liabilities (68,556) (63,419) Total $ (52,461) $ (56,750) At December 31, 2012, we had $586,000 of tax-effected state net operating loss carryforwards, which will expire in if not used, and $5.2 million of state tax credit carryforwards, $0.5 million of which will expire in if not used, and $4.7 million of which do not expire. Although these items are subject to certain limitations, we have not established a valuation allowance because we believe it is more likely than not that all of the deferred tax assets related to these carryforwards will be realized

26 The following table is a reconciliation of gross unrecognized tax benefits, including interest, recorded in other long-term liabilities in our Combined Balance Sheets (in thousands): Balance at January 1 $ 1,034 $ 802 Increases in tax positions for current year Increases in tax positions for prior years Decreases in tax positions for prior years (164) - Settlement of tax matters - (23) Lapse of applicable statutes of limitations (213) (221) Balance at December 31 $ 670 $ 1,034 Of the unrecognized tax benefits balance at December 31, 2012, $594,000 would impact our effective tax rate and $76,000 represents tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Due to the impact of deferred income tax accounting, the disallowance of the shorter deductibility period would not affect our effective tax rate but would accelerate payment of cash to the applicable taxing authority. We do not expect any material changes to our liability for uncertain tax positions during the next 12 months. We recognize accrued interest related to uncertain tax positions as a component of income tax expense. Penalties, if incurred, are recorded in general and administrative expenses in our Combined Statements of Operations. Income tax expense for 2012 and 2011 included a net benefit from interest expense, net of tax, of $55,000 and $45,000, respectively. Our liability for uncertain tax positions included accrued interest of $92,000 and $187,000 at December 31, 2012 and 2011, respectively. As of December 31, 2012, the Dean Foods U.S. consolidated federal income tax returns for 2009 through 2011 are under examination by the Internal Revenue Service and the 2007 tax return is under a limited scope examination. State income tax returns are generally subject to examination for a period of three to five years after filing. We have various state income tax returns in the process of examination, appeals, or settlement. 9. DEBT The following table summarizes our outstanding debt as of December 31, 2012 and 2011 (in thousands, except percentages): December 31, Amount Interest Amount Interest Outstanding Rate Outstanding Rate Receivables-backed facility $ % $ 21, % * Capital lease obligations ,001 Less current portion (97) (21,837) Total long-term portion $ - $ 164 * Represents a weighted-average rate, including applicable interest rate margins, for indebtedness outstanding under the receivables securitization facility

27 Receivables-Backed Facility In 2004, we began participating in Dean Foods receivables-backed facility. We sold certain of our accounts receivable to a wholly-owned entity that is intended to be bankruptcy-remote. The entity transferred the receivables to third-party asset-backed commercial paper conduits sponsored by major financial institutions. The securitization was treated as a borrowing for accounting purposes. We were the beneficiary and obligor for all borrowings and repayments under our portion of the Dean Foods facility. On September 28, 2011, Dean Foods amended the terms of the agreement to extend the liquidity termination date to September 25, 2013, to include the ability to issue letters of credit of up to $300 million under the facility, and to amend certain other terms. The total amount of receivables sold to the entity as of December 31, 2012 and December 31, 2011 was $nil million and $72.5 million, respectively, which are reported in our Combined Balance Sheets. During 2012 and 2011, we borrowed $230.9 million and $406.0 million, and subsequently repaid $252.5 million and $384.4 million under the facility, respectively. The outstanding debt balance securitized by the Company s accounts receivable as of December 31, 2012 and 2011 was $nil million and $21.6 million, respectively and is recorded in our Combined Balance Sheets. Effective November 1, 2012, we were no longer participants in the Dean Foods receivables securitization program. Receivables sold by us to the bankruptcy-remote entity on or prior to October 31, 2012 will continue to be collected by Dean Foods; however, any receivables generated by us subsequent to November 1, 2012 were not sold into the receivables securitization program, and no receivables previously sold into the facility have been included in the determination of Dean Foods ability to re-borrow under the facility. Capital Lease Obligations Our capital leases represent machinery and equipment financing obligations, which are payable in monthly installments of principal and interest and are collateralized by the assets financed. See Note 15 Commitments and Contingencies. 10. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS Derivative Financial Instruments Commodities We are exposed to commodity price fluctuations, including milk, butterfat, sweeteners, utilities, natural gas, diesel fuel, and other commodity costs used in the manufacturing, packaging and distribution of our products. To secure adequate supplies of materials and bring greater stability to the cost of ingredients and their related manufacturing, packaging and distribution, we routinely enter into forward purchase contracts and other purchase arrangements with suppliers. Under the forward purchase contracts, we commit to purchasing agreed-upon quantities of ingredients and commodities at agreed-upon prices at specified future dates. The outstanding purchase commitment for these commodities at any point in time typically ranges from one month s to one year s anticipated requirements, depending on the ingredient or commodity. These contracts are considered normal purchases. In addition to entering into forward purchase contracts, from time to time we may purchase over-thecounter contracts with our qualified banking partners or exchange-traded commodity futures contracts for raw materials that are ingredients of our products or components of such ingredients. Certain of the contracts offset the risk of increases in our commodity costs, and are designated as hedging instruments when appropriate. Primarily at the direction of certain of our customers, we may execute other contracts related to certain customer pricing arrangements. We have not designated such contracts as hedging instruments; therefore, the contracts are marked to market at each reporting period and a derivative asset or liability is recorded on our Combined Balance Sheet. These contracts are generally offset by economic contracts we have purchased to limit the variability in our operations. A summary of open commodities contracts recorded at fair value in our Combined Balance Sheets at December 31, 2012 and 2011 is included in the table below

28 Although we may utilize forward purchase contracts and other instruments to mitigate the risks related to commodity price fluctuation, such strategies do not fully mitigate commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we derive from these strategies. The following table summarizes our derivatives recorded at fair value in our Combined Balance Sheets as of December 31, 2012 and 2011 (in thousands): In thousands December 31, Derivative Assets Derivative Liabilities Derivatives designated as Hedging Instruments Commodities contracts current (1) $ - $ - $ 25 $ - Derivatives not designated as Hedging Instruments Commodities contracts current (1) 1,329 2, ,476 Total derivatives $ 1,329 $ 2,467 $ 956 $ 1,476 (1) Derivative assets and liabilities that have settlement dates equal to or less than 12 months from the respective balance sheet date were included in prepaid expenses and other current assets and accounts payable and accrued expenses in our Combined Balance Sheets. All derivative assets and liabilities designated as hedging instruments were settled as of December 31, Any gains and losses on derivatives designated as cash flow hedges reclassified from accumulated other comprehensive income into income during 2012 and 2011 were immaterial. Fair Value Measurements Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, we follow a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 Quoted prices for identical instruments in active markets. Level 2 Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets. Level 3 Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The following table summarizes our derivative assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 (in thousands): Fair value as of December 31, 2012 Level 1 Level 2 Level 3 Asset commodities contracts $ 1,329 $ - $ 1,329 $ - Liability commodities contracts $ 956 $ - $ 956 $

29 The following table summarizes our derivative assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 (in thousands): Fair value as of December 31, 2011 Level 1 Level 2 Level 3 Asset commodities contracts $ 2,467 $ - $ 2,467 $ - Liability commodities contracts $ 1,476 $ - $ 1,476 $ - The fair value of our commodities contracts is based on the quantities and fixed prices under the agreements and quoted forward commodity prices. We classify these instruments in Level 2 because quoted market prices can be corroborated utilizing observable benchmark market rates at commonly quoted intervals and observable current and forward commodity market prices on active exchanges. We did not significantly change our valuation techniques from prior periods. Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value. In addition, because the interest rates on our debt are variable, their fair values approximate their carrying values. 11. SHARE-BASED COMPENSATION Certain of the Company s employees participate in share-based compensation plans sponsored by Dean Foods. These plans provide employees with restricted stock units or options to purchase shares of Dean Foods common stock. Given that the Company s employees directly benefit from participation in these plans, the expense incurred by Dean Foods for stock and options granted specifically to our employees has been reflected in general and administrative expense in our Combined Statements of Operations. These amounts were based on the awards and terms previously granted to our employees, but may not reflect the equity awards or results that we would have experienced or expect to experience as a stand-alone company. Additionally, share-based compensation expenses related to the corporate employees of Dean Foods were allocated based on the Company s percentage of Dean Foods total sales. The share and unit data presented in the tables below only reflect the costs that were directly attributable to the Company s employees and none of the allocated expenses of Dean Foods corporate employees. Allocated expense for Dean Foods corporate employees totaled $2.3 million and $2.1 million for the years ended December 31, 2012 and 2011, respectively. Stock Award Plans As of December 31, 2012, the Company s employees participated in two Dean Foods employee equity award plans. These plans, which are the 1997 Stock Option and Restricted Stock Plan and the Dean Foods Company 2007 Stock Incentive Plan (the 2007 Plan ), provide for grants of stock options, restricted stock units, and other stock-based awards to employees, officers, and directors. Options and other stock-based awards vest in accordance with provisions set forth in the applicable award agreements. The remaining shares available for grant under the historical plans are granted pursuant to the terms and conditions of the 2007 Plan. Under the Dean Foods stock award plans, certain of the Company s employees are granted stock options and restricted stock units. The following details of options and stock units activity and expenses relates to the direct employees of our Company who participated in the various Dean Foods equity award plans. Stock Options Under the terms of the stock option plans, the Company s employees may be granted options to purchase Dean Foods common stock at a price equal to the market price on the date the option is granted. In general, Dean Foods employee options vest one-third on the first anniversary of the grant date, one-third on the second anniversary of the grant date, and one-third on the third

30 anniversary of the grant date. All unvested options vest immediately upon a change in control of Dean Foods and in the following additional circumstances: (i) an employee with 10 years of service retires after reaching the age of 55; (ii) an employee retires after reaching the age of 65; and (iii) in certain cases upon death or qualified disability. Share-based compensation expense for stock options is recognized ratably over the vesting period. The following table summarizes the assumptions used to estimate the fair value of each option award on the date of grant using the Black-Scholes valuation model: Year Ended December 31, Expected volatility 44 % 41 % Expected dividend yield 0 % 0 % Expected option term 5 years 5 years Risk-free rate of return 0.62%-0.89% 1.32%-2.30% The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to contractual terms (generally ten years), vesting schedules, and expectations of future employee and director behavior. Expected stock price volatility is based on a combination of historical volatility of Dean Foods stock and expectations with regard to future volatility. The risk-free rates are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. Dean Foods has not historically declared or paid a regular cash dividend on its common stock. The following table summarizes stock option activity during the year ended December 31, 2012: Options outstanding at January 1, ,542 $ Granted 81, Forfeited and cancelled (1) (51,563) Exercised (65,933) Transferred (2) 38, Weighted Weighted Aggregate Average Average Intrinsic Options Exercise Price Contractual Life Value Options outstanding at December 31, , $ 667,089 Options vested and expected to vest at December 31, , $ 746,993 Options exercisable at December 31, , $ 460 Options exercisable at December 31, , $ 43,684 (1) Pursuant to the terms of the Dean Foods stock option plans, options that are forfeited or cancelled may be available for future grants. (2) Transferred options represent options outstanding at the time certain employees transferred to or from other Dean Foods divisions

31 The following table summarizes information about options outstanding and exercisable at December 31, 2012: Options Outstanding Options Exercisable Weighted Weighted Weighted Average Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price $10.30 to , $ $ , to , , to , , to , , , , to , , , , to , , to , , The following table summarizes additional information regarding our stock option activity during 2012 and 2011(in thousands, except per share amount): Year Ended December 31, Weighted-average grant date fair value of options granted $ 4.72 $ 4.04 Intrinsic value of options exercised Fair value of shares vested Tax benefit related to stock option expense During the year ended December 31, 2012, Deans Foods received $698,000 of cash from stock option exercises by our direct participants in the Dean Foods incentive compensation plans. At December 31, 2012, there was $331,000 of total unrecognized stock option expense, all of which is related to non-vested awards of the Company s employees who participated in the Dean Foods incentive compensation plans. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 1.8 years. Restricted Stock Units Restricted stock units are issued to certain senior employees as part of the long-term incentive program. Each restricted stock unit represents the right to receive one share of Dean Foods common stock in the future. Restricted stock units have no exercise price. Restricted stock units granted to employees generally vest ratably over three years. All unvested restricted stock units vest immediately upon a change in control of Dean Foods, and in the following additional circumstances: (i) an employee with 10 years of service retires after reaching the age of 55; (ii) an employee retires after reaching the age of 65; and (iii) in certain cases upon death or qualified disability

32 The following table summarizes restricted stock unit activity during the year ended December 31, 2012: Stock units outstanding January 1, ,295 Stock units issued 57,248 Shares issued upon vesting of stock units (48,459) Stock units cancelled or forfeited (1) (25,612) Transferred (2) 597 Stock units outstanding at December 31, ,069 Weighted average grant date fair value $ (1) Pursuant to the terms of the Dean Foods stock unit plans, employees have the option of forfeiting stock units to cover their minimum statutory tax withholding when shares are issued. Stock units that are cancelled or forfeited may be available for future grants. (2) Transferred stock units are attributable to employees that transferred to or from other Dean Foods divisions. The following table summarizes additional information about our stock unit grants and stock unit expense during the years ended December 31, 2012 and 2011 (in thousands, except per share amount): Units Year Ended December 31, Weighted-average grant date fair value per share of stock units granted $ $ Tax benefit related to stock unit expense At December 31, 2012, there was $702,000 of total unrecognized stock unit expense, all of which is related to nonvested awards. This compensation expense is expected to be recognized over the weighted-average remaining vesting period 1.7 years. Cash Performance Units In 2010, Dean Foods began granting cash performance units ( CPUs ) to employees as part of its long-term incentive compensation program under the terms of the 2007 Plan. The CPU awards are cash-settled awards and are designed to link compensation of certain executive officers and other key employees to Dean Foods performance over a three-year period. The performance metric, as defined in the awards, is the performance of the Dean Foods stock price relative to that of a peer group of companies. The range of payout under the awards is between 0% and 200% and is payable in cash at the end of each respective performance period. The fair value of the awards is measured at each reporting period. A liability related to these units has not been reflected in the Combined Balance Sheets as it will be funded by Dean Foods

33 The following table summarizes CPU activity during the year ended December 31, 2012: Outstanding at January 1, 2012 $ 891,667 Granted 187,500 Converted/paid - Forfeited (816,667) Outstanding at December 31, 2012 $ 262,500 Phantom Shares In 2011, Dean Foods began granting phantom shares as part of its long-term incentive compensation program, which are similar to restricted stock units in that they are based on the price of Dean Foods stock and vest ratably over a three-year period, but are cash-settled based upon the value of Dean Foods stock at each vesting period. All unvested phantom shares vest immediately upon a change in control of Dean Foods and in the following additional circumstances: (i) an employee with 10 years of service retires after reaching the age of 55; (ii) an employee retires after reaching the age of 65; and (iii) in certain cases upon death or qualified disability. The fair value of the awards is re-measured at each reporting period. A liability related to these units has not been reflected in the Combined Balance Sheets as it will be funded by Dean Foods. The following table summarizes the phantom share activity during the year ended December 31, 2012: Units Shares Weighted- Average Grant Date Fair Value Outstanding at January 1, ,353 $ Granted 93, Converted/paid (33,045) Forfeited (13,194) Transferred (1) 22, Outstanding at December 31, , (1) Transferred stock units are attributable to employees that transferred to or from other Share-Based Compensation Expense The following table summarizes the share-based compensation expense recognized for the Company s direct participation in the Dean Foods incentive compensation plan during the years ended December 31, 2012 and 2011 (in thousands): Year Ended December 31, Stock options $ 311 $ 452 Restricted stock units 932 1,100 CPUs Phantom shares 1, Share-based compensation expense funded by Parent $ 2,472 $ 1,

34 12. ACCUMULATED OTHER COMPREHENSIVE LOSS The following table summarizes the components of accumulated other comprehensive loss, as reflected in the Combined Statements of Invested Equity at December 31, 2012 and 2011 (in thousands): December 31, Pension liability adjustment, net of tax $ (599) $ (372) Fair value of derivative instruments, net of tax (15) - Total accumulated other comprehensive loss $ (614) $ (372) 13. EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS Dean Foods sponsors various employee benefit plans, which consist of Dean Foods consolidated defined benefit and defined contribution plans, including various employee savings and profit sharing plans in which certain of our employees have historically participated. Substantially all full-time union and non-union employees who have completed one or more years of service and have met other requirements pursuant to the plans are eligible to participate in one or more of these plans, or in their applicable multi-employer pension plan. Expenses related to our employee s participation in Dean Foods plans were determined by specifically identifying the costs for the Company s participants. These pension expenses were allocated to the Company and reported in general and administrative expenses in our Combined Statements of Operations. The amounts allocated for pension expenses in general and administrative expenses were $447,000 and $410,000 for the years ended December 31, 2012 and 2011, respectively. The accumulated benefit obligation, which is in excess of plan assets, for the Dean Foods plans in which our employees participate was $316.5 million and $285.7 million as of December 31, 2012 and 2011, respectively The following table summarizes our retirement and profit sharing plan expenses during 2012 and 2011 (in thousands): Year Ended December 31, Defined benefit plans (1) $ 514 $ 435 Defined contribution plans 1,505 1,828 Multiemployer pension plans 3,547 3,411 Total $ 5,566 $ 5,674 (1) Includes the allocated pension expense related to our employees participation in Dean Foods defined benefit plans. Dean Foods Defined Benefit Plans The benefits under Dean Foods defined benefit plans are based on years of services and employee compensation. Dean Foods funding policy is to contribute annually the minimum amount required under ERISA regulations plus additional amounts as management deems appropriate

35 M-Foods Dairy, LLC Defined Benefit Plans We have a separate, stand-alone defined benefit pension plan, and the benefits are based on years of service and employee compensation. Our funding policy is to contribute annually the minimum amount required under ERISA regulations plus additional amounts as management deems appropriate. Our defined benefit plan obligations are frozen as to future participation or increases in projected benefit obligation. Many of these obligations were acquired in prior strategic transactions. As an alternative to defined benefit plans, we offer defined contribution plans sponsored by Dean Foods for eligible employees. Included in accumulated other comprehensive income at December 31, 2012 and 2011, but not yet recognized in net periodic pension cost are unrecognized actuarial losses of $972,000 ($599,000 net of tax) and $603,000 ($372,000 net of tax), respectively. The actuarial losses included in accumulated other comprehensive income and expected to be recognized in net periodic pension cost during the year ended December 31, 2013 is $64,000 ($39,500 net of tax). The following table reconciles the beginning and ending balances of the projected benefit obligation, the fair value of plan assets and the funded status of the plan at December 31, 2012 and 2011 (in thousands): Year Ended December 31, Change in benefit obligation: Benefit obligation at beginning of year $ 2,461 $ 1,943 Interest cost Actuarial loss Benefits paid (100) (23) Benefit obligation at end of year 2,886 2,461 Change in plan assets: Fair value of plan assets at beginning of year 1,766 1,749 Actual return on plan assets Benefits paid (100) (23) Fair value of plan assets at end of year 1,756 1,766 Funded status at end of year $ (1,130) $ (695) We do not expect any plan assets to be returned to us during the year ended December 31, We do not expect to contribute to the pension plan in The underfunded status of the plan of $1.1 million and $695,000 at December 31, 2012 and 2011, respectively, are recognized in our Combined Balance Sheets and are classified as a noncurrent accrued pension liability. The following table summarizes our key actuarial assumption used to determine benefit obligations as of December 31, 2012 and 2011: December 31, Weighted average discount rate 3.70 % 4.50 %

36 The weighted average discount rate reflects the rate at which our defined benefit plan obligations could be effectively settled. The rate, which is updated annually with the assistance of an independent actuary, uses a model that reflects a bond yield curve. The weighted average discount rate was decreased from 4.50% at December 31, 2011 to 3.70% at December 31, 2012, which will increase the net periodic pension cost in The following table summarizes our key actuarial assumptions used to determine net periodic pension cost for 2012 and 2011: Year Ended December 31, Weighted average discount rate 4.50 % 5.28 % Expected return on plan assets 4.40 % 4.40 % The following table summarizes the components of our net periodic pension cost for 2012 and 2011 (in thousands): Year Ended December 31, Components of net periodic pension cost: Interest cost $ 110 $ 102 Expected return on plan assets (77) (77) Amortization of net loss 34 - Net periodic pension cost $ 67 $ 25 The overall expected long-term rate of return on plan assets is a weighted-average expectation based on the targeted and expected portfolio composition. We consider historical performance and current benchmarks to arrive at expected long-term rates of return in each asset category. The following table summarizes the estimated pension plan benefit payments to participants for the next ten years: 2013 $ 20, , , , ,000 Next five years 396,000 Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, we follow a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value of our defined benefit plans consolidated assets as follows: Level 1 Quoted prices for identical instruments in active markets

37 Level 2 Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets. Level 3 Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The following table summarizes fair values by category of inputs as of December 31, 2012 (in thousands): Fair Value as of December 31, 2012 Level 1 Level 2 Level 3 Equity securities: Index funds: Equity funds(a) $ 113 $ - $ 113 $ - Fixed income: Diversified funds(b) 1,230-1,230 Other investments: Insurance reserves Total $ 1,756 $ - $ 113 $ 1,643 (a) Represents a pooled/separate account comprised of approximately 90% U.S. large-cap stocks and 10% in international stocks. (b) Represents a pooled/separate account investment in the general investment accounts of two investment managers. The accounts primarily invest in fixed income debt securities, such as high grade corporate bonds, government bonds and asset-backed securities. The following table summarizes fair values by category of inputs as of December 31, 2011 (in thousands): Fair Value as of December 31, 2011 Level 1 Level 2 Level 3 Equity securities: Index funds: Equity funds(a) $ 98 $ - $ 98 $ - Fixed income: Diversified funds(b) 1, ,271 Other investments: Insurance reserves Total $ 1,766 $ - $ 98 $ 1,668 (a) Represents a pooled/separate account comprised of approximately 90% U.S. large-cap stocks and 10% in international stocks. (b) Represents a pooled/separate account investment in the general investment accounts of two investment managers. The accounts primarily invest in fixed income debt securities, such as high grade corporate bonds, government bonds and asset-backed securities

38 The following table reconciles the change in the fair value measurement of the defined benefit plans consolidated assets using Level 3 inputs during the years ended December 31, 2012 and 2011 (in thousands): Diversified Insurance Funds Reserves Total Balance at December 31, 2010 $ 1,249 $ 378 $ 1,627 Actual return on plan assets: Relating to instruments still held at reporting date Purchases, sales and settlements (net) (29) - (29) Transfers in and/or out of Level 3 (9) - (9) Balance at December 31, , ,668 Actual return on plan assets: Relating to instruments still held at reporting date Purchases, sales and settlements (net) (66) - (66) Transfers in and/or out of Level Balance at December 31, 2012 $ 1,230 $ 413 $ 1,643 Defined Contribution Plans Certain of our non-union personnel may elect to participate in savings and profit sharing plans sponsored by Dean Foods. These plans generally provide for salary reduction contributions to the plans on behalf of the participants of between 1% and 20% of a participant s annual compensation and provide for employer matching and profit sharing contributions as determined by Dean Foods board of directors. In addition, certain union hourly employees are participants in Dean Foods company-sponsored defined contribution plans, which provide for employer contributions in various amounts ranging from $24 to $91 per pay period per participant. Multiemployer Pension Plans We contribute to various multiemployer pension plans that cover approximately 800 of our union employees. Such plans are administered by boards of trustees composed of labor representatives and the management of the participating companies. The risks of participating in a multiemployer plan are different from a single-employer plan in the following aspects: Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and If we choose to stop participating in one or more of our multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. At this time, we have not established any significant liabilities because withdrawal from these plans is not probable or reasonably possible

39 Our participation in these multiemployer plans for the year ended December 31, 2012 is outlined in the table below. Unless otherwise noted, the most recent Pension Protection Act ( PPA ) Zone Status available in 2012 and 2011 is for the plans year-end at December 31, 2011 and December 31, 2010, respectively. The zone status is based on information that we obtained from each plan s Form 5500, which is available in the public domain and is certified by the plan s actuary. Among other factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% funded. The FIP/RP Status Pending/Implemented column indicates plans for which a funding improvement plan ( FIP ) or a rehabilitation plan ( RP ) is either pending or has been implemented. Federal law requires that plans classified in the yellow zone or red zone adopt an FIP or RP, respectively, in order to improve the financial health of the plan. The Extended Amortization Provisions column indicates plans that have elected to utilize the special 30-year amortization rules provided by the Pension Relief Act of 2010 to amortize its losses from 2008 as a result of turmoil in the financial markets. The last column in the table lists the expiration dates of the collective-bargaining agreement(s) to which the plans are subject. Expiration Date of Pension FIP/RP Associated Employer Plan Status Extended Collective Identification Number PPA Zone Status Pending/ Amortization Bargaining Pension Fund Number Implemented Provisions Agreements Western Conference of Teamsters Pension December 31, 2015 Plan (1) Green Green N/A No June 30, 2017 New York State Teamsters Conference Pension & Retirement Fund Red Red Implemented No October 26, 2014 United Food & Commercial Workers Intl Union Industry Pension Fund Green Green N/A Yes July 29, 2015 (1) We are party to two collective bargaining agreements with respect to this plan. The agreement expiring in December 2015 is more significant as approximately 69% of our employee participants in this plan are covered by that agreement

40 Information regarding our contributions to our multiemployer pension plans is shown in the table below. There are no changes that materially affected the comparability of our contributions to the plans during the years ended December 31, 2012 and Employer Pension Morningstar Identification Plan Foods Contributions Surcharge Pension Fund Number Number Imposed (3) (In thousands) Western Conference of Teamsters Pension Plan (1) $ 1,796 $ 1,599 No New York State Teamsters Conference Pension & Retirement Fund (1) Yes United Food & Commercial Workers Intl Union Industry Pension Fund (1) No Other Funds (2) Total Contributions $ 3,547 $ 3,411 (1) During the 2011 plan year, our contributions to these plans did not exceed 5% of total plan contributions. At the date the financial statements were available to be issued, Forms 5500 were not available for the plan years ending in (2) Amounts shown represent our contributions to all other multiemployer pension and other postretirement benefit plans, which are immaterial both individually and in the aggregate to our Combined Financial Statements. (3) Federal law requires that contributing employers to a plan in Critical Status pay to the plan a surcharge to help correct the plan s financial situation. The amount of the surcharge is equal to a percentage of the amount we would otherwise be required to contribute to the plan and ceases once our related collective bargaining agreements are amended to comply with the provisions of the rehabilitation plan. 14. FACILITY CLOSING AND REORGANIZATION COSTS Approved plans and related charges are summarized as follows (in thousands): Year Ended December 31, Closure of facilities (1) $ 3,547 $ - (1) In the first quarter of 2012, Dean Foods board of directors approved the closure of our Sulphur Springs, Texas cultured production facility. Under this plan, production transitioned to several other Morningstar facilities. This decision was based on the board s determination that these operations did not adequately support our strategic objectives. The plant closure was completed in May We expect to incur additional charges related to this facility closure of $220,000, related to shutdown and other costs

41 Activity with respect to facility closing and reorganization costs during the year ended December 31, 2012 is summarized below and includes items expensed as incurred (in thousands): Accrued Accrued Charges at Charges at December 31, December 31, 2011 Charges Payments 2012 Cash charges: Workforce reduction costs $ - $ 388 $ (388) $ - Shutdown costs (264) - Lease obligations after shutdown - 70 (70) - Other - 23 (23) - Subtotal $ $ (745) $ - Noncash charges: Write-down of assets 2,633 Other 169 Total charges $ 3, COMMITMENTS AND CONTINGENCIES Lease and Purchase Obligations We lease certain property, plant and equipment used in our operations under both capital and operating lease agreements. Such leases, which are primarily for machinery and equipment, have lease terms ranging from one to ten years. Certain lease agreements require the payment of additional rentals based on units produced. Rent expense was $4.0 million and $4.5 million for 2012 and 2011, respectively. The following table summarizes future minimum payments at December 31, 2012, under non-cancelable operating and capital leases with terms in excess of one year (in thousands): Operating Leases Capital Leases 2013 $ 2,138 $ , , Thereafter 1,674 - Total minimum lease payments $ 8,291 $ 97 We have entered into various contracts, in the normal course of business, obligating us to purchase minimum quantities of raw materials used in our production and distribution processes. We enter into these contracts from time to time to ensure a sufficient supply of raw ingredients. In addition, we have contractual obligations to purchase various services that are part of our production process

42 Litigation, Investigations and Audits We are not party to, nor are our properties the subject of, any material pending legal proceedings. We are party from time to time to certain claims, litigations, audits and investigations, which are not expected to have a material adverse impact on our financial position, results of operations or cash flows. 16. RELATED PARTY TRANSACTIONS AND CONTINUING RELATIONSHIPS Allocated Expenses Dean Foods historically provided certain corporate services to us, and costs associated with these functions have been allocated to us. These allocations include costs related to corporate services, such as executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury, and other services, as well as stock-based compensation expense attributable to our employees and an allocation of stock-based compensation attributable to employees of Dean Foods. The costs of such services have been allocated to us based on the allocation method most relevant to the service provided, primarily based on relative percentage of total net sales, relative percentage of headcount, or specific identification. The total amount of these allocations from Dean Foods was approximately $48.5 million (which includes $22.9 million of transaction costs related to the sale of the Company) and $26.8 million in the year ended December 31, 2012 and These cost allocations are primarily reflected within general and administrative expenses in our Combined Statements of Operations. Management believes these expenses have been allocated to us using a reasonable allocation methodology. The allocations may not reflect the expense we would have incurred as a stand-alone company for the periods presented. Actual costs that may have been incurred if we had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in certain areas. Cash Management Dean Foods uses a centralized approach to cash management and financing of operations. The Company s cash has historically been available for use and regularly swept by Dean Foods at its discretion. Dean Foods also funds the Company s operating and investing activities as needed. Transfers of cash, both to and from Dean Foods cash management system, are reflected as a component of parent s net investment in our Combined Balance Sheets. Related Party Arrangements Related party transactions and activities involving Dean Foods and its subsidiaries have not always been consummated on terms equivalent to those that would prevail in an arm s-length transaction where conditions of competitive, free-market dealing may exist. Sales of our raw materials and finished products that we manufacture for other subsidiaries of Dean Foods have been reflected as related party sales in our Combined Financial Statements. These related party transactions are included as part of parent s net investment. Certain related party transactions have historically been settled in cash and are reflected as related party payables in our Combined Balance Sheets. The remaining related party transactions are settled by either non-cash capital contributions from Dean Foods to us or non-cash capital distributions from us to Dean Foods. During the years ended December 31, 2012 and 2011, we utilized manufacturing facilities and resources managed by affiliates of Dean Foods to conduct our business. The expenses associated with these transactions, which primarily relate to co-packing certain of our products, are included in cost of sales in our Combined Statements of Operations

43 In connection and effective with the initial public offering of WhiteWave on October 31, 2012, we have entered into agreements that formalize ongoing commercial arrangements we have with WhiteWave, which are described below. Subsequent to year-end and in connection with Dean Foods sale of the Company, the terms of these agreements were modified. See Note 17 Subsequent Events. Transitional Sales Agreements We entered into an agreement with WhiteWave, pursuant to which we transfer to WhiteWave responsibility for sales and associated costs of certain WhiteWave products and associated costs over a 15-month term. During this term, the Company provides certain transitional services to WhiteWave which include, but are not limited to, taking and filling orders, collecting receivables, and shipping products to WhiteWave s customers. The Company remits to WhiteWave the net profit associated with these product sales until such time as the sales are transitioned to WhiteWave. Since the agreement s effective date, the net profit associated with these product sales is $4.5 million and is presented in other operating expense (income) in our Combined Statement of Operations. The net profit results from sales of $12.2 million included in the Combined Statement of Operations. We also entered into an agreement with WhiteWave pursuant to which they transfer to us responsibility for the sales and associated costs of their aerosol whipped topping and other non-core products over a 15-month term. During this term, WhiteWave provides certain transitional services to us that include, but are not limited to, taking and filling orders and collecting receivables, and shipping products to customers. WhiteWave remits to us the net profit associated with these product sales until the sales are transitioned to us. The net effect of the agreement since its effective date is reflected as a related party fee of $1.9 million in our Combined Statement of Operations, derived from gross billings to customers by WhiteWave of $7.6 million for the period ended December 31, Co-Packing Agreement We entered into a manufacturing agreement with WhiteWave pursuant to which we continue manufacturing various WhiteWave products. With the exception of the manufacture of aerosol whipped topping and other non-core products, which are subject to this agreement for a term of up to 15 months, this agreement generally has a term of three to five years with respect to the various product lines. We expect that approximately 10% to 11% of their products, calculated as a percentage of cost of sales, will continue to be manufactured by us under this agreement. The agreement modifies our historical intercompany arrangements and reflects new pricing. The effect of the agreement since its effective date is an increase in sales of $0.6 million in our Combined Statement of Operations for the period ended December 31, Equipment Distribution and Leaseback Agreement We entered into an agreement with certain Dean Foods subsidiaries, including WhiteWave, pursuant to which we distributed and assigned all of our rights, title and interest in certain equipment at their carrying value of $1.6 million at October 31, We leased back such equipment from WhiteWave for an annual equipment lease cost of $435,000. This agreement is co-terminus with the Co-Packing agreement entered into with WhiteWave. This agreement was terminated subsequent to December 31, 2012 pursuant to Dean Foods entering into an agreement to sell the Company. See Note 17 Subsequent Events

44 Frederick Facility Agreement On October 23,2012, we entered into an agreement with WhiteWave, pursuant to which WhiteWave has the option to purchase, at a price as defined in the agreement, our real estate, manufacturing facility and certain related assets located in Frederick, Maryland, should our current co-pack agreement with an unrelated third party be cancelled, renewed at lower volumes or not renewed. This agreement was terminated subsequent to December 31, 2012 pursuant to Dean Foods entering into an agreement to sell the Company. See Note 17 Subsequent Events. Termination of Intellectual Property License Agreement and Related Loan Agreement Historically, the Company was party to a license agreement with a subsidiary of WhiteWave a majority-owned subsidiary of Dean Foods, pursuant to which we had the right to use WhiteWave s intellectual property in the manufacture of certain products for a fee. For the years ended December 31, 2012 and 2011, related party license expense was recorded within operating income in our Combined Statements of Operations in the amount of $36.0 million and $42.7 million, respectively. As of December 31, 2012 and 2011, amounts outstanding under this license agreement totaled $nil million and $11.1 million, respectively. These amounts are recorded separately as related party payables within our Combined Balance Sheets. In conjunction with the license agreement, a loan agreement was entered into, pursuant to which WhiteWave extended a line of credit to us related to the license expense under the license agreement. There have been no repayments of this loan to date and there are no future plans to make payment on the outstanding balance; therefore, the principal and associated accrued interest is shown in Parent s net investment in our Combined Balance Sheets. On October 31, 2012, the license agreement was terminated, and the related loan agreement was contributed to our capital, thereby formally releasing us of any obligation. As of December 31, 2012 and 2011, amounts outstanding under this agreement totaled $nil million and $305.3 million, respectively. The interest term on the loan from WhiteWave was LIBOR plus 2% and was recorded in interest expense in our Combined Statements of Operations. Interest expense on the loan for the years ended December 31, 2012 and 2011 was $6.4 million and $6.1 million, respectively. We no longer pay license expense or related party interest expense associated with these historical agreements. In addition, we entered into an agreement whereby WhiteWave transferred to us certain intellectual property related to our products that was subject to the license agreement so that we have the requisite intellectual property and manufacturing know-how to produce and sell our products and brands. WhiteWave retained all intellectual property related to and necessary for the production of their products and brands. Transition Services Agreement In connection with Dean Foods sale of the Company, WhiteWave entered into a separate transition services agreement with us on November 20, 2012 to cover certain continued services provided by and to us. Our services consist of freight and warehousing services, while WhiteWave primarily provides use of research and development facilities. Guarantees We have entered into several guarantee agreements with Dean Foods whereby we have historically guaranteed debt issued by Dean Foods on a joint and several basis. The aggregate unpaid principal balance of the debt issued by Dean Foods that we guaranteed was approximately $2.2 billion as of December 31, These guarantees remain in place until the related debt matures, which will occur on varying dates through 2018, and if the issuer or the primary guarantor, as applicable, defaults on the underlying debt, we may be required to satisfy the outstanding debt. As this is an intercompany

45 guarantee, we have not recognized any liability associated with this guarantee in our Combined Financial Statements. These guarantees were terminated subsequent to December 31, 2012, pursuant to the close of the sale of the Company. See Note 17 Subsequent Events. 17. SUBSEQUENT EVENTS We have evaluated subsequent events after the balance sheet date of December 31, 2012 through March 7, 2013, which is the date the financial statements were available to be issued. Dean Foods entered into an agreement to sell Morningstar Foods LLC to Saputo Inc for $1.45 billion. The sale closed on January 3, 2013, and a portion of the proceeds were used by Dean Foods to retire outstanding debt under their senior secured credit facility. Due to the structure of the sale, the Rockford facility will be retained by Dean Foods. Additionally, for tax purposes, the parties have elected to treat the transaction as an asset sale. Therefore, the deferred income tax assets, including any carryforwards, or deferred income tax liabilities were not transferred to Saputo as part of the sale. In connection with the sale of the Company, we modified certain of the commercial agreements between us and WhiteWave. These modifications, with the exception of the Asset Purchase Agreement, are primarily timing modifications and will not have a material impact on our results of operations. Asset Purchase Agreement We agreed to terminate the Frederick Facility Agreement and amended the Equipment Distribution and Leaseback Agreement to terminate the leaseback provisions and transfer the rights, title and interest in the equipment from WhiteWave to us, for a net consideration of $60 million paid by Dean Foods, concurrent with the close of the sale. In connection with the sale of the Company, we also entered into agreements that formalize ongoing commercial arrangements we have with Dean Foods and certain of its subsidiaries, which are described below. These agreements became effective on January 1, Co-packing Agreement We have also entered into a manufacturing agreement with certain wholly-owned Dean Foods subsidiaries pursuant to which we will continue manufacturing such subsidiary s various products. This agreement has a term of three years for all of the various product lines. The agreement modifies our historical intercompany arrangements and reflects new pricing. We have also entered into a manufacturing agreement with certain wholly-owned Dean Foods subsidiaries, which includes a co-pack related to the Rockford facility, pursuant to which they will continue manufacturing various products for us. This agreement has a term of eighteen months to three years, depending on the product line. Cream Supply Agreement We entered into a supply agreement with certain wholly-owned Dean Foods subsidiaries pursuant to which we continue to purchase cream from those Dean Foods subsidiaries for an initial term of up to 24 months, with an option for us to renew for up to four one-year terms. The pricing terms of this agreement are consistent with the terms of our prior arrangements reflected in our historical financials, and we do not believe they will have a material impact on our financial performance

46 Intellectual Property Agreements We entered into contribution agreements with wholly-owned Dean Foods subsidiaries pursuant to which they will contribute and transfer ownership of certain intellectual property to us. We also entered into license agreements with wholly-owned Dean Foods subsidiaries pursuant to which they will license certain trademarks to us for a period of one year or until we stop using such trademarks, depending on the specific trademarks, and to which we will license certain trademarks to them for a period of one to five years depending on the product category. Product Resale Agreement We entered into an agreement with wholly-owned subsidiaries of Dean Foods, pursuant to which those subsidiaries continue to purchase certain of our products for resale for a fixed initial term of five years for all of the certain specified Morningstar products. This agreement modifies our historical intercompany arrangements and reflects new pricing. Transition Services Agreement In connection with Dean Foods sale of the Company, we and Dean Foods entered into a transition services agreement on January 3, 2013 to cover certain continued corporate services provided by Dean Foods to us following completion of the sale. Dean Foods services consist primarily of supply chain, information technology, legal, finance and accounting, human resources, risk management, tax, treasury, and other transitional services. Dean Foods services continue for a specified initial term, unless terminated earlier or extended according to the terms of the transition services agreement. We pay Dean Foods mutually agreed-upon fees for their services. ******

47 ÉTATS FINANCIERS COMBINÉS RÉSUMÉS INTERMÉDIAIRES NON AUDITÉS DE MORNINGSTAR FOODS, LLC Annexe B SAPUTO INC. DÉCLARATION D ACQUISITION D ENTREPRISE Page 5

48 Morningstar Foods (Defined as Morningstar Foods LLC and Subsidiaries and the Dean Foods Company s Rockford Facility) Unaudited Condensed Combined Financial Statements as of September 30, 2012 and December 31, 2011 and for the Nine Months Ended September 30, 2012 and 2011

49 MORNINGSTAR FOODS TABLE OF CONTENTS UNAUDITED CONDENSED COMBINED BALANCE SHEETS AS OF SEPTEMBER 30, 2012 AND DECEMBER 31, UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND UNAUDITED CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND UNAUDITED CONDENSED COMBINED STATEMENTS OF INVESTED EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS: 1. Business and Basis of Presentation 8 2. Divestitures 9 3. Inventories 9 4. Property, Plant, and Equipment Goodwill and Intangible Assets Income Taxes Debt Derivative Financial Instruments and Fair Value Measurements Share-Based Compensation Employee Retirement Benefits and Profit-Sharing Plans Facility Closing and Reorganization Costs Commitments and Contingencies Related-Party Transactions and Continuing Relationships Subsequent Events 21 Page

50 MORNINGSTAR FOODS CONDENSED COMBINED BALANCE SHEETS AS OF SEPTEMBER 30, 2012 AND DECEMBER 31, 2011 (Unaudited) (In thousands) ASSETS September 30, December 31, CURRENT ASSETS: Cash and cash equivalents $ 5 $ 4 Receivables net of allowance of $264 and $501 74,426 73,847 Inventories 84,827 67,159 Deferred income taxes 7,162 4,846 Prepaid expenses and other current assets 8,380 8,547 Total current assets 174, ,403 PROPERTY, PLANT AND EQUIPMENT, Net 180, ,090 DEFERRED INCOME TAXES 632 1,823 IDENTIFIABLE INTANGIBLE AND OTHER ASSETS, Net 33,940 37,342 GOODWILL 306, ,095 TOTAL ASSETS $ 696,220 $ 682,753 LIABILITIES AND INVESTED EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 112,040 $ 107,297 Related party payables 10,728 11,082 Current portion of debt ,837 Total current liabilities 122, ,216 LONG-TERM DEBT DEFERRED INCOME TAXES 63,177 63,419 OTHER LONG-TERM LIABILITIES 8,088 6,982 COMMITMENTS AND CONTINGENCIES (Note 12) - - INVESTED EQUITY: Parent s net investment 502, ,344 Accumulated other comprehensive loss (312) (372) Total invested equity 502, ,972 TOTAL LIABILITIES AND INVESTED EQUITY $ 696,220 $ 682,753 See notes to condensed combined financial statements

51 MORNINGSTAR FOODS CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (Unaudited) (In thousands) Nine Months Ended September 30, NET SALES $ 1,062,526 $ 1,032,138 NET SALES TO RELATED PARTIES 213, ,555 Total net sales 1,275,759 1,283,693 COST OF SALES 1,071,896 1,103,679 GROSS PROFIT 203, ,014 OPERATING COSTS AND EXPENSES: Selling and distribution 68,154 61,747 General and administrative 41,986 36,698 Related party license expense 32,043 31,598 Amortization of intangibles 2,192 2,192 Facility closing and reorganization costs 3,619 - Other operating income - (18,853) Total operating costs and expenses 147, ,382 OPERATING INCOME 55,869 66,632 OTHER EXPENSE: Interest expense 6,109 4,732 Total other expense 6,109 4,732 INCOME BEFORE INCOME TAXES 49,760 61,900 INCOME TAX EXPENSE 18,579 22,411 NET INCOME $ 31,181 $ 39,489 See notes to condensed combined financial statements

52 MORNINGSTAR FOODS CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (Unaudited) (In thousands) Nine Months Ended September 30, NET INCOME $ 31,181 $ 39,489 OTHER COMPREHENSIVE INCOME, Net of tax: Change in fair value of derivative instruments 45 (34) Net change in minimum pension liability 15 - Other comprehensive income, net of tax 60 (34) COMPREHENSIVE INCOME $ 31,241 $ 39,455 See notes to condensed combined financial statements

53 MORNINGSTAR FOODS CONDENSED COMBINED STATEMENTS OF INVESTED EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (Unaudited) (In thousands) Accumulated Parent s Other Total Net Comprehensive Invested Investment Income (Loss) Equity BALANCE AT DECEMBER 31, 2011 $ 472,344 $ (372) $ 471,972 Net income 31,181-31,181 Change in Parent s investment, net (3,590) - (3,590) Share-based compensation funded by Parent 2,458-2,458 Other comprehensive income (loss): Change in fair value of derivative instruments, net of tax of $ Changes in minimum pension liability, net of tax of $ BALANCE AT SEPTEMBER 30, 2012 $ 502,393 $ (312) $ 502,081 Accumulated Parent s Other Total Net Comprehensive Invested Investment Income (Loss) Equity BALANCE AT DECEMBER 31, 2010 $ 554,186 $ (78) $ 554,108 Net income 39,489-39,489 Change in Parent s investment, net (96,756) - (96,756) Share-based compensation funded by Parent 1,417-1,417 Other comprehensive income (loss): Change in fair value of derivative instruments, net of tax of $22 - (34) (34) BALANCE AT SEPETMBER 30, 2011 $ 498,336 $ (112) $ 498,224 See notes to condensed combined financial statements

54 MORNINGSTAR FOODS CONDENSED COMBINED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (Unaudited) (In thousands) Nine Months Ended September 30, CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 31,181 $ 39,489 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,138 19,975 Share-based compensation expense funded by Parent 2,458 1,417 (Gain) loss on divestitures and other, net 2,830 (21,465) Deferred income taxes (1,405) (4,951) Other 538 (225) Changes in operating assets and liabilities, net of acquisitions and divestitures: Receivables, net (649) (17,125) Inventories (17,668) (16,922) Prepaid expenses and other assets 1,606 3,737 Accounts payable and accrued expenses 1,131 (5,457) Related party payables (354) 491 Net cash provided by (used in) operating activities 38,806 (1,036) CASH FLOWS FROM INVESTING ACTIVITIES: Payments for property, plant and equipment (18,225) (13,189) Proceeds from divestitures - 81,807 Proceeds from sale of fixed assets Net cash provided by (used in) investing activities (17,414) 68,748 CASH FLOWS FROM FINANCING ACTIVITIES: Change in parent s net investment 504 (98,293) Payments on capital lease obligations (305) (184) Proceeds from receivables-backed facility 194, ,000 Payments for receivables-backed facility (216,425) (296,236) Net cash used in financing activities (21,391) (67,713) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1 (1) CASH AND CASH EQUIVALENTS, Beginning of period 4 7 CASH AND CASH EQUIVALENTS, End of period $ 5 $ 6 See notes to condensed combined financial statements

55 MORNINGSTAR FOODS NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (Unaudited) 1. BUSINESS AND BASIS OF PRESENTATION Business Morningstar Foods is a leading U.S. manufacturer of extended shelf life ( ESL ) creams and creamers, beverages and cultured dairy products with an emphasis on foodservice and private label retail customers. These products include half and half, whipping cream, ice cream mix, value-added milks, sour cream and cottage cheese under an array of private labels and the Friendship brand. Unless otherwise indicated, references in this report to we, us, our or the Company refer to Morningstar Foods operations. Basis of Presentation The unaudited Condensed Combined Financial Statements have been prepared on the same basis as the annual Combined Financial Statements. In our opinion, we have made all necessary adjustments (which include normal recurring adjustments) in order to present fairly, in all material respects, our combined financial position, results of operations, and cash flows as of the dates and for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ( GAAP ) have been omitted. Our results of operations for the nine-month periods ended September 30, 2012 and 2011 may not be indicative of our operating results for the full year. The unaudited Condensed Combined Financial Statements contained herein should be read in conjunction with the annual Combined Financial Statements. Our historical unaudited Condensed Combined Financial Statements have been prepared on a carve-out basis in accordance with GAAP and are derived from Dean Foods Company s ( Dean Foods ) consolidated financial statements and accounting records using the historical results of operations and assets and liabilities attributed to our operations, and includes allocations of expenses from Dean Foods. Our unaudited Condensed Combined Financial Statements include Morningstar Foods LLC and its subsidiaries, along with a Dean Foods facility located in Rockford, Illinois ( Rockford facility ), which has historically been managed by us but is owned by another Dean Foods subsidiary (see Note 4). Our combined results are not necessarily indicative of our future performance and do not reflect what our financial performance would have been had we been a stand-alone company during the periods presented. Dean Foods currently provides certain corporate services to us, and costs associated with these functions have been allocated to us. These allocations include costs related to corporate services, such as executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury, and other services, as well as stock-based compensation expense attributable to our employees and an allocation of stock-based compensation attributable to employees of Dean Foods. The costs of such services have been allocated to us based on the allocation method most relevant to the service provided, primarily based on relative percentage of total net sales, relative percentage of headcount, or specific identification. The total amount of these allocations from Dean Foods was approximately $25.8 million, which includes $4.5 million of transaction costs related to the potential sale of Morningstar Foods, and $20.2 million in the nine months ended September 30, 2012 and 2011, respectively. These cost allocations are primarily reflected within general and administrative expenses in our unaudited Condensed Combined Statements of Operations

56 Management believes these expenses have been allocated to us using a reasonable allocation methodology. The allocations may not reflect the expense we would have incurred as a stand-alone company for the periods presented. Actual costs that may have been incurred if we had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees, and strategic decisions made in certain areas. The total invested equity represents Dean Foods interest in our recorded net assets. The parent s net investment balance represents the cumulative net investment by Dean Foods in us through that date, including any prior net income or loss or other comprehensive income or loss attributed to us and contributions received from or distributions made to Dean Foods. Current income tax liabilities are deemed to be remitted in cash to Dean Foods in the period the related income tax expense is recorded. Certain transactions between us and other related parties that are subsidiaries of Dean Foods, including allocated expenses and settlement of intercompany transactions, are also included in Dean Foods net investment. Invested equity in the unaudited Condensed Combined Balance Sheets includes net receivables from affiliates of Dean Foods of $158.2 million and $157.0 million as of September 30, 2012 and December 31, 2011, respectively. 2. DIVESTITURES In the fourth quarter of 2010, we entered into an agreement to sell our yogurt operations. These operations did not meet the requirements to be accounted for as discontinued operations, as the operations did not have discrete cash flow information and therefore did not meet the definition of a component of an entity. We completed the sale of our yogurt operations for cash proceeds of $81.9 million on April 1, 2011 and used the proceeds for additional debt repayments for Dean Foods. We recorded a net pre-tax gain of $19.2 million during the nine months ended September 30, 2011, related to this divestiture, which includes $2.1 million of related transaction costs. The gain was recorded in other operating income in our unaudited Condensed Combined Statements of Operations. 3. INVENTORIES The following table summarizes inventories, net of reserves of $190,000 and $225,000 as of September 30, 2012 and December 31, 2011 (in thousands): September 30, 2012 December 31, 2011 Raw materials and supplies $ 30,933 $ 29,537 Finished goods 53,894 37,622 Total $ 84,827 $ 67,

57 4. PROPERTY, PLANT AND EQUIPMENT The following table summarizes property, plant and equipment as of September 30, 2012 and December 31, 2011 (in thousands): September 30, 2012 December 31, 2011 Land $ 9,891 $ 9,695 Buildings 98,580 98,033 Leasehold improvements 6,880 7,090 Machinery and equipment 296, ,867 Construction in progress 13,455 6, , ,311 Less accumulated depreciation (244,060) (230,221) Total $ 180,753 $ 183,090 Depreciation expense amounted to $16.9 million and $17.8 million for the nine month periods ended September 30, 2012 and 2011, respectively. The balances disclosed in the preceding table include amounts related to the Rockford facility, which we use in our operations. The assets related to the Rockford facility will be retained by Dean Foods if Morningstar Foods is distributed or sold (see Note 1). The following table summarizes the Rockford facility s property, plant and equipment as of September 30, 2012 and December 31, 2011 (in thousands): September 30, 2012 December 31, 2011 Land $ 156 $ 156 Buildings 3,499 3,492 Machinery and equipment 8,647 8,543 Construction in progress ,779 12,201 Less accumulated depreciation (7,714) (7,256) Total $ 5,065 $ 4, GOODWILL AND INTANGIBLE ASSETS There were no changes in the goodwill balance from December 31, 2011 to September 30,

58 The following table summarizes the gross carrying amount and accumulated amortization of our intangible assets other than goodwill as of September 30, 2012 and December 31, 2011 (in thousands): September 30, 2012 December 31, 2011 Gross Net Gross Net Carrying Accumulated Carrying Carrying Accumulated Carrying Amount Amortization Amount Amount Amortization Amount Intangible assets with indefinite lives: Trademarks $ 11,541 $ - $ 11,541 $ 11,541 $ - $ 11,541 Intangible assets with finite lives: Customer relationships 41,685 (19,607) 22,078 41,685 (17,415) 24,270 Noncompete agreements 410 (410) (410) - Total $ 53,636 $ (20,017) $ 33,619 $ 53,636 $ (17,825) $ 35,811 Amortization expense on intangible assets for both the nine months ended September 30, 2012 and 2011 was $2.2 million. Estimated aggregate intangible asset amortization expense is $2.9 million for each of the years from 2012 through INCOME TAXES Income taxes have been prepared on a separate return basis as if the Company was a stand-alone entity. The Company, however, is included in the Dean Foods U.S. consolidated federal income tax return and also files some U.S. state income tax returns on a combined basis with Dean Foods. For each interim period, the Company estimates the effective tax rate expected to be applicable for the full year and applies that rate to income before income taxes for the period. Additionally, the Company records discrete income tax items in the period in which they are incurred. 7. DEBT The following table summarizes our outstanding debt as of September 30, 2012 and December 31, 2011 (in thousands, except percentages): September 30, 2012 December 31, 2011 Amount Interest Amount Interest Outstanding Rate Outstanding Rate Receivables-backed facility $ - $ 21, % * Capital lease obligations ,001 Less current portion (106) (21,837) Total long-term portion $ - $ 164 * Represents a weighted-average rate, including applicable interest rate margins, for indebtedness outstanding under the receivables securitization facility

59 Receivables-Backed Facility In 2004, we began participating in Dean Foods receivables-backed facility. We sell certain of our accounts receivable to a wholly-owned entity that is intended to be bankruptcy-remote. The entity transfers the receivables to third-party asset-backed commercial paper conduits sponsored by major financial institutions. The securitization is treated as a borrowing for accounting purposes. We are the beneficiary and obligor for all borrowings and repayments under our portion of the Dean Foods facility. On September 28, 2011, Dean Foods amended the terms of the agreement to extend the liquidity termination date to September 25, 2013, to include the ability to issue letters of credit of up to $300 million under the facility, and to amend certain other terms. The total amount of receivables sold to the entity as of September 30, 2012 was $74.6 million, which are reported in our unaudited Condensed Combined Balance Sheets. During the first nine months of 2012, we borrowed $194.8 million and subsequently repaid $216.4 million under the facility. The outstanding debt balances securitized by the Company s accounts receivable as of December 31, 2011 was $21.6 million, which is recorded in our unaudited Condensed Combined Balance Sheets. There were no borrowings under this facility as of September 30, Effective November 1, 2012, we are no longer participants in the Dean Foods receivables securitization program. Receivables sold by us to the bankruptcy-remote entity on or prior to October 31, 2012 will continue to be collected by us; however, any receivables generated by us subsequent to November 1, 2012 will not be sold into the receivables securitization program, and no receivables previously sold into the facility will be included in the determination of Dean Foods ability to re-borrow under the facility. Capital Lease Obligations Our capital leases represent machinery and equipment financing obligations, which are payable in monthly installments of principal and interest and are collateralized by the assets financed (see Note 12)

60 8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS Derivative Financial Instruments Commodities We are exposed to commodity price fluctuations, including milk, butterfat, sweeteners, utilities, natural gas, diesel fuel and other commodity costs used in the manufacturing, packaging and distribution of our products. To secure adequate supplies of materials and bring greater stability to the cost of ingredients and their related manufacturing, packaging and distribution, we routinely enter into forward purchase contracts and other purchase arrangements with suppliers. Under the forward purchase contracts, we commit to purchasing agreed-upon quantities of ingredients and commodities at agreedupon prices at specified future dates. The outstanding purchase commitment for these commodities at any point in time typically ranges from one month s to one year s anticipated requirements, depending on the ingredient or commodity. These contracts are considered normal purchases under Accounting Standard Codification 815 Derivatives and Hedging. In addition to entering into forward purchase contracts, from time to time we may purchase over-thecounter contracts with our qualified banking partners or exchange-traded commodity futures contracts for raw materials that are ingredients of our products or components of such ingredients. Certain of the contracts offset the risk of increases in our commodity costs, and are designated as hedging instruments when appropriate. Primarily at the direction of certain of our customers, we may execute other contracts related to certain customer pricing arrangements. We have not designated such contracts as hedging instruments; therefore, the contracts are marked to market at each reporting period and a derivative asset or liability is recorded on our Combined Balance Sheet. These contracts are generally offset by economic contracts we have purchased to limit the variability in our operations. A summary of open commodities contracts recorded at fair value in our unaudited Condensed Combined Balance Sheets at September 30, 2012 and December 31, 2011 is included in the table below. Although we may utilize forward purchase contracts and other instruments to mitigate the risks related to commodity price fluctuation, such strategies do not fully mitigate commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we derive from these strategies. The following table summarizes our derivatives recorded at fair value in our unaudited Condensed Combined Balance Sheets as of September 30, 2012 and December 31, 2011 (in thousands): Derivative Assets Derivative Liabilities September 30, December 31, September 30, December 31, Derivatives designated as Hedging Instruments Commodities contracts current (1) $ 73 $ - $ - $ - Derivatives not designated as Hedging Instruments Commodities contracts current (1) 709 2, ,476 Total derivatives $ 782 $ 2,467 $ 666 $ 1,476 (1) Derivative assets and liabilities that have settlement dates equal to or less than 12 months from the respective balance sheet date were included in prepaid expenses and other current assets and accounts payable and accrued expenses in our unaudited Condensed Combined Balance Sheets

61 There were no gains or losses on derivatives designated as cash flow hedges reclassified from accumulated other comprehensive income into income for the nine months ended September 30, 2012 and Based on current commodity prices, we estimate that $73,000 of hedging activity related to our commodities contracts will be reclassified from accumulated other comprehensive income into income within the next 12 months. Fair Value Measurements Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, we follow a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 Quoted prices for identical instruments in active markets. Level 2 Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets. Level 3 Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The following table summarizes our derivative assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 (in thousands): Fair Value as of September 30, 2012 Level 1 Level 2 Level 3 Asset commodities contracts $ 782 $ - $ 782 $ - Liability commodities contracts $ 666 $ - $ 666 $ - The following table summarizes our derivative assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 (in thousands): Fair Value as of December 31, 2012 Level 1 Level 2 Level 3 Asset commodities contracts $ 2,467 $ - $ 2,467 $ - Liability commodities contracts $ 1,476 $ - $ 1,476 $ - The fair value of our commodities contracts is based on the quantities and fixed prices under the agreements and quoted forward commodity prices. We classify these instruments in Level 2 because quoted market prices can be corroborated utilizing observable benchmark market rates at commonly quoted intervals and observable current and forward commodity market prices on active exchanges. We did not significantly change our valuation techniques from prior periods

62 Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value. In addition, because the interest rates on our debt are variable, their fair values approximate their carrying values. 9. SHARE-BASED COMPENSATION Certain of the Company s employees participate in share-based compensation plans sponsored by Dean Foods. These plans provide employees with restricted stock units or options to purchase shares of Dean Foods common stock. All share-based compensation expense is recorded in general and administrative expense in our unaudited Condensed Combined Statements of Operations. Stock Options Share-based compensation expense for stock options is recognized ratably over the vesting period. The following table summarizes the assumptions used to estimate the fair value of each option award on the date of grant using the Black-Scholes valuation model: Nine Months Ended September Expected volatility 44 % 41 % Expected dividend yield 0 % 0 % Expected option term 5 years 5 years Risk-free rate of return % % The following table summarizes stock option activity for our employees during the first nine months of 2012: Options outstanding at January 1, ,542 $ Granted 81, Forfeited and cancelled (1) (44,129) Exercised (8,910) Weighted Weighted Aggregate Average Average Intrinsic Options Exercise Price Contractual Life Value Options outstanding at September 30, , $ 779,556 Options exercisable at September 30, , $ 178,370 (1) Pursuant to the terms of the Dean Foods stock option plans, options that are forfeited or cancelled may be available for future grants. The weighted average grant date fair value of options granted to our employees during the nine months ended September 30, 2012 and 2011 was $4.72 per share and $4.04 per share, respectively

63 Restricted Stock Units The following table summarizes restricted stock units activity during the nine months ended September 30, 2012: Units Stock units outstanding at January 1, ,295 Stock units issued 57,248 Shares issued upon vesting of stock units (69,765) Stock units cancelled or forfeited (1) (2,960) Stock units outstanding at September 30, ,818 Weighted average grant date fair value $ (1) Pursuant to the terms of the Dean Foods stock unit plans, employees have the option of forfeiting stock units to cover their minimum statutory tax withholding when shares are issued. Stock units that are cancelled or forfeited may be available for future grants. Cash Performance Units Dean Foods grants cash performance units ( CPUs ) to employees as part of our long-term incentive compensation program under the terms of the Dean Foods 2007 Stock Incentive Plan. The CPU awards are cash-settled awards and are designed to link compensation of certain executive officers and other key employees to Dean Foods performance over a three-year period. The performance metric, as defined in the award, is the performance of the Dean Foods stock price relative to that of a peer group of companies. The range of payout under the award is between 0% and 200% and is payable in cash at the end of each respective performance period. The fair value of the awards is measured at each reporting period. A liability related to these units has not been reflected in the unaudited Condensed Combined Balance Sheet as it will be funded by Dean Foods. The following table summarizes CPU activity during the first nine months of 2012: Units Outstanding at January 1, ,667 Granted 187,500 Converted/paid - Forfeited (240,000) Outstanding at September 30, ,167 Phantom Shares Dean Foods grants phantom shares as part of our long-term incentive compensation program, which are similar to restricted stock units in that they are based on the price of Dean Foods stock and vest ratably over a three-year period, but are cash-settled based upon the value of Dean Foods stock at each vesting period. The fair value of the awards is re-measured at each reporting period. A liability related to these units has not been reflected in the unaudited Condensed Combined Balance Sheet as it will be funded by Dean Foods

64 The following table summarizes the phantom share activity during the first nine months of 2012: Shares Weighted-Average Grant Date Fair Value Outstanding at January 1, ,353 $ Granted 95, Converted/paid (32,311) Forfeited (5,589) Outstanding at Sepember 30, ,673 $ Share-Based Compensation Expense The following table summarizes the share-based compensation expense recognized for the Company s direct participation in the Dean Foods incentive compensation plan during the nine months ended September 30, 2012 and 2011 (in thousands): Nine Months Ended September 30, Stock options $ 237 $ 361 Stock units Cash performance units Phantom shares Share-based compensation expense funded by Parent $ 2,458 $ 1, EMPLOYEE RETIREMENT BENEFITS AND PROFIT SHARING PLANS Dean Foods sponsors various employee benefit plans which consist of Dean Foods consolidated defined benefit and defined contribution plans, including various employee savings and profit sharing plans. Substantially all full-time union and non-union employees who have completed one or more years of service and have met other requirements pursuant to the plans are eligible to participate in one or more of these plans, or in their applicable multi-employer pension plan. Additionally, we contribute to various multiemployer pension plans on behalf of our employees. Dean Foods Defined Benefit Plans We account for our employees participation in these Dean Foods employee defined benefit plans as a multiemployer plan and record the contribution to the pension plans or allocation of net periodic pension cost or benefit associated with our employees. Accordingly, expenses related to these plans were determined by specifically identifying the costs for the Company s participants. These pension expenses were allocated to the Company and reported in general and administrative expenses. The amounts allocated for pension expenses in general and administrative expenses were $336,000 and $309,000 for each of the nine month periods ended September 30, 2012 and 2011, respectively. M-Foods Dairy, LLC Defined Benefit Plans We have a separate, stand-alone defined benefit pension plan, and the benefits are based on years of service and employee compensation. Our funding policy is to contribute annually the minimum amount required under ERISA regulations plus additional amounts as management deems appropriate. Our defined benefit plan obligations are frozen as to future participation or increases in projected benefit obligation. Many of these obligations were acquired in prior strategic transactions. As an alternative to defined benefit plans, we offer defined contribution

65 plans sponsored by Dean Foods for eligible employees. We do not expect to contribute to the pension plan in The following table summarizes the components of net periodic pension cost for the nine months ended September 30, 2012 and 2011 (in thousands): Nine Months Ended September 30, Components of net periodic pension cost: Interest cost $ 83 $ 77 Expected return on plan assets (58) (58) Amortization: Unrecognized net loss 25 - Net periodic pension cost $ 50 $ FACILITY CLOSING AND REORGANIZATION COSTS Approved plans within our multi-year initiatives and related charges are summarized as follows (in thousands): Nine Months Ended September Closure of facilities (1) $ 3,619 $ - (1) In the first quarter of 2012, Dean Foods board of directors approved the closure of our Sulphur Springs, Texas cultured production facility. Under this plan, production transitioned to several other Morningstar facilities. This decision was based on the board s determination that these operations did not adequately support our strategic objectives. The plant closure was completed in May We expect to incur additional charges related to this facility closure of $264,000, related to shutdown and other costs

66 Activity with respect to facility closing and reorganization costs during the nine months ended September 30, 2012 is summarized below and includes items expensed as incurred (in thousands): Accrued Accrued Charges at Charges at December 31, September 30, 2011 Charges Payments 2012 Cash charges: Workforce reduction costs $ - $ 583 $ (388) $ 195 Shutdown costs (205) - Lease obligations after shutdown - 12 (70) (58) Other - 11 (11) - Subtotal $ $ (674) $ 137 Noncash charges: Write-down of assets 2,633 Other 175 Total charges $ 3, COMMITMENTS AND CONTINGENCIES Lease and Purchase Obligations We lease certain property, plant and equipment used in our operations under both capital and operating lease agreements. Such leases, which are primarily for machinery and equipment, have lease terms ranging from one to ten years. Certain lease agreements require the payment of additional rentals based on units produced. Rent expense was $2.9 million and $3.5 million for the nine months ended September 30, 2012 and 2011, respectively. We have entered into various contracts, in the normal course of business, obligating us to purchase minimum quantities of raw materials used in our production and distribution processes. We enter into these contracts from time to time to ensure a sufficient supply of raw ingredients. In addition, we have contractual obligations to purchase various services that are part of our production process. Litigation, Investigations and Audits We are not party to, nor are our properties the subject of, any material pending legal proceedings. We are party from time to time to certain claims, litigations, audits and investigations, which are not expected to have a material adverse impact on our financial position, results of operations or cash flows. 13. RELATED PARTY TRANSACTIONS AND CONTINUING RELATIONSHIPS Allocated Expenses Dean Foods currently provides certain corporate services to us, and costs associated with these functions have been allocated to us. These allocations include costs related to corporate services, such as executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury, and other services, as well as stock-based compensation expense attributable to our employees and an allocation of stockbased compensation attributable to employees of Dean Foods. The costs of such services have been allocated to us based on the allocation method most relevant to the service provided, primarily based on relative percentage of total net sales, relative percentage of headcount or specific identification. The total

67 amount of these allocations from Dean Foods was approximately $25.8 million, which includes $4.5 million of transaction costs related to the potential sale of Morningstar Foods, and $20.2 million in the nine months ended September 30, 2012 and 2011, respectively. These cost allocations are primarily reflected within general and administrative expenses in our unaudited Condensed Combined Statements of Operations. Management believes these expenses have been allocated to us using a reasonable allocation methodology. The allocations may not reflect the expense we would have incurred as a stand-alone company for the periods presented. Actual costs that may have been incurred if we had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees, and strategic decisions made in certain areas. Cash Management Dean Foods uses a centralized approach to cash management and financing of operations. The Company s cash is available for use and is regularly swept by Dean Foods at its discretion. Dean Foods also funds the Company s operating and investing activities as needed. Transfers of cash, both to and from Dean Foods cash management system, are reflected as a component of parent s net investment in our unaudited Condensed Combined Balance Sheets. Related Party Arrangements Related party transactions and activities involving Dean Foods and its subsidiaries are not always consummated on terms equivalent to those that would prevail in an arm slength transaction where conditions of competitive, free-market dealing may exist. Sales of our raw materials and finished products that we manufacture for other subsidiaries of Dean Foods have been reflected as related party sales in our unaudited Condensed Combined Financial Statements. These related party transactions are included as part of parent s net investment. Certain related party transactions are settled in cash and are reflected as related party payables in our unaudited Condensed Combined Balance Sheets. The remaining related party transactions are settled by either non-cash capital contributions from Dean Foods to us or non-cash capital distributions from us to Dean Foods. During the nine months ended September 30, 2012 and 2011, we utilized manufacturing facilities and resources managed by affiliates of Dean Foods to conduct our business. The expenses associated with these transactions, which primarily relate to co-packing certain of our products, are included in cost of sales in our unaudited Condensed Combined Statements of Operations. Intellectual Property License Agreement and Related Loan Agreement The Company is party to a license agreement with a subsidiary of The WhiteWave Foods Company ( WhiteWave ), a majorityowned Dean Foods subsidiary, pursuant to which we have the right to use WhiteWave s intellectual property in the manufacture of certain products for a fee. For the nine months ended September 30, 2012 and 2011, related party license expense was recorded within operating income in our unaudited Condensed Combined Statements of Operations in the amount of $32.0 million and $31.6 million, respectively. In conjunction with the license agreement, a loan agreement was entered into, pursuant to which WhiteWave extended a line of credit to us related to the license expense under the license agreement. There have been no repayments of this loan to date and there are no future plans to make payments on the outstanding balance; therefore, the principal and associated accrued interest is shown in parent s net investment in our unaudited Condensed Combined Balance Sheets. As of September 30, 2012 and December 31, 2011, amounts outstanding under this agreement totaled $332.3 million and $305.3 million, respectively. On October 31, 2012, the license agreement was terminated, and the

68 related loan agreement was contributed to our capital, thereby formally releasing the Company of any obligation. The interest term on the loan from WhiteWave is London InterBank Offered Rate, plus 2% and is recorded in interest expense in our unaudited Condensed Combined Statements of Operations. Interest expense on the loan for the nine months ended September 30, 2012 and 2011 was $5.8 million and $4.4 million, respectively. Guarantees We have entered into several guarantee agreements with Dean Foods whereby we have historically guaranteed debt issued by Dean Foods on a joint and several basis. The aggregate unpaid principal balance of the debt issued by Dean Foods that is guaranteed by us was approximately $3.3 billion as of September 30, These guarantees remain in place until the related debt matures, which will occur on varying dates through 2018, and if the issuer or the primary guarantor, as applicable, defaults on the underlying debt, the Company may be required to satisfy the outstanding debt. As this is an intercompany guarantee, the Company has not recognized any liability associated with this guarantee in its unaudited Condensed Combined Financial Statements. 14. SUBSEQUENT EVENTS The Company has evaluated subsequent events after the balance sheet date of September 30, 2012 through December 4, 2012, which is the date the financial statements were available to be issued. Effective November 1, 2012, we are no longer participants in the Dean Foods receivables securitization program. Receivables sold by us to the bankruptcy-remote entity on or prior to October 31, 2012 will continue to be collected by us; however, any receivables generated by us subsequent to November 1, 2012 will not be sold into the receivables securitization program, and no receivables previously sold into the facility will be included in the determination of Dean Foods ability to re-borrow under the facility. In connection with the initial public offering of WhiteWave, we have entered into agreements that formalize ongoing commercial arrangements we have with WhiteWave. These agreements became effective upon completion of WhiteWave s initial public offering on October 31, Transitional Sales Agreements We have entered into an agreement with WhiteWave, pursuant to which we will transfer back responsibility for sales of certain of its products and associated costs over a 15-month term. During this term, the Company will provide certain transitional services to WhiteWave, which include, but are not limited to, taking and filling orders, collecting receivables, and shipping products to WhiteWave's customers. The Company will remit to WhiteWave the cash representing the net profit collected from these product sales until such time as the sales are transitioned to WhiteWave. We have also entered into an agreement with WhiteWave pursuant to which they will transfer to us responsibility for the sales and associated costs of their aerosol whipped topping and other non-core products over a 15-month term. During this term, WhiteWave will provide certain transitional services to us, which include, but are not limited to, taking and filling orders and collecting receivables. WhiteWave will remit to us the net profit associated with these product sales until such time as the sales are transitioned to us. Manufacturing and Supply Agreements We have entered into a manufacturing agreement with WhiteWave pursuant to which we will continue manufacturing various products. With the exception of the manufacture of aerosol whipped topping and other non-core products, which are subject to this agreement for a term of up to 15 months, this agreement generally has a term of three to five years with

69 respect to the various product lines. The agreement modifies our historical intercompany arrangements and reflects new pricing. We have also entered into a manufacturing agreement with a wholly-owned Dean Foods subsidiary pursuant to which we will continue manufacturing such subsidiary s various products. This agreement has a term of three years for all of the various product lines. The agreement modifies our historical intercompany arrangements and reflects new pricing. We have also entered into a manufacturing agreement with a wholly-owned Dean Foods subsidiary, which includes a co-pack related to the Rockford facility, pursuant to which they will continue manufacturing various products for us. This agreement has a term of eighteen months to three years, depending on the product line. Termination of Intellectual Property License Agreement and Related Loan Agreement We have entered into an agreement with WhiteWave pursuant to which we terminated the license agreement, and the related loan agreement was contributed to our capital. In addition, we have entered into an agreement with WhiteWave to effect the transfer of the intellectual property subject to the license agreement to us (see Note 13). Equipment Distribution and Leaseback Agreement We have entered into an agreement with certain Dean Foods subsidiaries, including WhiteWave, pursuant to which we will distribute and assign all of our rights, title and interest in certain equipment at their carrying value of $1.6 million at October 31, We will leaseback such equipment from WhiteWave for an annual equipment lease cost of $435,000. This agreement is co-terminus with the manufacturing and supply agreement entered into with WhiteWave. This agreement was amended pursuant to Dean Foods entering into an agreement to sell the Company. See Potential Sale of Morningstar Foods below. Cream Supply Agreement We also have entered into a supply agreement with certain whollyowned Dean Foods subsidiaries pursuant to which we will continue to purchase cream from those Dean Foods subsidiaries for an initial term of up to 24 months, with an option for us to renew for up to four one-year terms. The pricing terms of this agreement are consistent with the terms of our prior arrangements reflected in our historical financials, and we do not believe they will have a material impact on our financial performance. Frederick Facility Agreement We have entered into an agreement with WhiteWave, pursuant to which WhiteWave has the option to purchase, at a price as defined in the agreement, our real estate, manufacturing facility and certain related assets located in Frederick, Maryland, should our current copack agreement with an unrelated third party be cancelled, renewed at lower volumes or not renewed. This agreement was terminated pursuant to Dean Foods entering into an agreement to sell the Company. See Potential Sale of Morningstar Foods below. Potential Sale of Morningstar Foods On December 2, 2012, Dean Foods Company entered into a definitive agreement to sell our operations to Saputo Inc. for $1.45 billion. We expect the transaction to close no later than the first quarter of As a condition of the sale, we amended certain terms of the above commercial agreements, including the termination of the Frederick Facility Agreement and the amendment of the Equipment Distribution and Leaseback Agreement to terminate the leaseback provisions and transfer the rights, title and interest in the equipment from WhiteWave to us, for net consideration of $60 million, concurrent with and contingent upon the close of the Morningstar Foods sale. ******

70 Annexe C BILAN CONSOLIDÉ INTERMÉDIAIRE RÉSUMÉ PRO FORMA NON AUDITÉ AU 31 DÉCEMBRE 2012 (en milliers de dollars CAD) Saputo Morningstar Ajustements Consolidées inc. Foods, LLC pro forma pro forma ACTIF Actif à court terme Trésorerie et équivalents de trésorerie $ $ 2 ( ) $ 4a, 4e $ Débiteurs (2 729) 4a Stocks (2 543) 4a Impôts à recevoir Frais payés d avance et autres éléments d actif a ( ) Immobilisations a Goodwill a Marques de commerce et autres actifs incorporels a Autres éléments d actif Impôts différés , 4d (16 013) 4a $ $ $ $ PASSIF Passif à court terme Emprunts bancaires $ 97 $ 2 (97) $ 4a $ Créditeurs et charges à payer (1 552) 4a, 4g Impôts à payer Tranche à court terme de la dette à long terme f Dette à long terme f Autres éléments de passif a Impôts différés , 4d (68 205) 4a CAPITAUX PROPRES Capital-actions Réserves (2 941) (611) 2, 4b 611 4a (2 941) Bénéfices non distribués , 4c ( ) 4a ( ) $ $ $ $ SAPUTO INC. DÉCLARATION D ACQUISITION D ENTREPRISE Page 6

71 Annexe D ÉTAT CONSOLIDÉ ANNUEL RÉSUMÉ DES RÉSULTATS PRO FORMA NON AUDITÉ POUR L EXERCICE TERMINÉ LE 31 MARS 2012 (en milliers de dollars CAD, sauf les données par action) Saputo Morningstar Ajustements Consolidées inc. Foods, LLC pro forma pro forma Revenus $ $ 2 (75 810) $ 4h $ Coûts d opération, excluant l amortissement , 4i ( ) 4h Bénéfice avant intérêts, amortissement, dépréciation et impôts sur les bénéfices Amortissement , 4i j-4l Bénéfice d exploitation Dépréciation du goodwill Intérêts sur la dette à long terme m Autres charges financières Bénéfice, avant impôts sur les bénéfices (3 763) Impôts sur les bénéfices (5 604) 4n Bénéfice net $ $ $ $ Résultat par action De base 1.89 $ 0.24 $ 0.01 $ 4o 2.14 $ Dilué 1.86 $ 0.23 $ 0.01 $ 4o 2.10 $ SAPUTO INC. DÉCLARATION D ACQUISITION D ENTREPRISE Page 7

72 Annexe E ÉTAT CONSOLIDÉ INTERMÉDIAIRE RÉSUMÉ DES RÉSULTATS PRO FORMA NON AUDITÉ POUR LA PÉRIODE DE NEUF MOIS TERMINÉE LE 31 DÉCEMBRE 2012 (en milliers de dollars CAD, sauf les données par action) Saputo Morningstar Ajustements Consolidées inc. Foods, LLC pro forma pro forma Revenus $ $ 2 (60 128) $ 4h $ Coûts d opération, excluant l amortissement , 4i (89 466) 4h Bénéfice avant intérêts, amortissement et impôts sur les bénéfices Amortissement , 4i j-4l Bénéfice d exploitation Intérêts sur la dette à long terme m Autres charges financières Bénéfice, avant impôts sur les bénéfices Impôts sur les bénéfices n Bénéfice net $ $ $ $ Résultat par action De base 1.93 $ 0.16 $ 0.04 $ 4o 2.13 $ Dilué 1.90 $ 0.16 $ 0.04 $ 4o 2.10 $ SAPUTO INC. DÉCLARATION D ACQUISITION D ENTREPRISE Page 8

73 NOTES COMPLÉMENTAIRES AUX ÉTATS FINANCIERS CONSOLIDÉS RÉSUMÉS PRO FORMA NON AUDITÉS (Les montants présentés dans les tableaux sont en milliers de dollars CAD, sauf pour les données sur les actions) 1. Acquisition de Morningstar Foods, LLC Saputo inc. (la «Société») est une société publique incorporée et domiciliée au Canada. Les actions de la Société sont inscrites à la Bourse de Toronto sous le symbole «SAP». La Société produit, met en marché et distribue une vaste gamme de produits laitiers au Canada, aux États-Unis, en Argentine et en Europe ainsi que des produits de boulangerie au Canada. L adresse du siège social de la Société est le 6869 boulevard Métropolitain Est, St- Léonard (Québec) Canada, H1P 1X8. Le 3 janvier 2013, la Société a conclu l acquisition de Morningstar Foods, LLC («Morningstar»), qui avait été précédemment annoncée le 3 décembre 2012, auprès de Dean Foods Company pour une contrepartie en espèces totale de $, sous réserve des ajustements habituels du fonds de roulement. Morningstar fabrique une gamme de produits laitiers et non laitiers ayant une durée de conservation prolongée, notamment de la crème et de la crème à café, des mélanges à crème glacée, de la crème à fouetter, de la crème à fouetter en aérosol, des cafés glacés, de la crème demi-grasse, des produits laitiers à valeur ajoutée, ainsi que des produits de culture bactérienne tels que de la crème sure et du fromage cottage. Le prix d achat a été financé au moyen de la trésorerie disponible et d une nouvelle facilité d emprunt bancaire à terme de quatre ans d un montant de $, laquelle est assujettie à des remboursements en capital trimestriels de $, avec un solde de $ dû à l échéance le 20 décembre La Société a conclu des swaps de taux d intérêt pour la durée totale de cette nouvelle facilité, qui portera intérêt à un taux de 1,41 % majoré de 0,85 % jusqu à un maximum de 2,0 %, selon un ratio financier de la Société. 2. Mode de présentation Le bilan consolidé intermédiaire résumé pro forma non audité au 31 décembre 2012, l état consolidé intermédiaire résumé des résultats pro forma non audité pour la période de neuf mois terminée le 31 décembre 2012 et l état consolidé résumé des résultats pro forma non audité pour l exercice terminé le 31 mars 2012 ont été préparés par la Société conformément aux Normes internationales d information financière (les «IFRS»). Sauf indication contraire, tous les montants en dollars sont exprimés en dollars canadiens. De l avis de la direction, ces états financiers consolidés résumés pro forma non audités contiennent tous les ajustements nécessaires à la présentation d une image fidèle. Bilan consolidé intermédiaire résumé pro forma non audité au 31 décembre 2012 Le bilan consolidé intermédiaire résumé pro forma non audité au 31 décembre 2012 a été préparé sur la base du bilan consolidé intermédiaire résumé non audité de la Société au 31 décembre 2012, ainsi que sur la base du bilan combiné audité de Morningstar au 31 décembre 2012, lequel a été préparé conformément aux PCGR des États- Unis et est présenté en dollars américains. Le bilan combiné audité de Morningstar a été converti en dollars canadiens au taux de change de clôture au 31 décembre 2012 (1,0000 $ CA = 0,9949 $ US) et a été ajusté afin que sa présentation soit conforme aux méthodes comptables de la Société, soit les IFRS. État consolidé résumé des résultats pro forma non audité pour l exercice terminé le 31 mars 2012 L état consolidé résumé des résultats pro forma non audité pour l exercice terminé le 31 mars 2012 a été préparé sur la base des résultats des états financiers consolidés audités de la Société pour l exercice terminé le 31 mars 2012, ainsi que sur la base des états financiers combinés audités de Morningstar pour l exercice terminé le 31 décembre L état combiné des résultats audité de Morningstar pour l exercice terminé le 31 décembre 2011 a été converti en dollars canadiens au taux de change moyen pour la période annuelle (1,0000 $ CA = 0,9891 $ US) et a été ajusté afin que sa présentation soit conforme aux méthodes comptables de la Société, soit les IFRS. SAPUTO INC. DÉCLARATION D ACQUISITION D ENTREPRISE Page 9

74 NOTES COMPLÉMENTAIRES AUX ÉTATS FINANCIERS CONSOLIDÉS RÉSUMÉS PRO FORMA NON AUDITÉS État consolidé intermédiaire résumé des résultats pro forma non audité pour la période de neuf mois terminée le 31 décembre 2012 L état consolidé intermédiaire résumé des résultats pro forma non audité pour la période de neuf mois terminée le 31 décembre 2012 a été préparé sur la base des résultats de l état consolidé intermédiaire résumé des résultats non audité de la Société pour la période de neuf mois terminée le 31 décembre 2012, ainsi que sur la base de l état combiné résumé des résultats non audité de Morningstar pour la période de neuf mois terminée le 30 septembre L état combiné résumé des résultats non audité de Morningstar pour la période de neuf mois terminée le 30 septembre 2012 a été converti en dollars canadiens au taux de change moyen pour la période de neuf mois (1,0000 $ CA = 1,0023 $ US) et a été ajusté afin que sa présentation soit conforme aux méthodes comptables de la Société, soit les IFRS. 3. Méthodes comptables Le bilan consolidé intermédiaire résumé pro forma non audité au 31 décembre 2012, l état consolidé annuel résumé des résultats pro forma non audité pour l exercice terminé le 31 mars 2012 et l état consolidé intermédiaire résumé des résultats pro forma non audité pour la période de neuf mois terminée le 31 décembre 2012 ont été préparés conformément à la note 3, «Principales méthodes comptables», des états financiers consolidés au 31 mars 2012 de la Société. SAPUTO INC. DÉCLARATION D ACQUISITION D ENTREPRISE Page 10

75 NOTES COMPLÉMENTAIRES AUX ÉTATS FINANCIERS CONSOLIDÉS RÉSUMÉS PRO FORMA NON AUDITÉS 4. Ajustements de consolidation pro forma Les états financiers consolidés résumés pro forma non audités comprennent les éléments suivants : 4a) Le tableau suivant reflète la répartition du prix d achat selon la juste valeur estimative de l actif net acquis le 3 janvier 2013, les ajustements du fonds de roulement et d autres ajustements nécessaires pour éliminer les actifs et passifs non acquis dans le cadre de l acquisition : Données de Morningstar au 31 décembre 2012 Installation non acquise de Rockford, Illinois Données révisées de Morningstar au 31 décembre 2012 Juste valeur de l actif net acquis le 3 janvier 2013 Ajustements de la juste valeur et du fonds de roulement 1 Total des ajustements ACTIF Actif à court terme Trésorerie et équivalents de trésorerie $ - $ $ 7 $ (6 603) $ (6 603) $ Débiteurs (298) (2 431) (2 729) Stocks (1,303) (1 240) (2 543) Frais payés d avance et autres éléments d actif (17) Immobilisations (4,960) Goodwill Marques de commerce et autres actifs incorporels Impôts différés (16 013) (16 013) $ (6 578) $ $ $ $ $ PASSIF Passif à court terme Emprunts bancaires 97 $ - $ 97 $ - $ (97) $ (97) $ Créditeurs et charges à payer (3 364) (1 552) Autres éléments de passif Impôts différés (68 205) (68 205) (3 364) (65 720) (69 084) CAPITAUX PROPRES Réserves (611) - (611) Bénéfices non distribués (3 214) ( ) ( ) (3 214) ( ) ( ) $ (6 578) $ $ $ ( ) $ ( ) $ Prix d achat $ Contrepartie, montant net Trésorerie $ Dette à long terme $ 1 Les ajustements du fonds de roulement se rapportent aux variations du fonds de roulement entre le 31 décembre 2012 et le 3 janvier 2013, la date d établissement des soldes préliminaires à la date d'acquisition. La répartition du prix d achat présentée ci-dessus est préliminaire. La direction continue d évaluer et de réviser la juste valeur de l actif net acquis. Puisque la Société continue d évaluer les actifs acquis et les passifs repris à la date de l acquisition, la répartition du prix d achat pourrait différer considérablement des montants utilisés dans ces états financiers consolidés résumés pro forma non audités. 4b) Le cumul des autres éléments du résultat global ("Accumulated other comprehensive loss ) qui figure au bilan audité de Morningstar au 31 décembre 2012 est présenté à titre de capitaux propres investis ("Invested Equity"). Ce montant a été reclassé dans les réserves afin que sa présentation soit conforme à celle des résultats de la Société. 4c) Les bénéfices non distribués ( Retained earnings ) qui figurent dans les états financiers audités de Morningstar au 31 décembre 2012 sont présentés à titre d investissement net de la société mère ( Parent s net investment ). Le solde de ce compte a été reclassé dans les bénéfices non distribués afin que sa présentation soit conforme à celle des résultats de la Société. SAPUTO INC. DÉCLARATION D ACQUISITION D ENTREPRISE Page 11

76 NOTES COMPLÉMENTAIRES AUX ÉTATS FINANCIERS CONSOLIDÉS RÉSUMÉS PRO FORMA NON AUDITÉS 4d) Les actifs d impôts différés ( Deferred income tax assets ) qui figurent dans les états financiers audités de Morningstar au 31 décembre 2012 sont présentés à titre d actifs à court terme. Ces soldes ont été reclassés dans les actifs à long terme afin que leur présentation soit conforme aux IFRS. 4e) La Société a affecté $ de trésorerie existante au financement de l acquisition, moins un ajustement de $ des passifs pris en charge, plus un ajustement préliminaire du fonds de roulement de $. Ce paiement net a été déduit du solde existant de la trésorerie et des équivalents de trésorerie. 4f) Dans le cadre de l acquisition de Morningstar, la Société a engagé une dette additionnelle de $, dont une tranche de $ correspond à la tranche à court terme de la dette à long terme. L augmentation de $ de la dette à long terme reflète le passif à long terme engagé par la Société à la date d acquisition. Se reporter aux notes 1 et 4m) pour en savoir plus sur les modalités de la nouvelle dette. 4g) Les créditeurs et charges à payer incluent un passif à payer par la Société au nom du vendeur d un montant de $ qui se rapporte aux obligations au titre des primes de maintien en poste, lesquelles ont été définies dans la convention d achat. Le montant est porté en diminution de la contrepartie totale versée. 4h) Les résultats financiers de Morningstar ont été ajustés afin de tenir compte des éléments suivants : i. les résultats d une installation située à Rockford, en Illinois, qui a été conservée par le vendeur, ont été exclus; ii. les résultats liés aux catégories de produits conservées par le vendeur ont été exclus; iii. les résultats liés aux catégories de produits comptabilisées par le vendeur mais revenant à Morningstar ont été inclus; iv. les résultats liés à un accord de coemballage conclu ont été inclus; v. l incidence de redevances facturées par le vendeur a été exclue, car la propriété intellectuelle sousjacente a été transférée à Morningstar. Pour plus de détails sur ces ajustements, se reporter aux notes 1 et 17 des états financiers combinés annuels audités de Morningstar Foods, LLC présentés à l Annexe A de ce rapport. L incidence de ces ajustements s établit comme suit : Exercice terminé le 31 mars 2012 Période de neuf mois terminée le 31 décembre 2012 $ $ Revenus (75 810) (60 128) Coûts d opération, excluant l amortissement Coût des marchandises vendues (59 212) (57 393) Répartition des redevances (42 234) (32 073) ( ) (89 466) Bénéfice avant intérêts, amortissement et impôts sur les bénéfices i) Morningstar présentait son état des résultats selon les PCGR des États-Unis d une façon équivalente à la méthode des charges par fonction selon IAS 1, Présentation des états financiers («IAS 1»). La Société présente son état des résultats selon la méthode des charges par nature conformément à IAS 1. Par conséquent, les montants présentés ci-dessous ont été reclassés des coûts d opération de Morningstar et présentés séparément au poste amortissement : Période de neuf mois Exercice terminé le 31 mars 2012 terminée le 31 décembre 2012 $ $ Coûts d opération, excluant l amortissement (26 444) (19 182) Amortissement SAPUTO INC. DÉCLARATION D ACQUISITION D ENTREPRISE Page 12

77 NOTES COMPLÉMENTAIRES AUX ÉTATS FINANCIERS CONSOLIDÉS RÉSUMÉS PRO FORMA NON AUDITÉS 4j) La charge d amortissement a été augmentée pour refléter l amortissement additionnel qui découle de la réévaluation à la juste valeur liée à la répartition du prix d achat touchant les immobilisations acquises de Morningstar au cours de la période de leur avantage prévu, ainsi que les ajustements de décomposition nécessaires aux fins de conformité aux IFRS et aux méthodes comptables de la Société. Période de neuf mois Exercice terminé le 31 mars 2012 terminée le 31 décembre 2012 $ $ Amortissement k) La charge d amortissement a été augmentée pour refléter l amortissement additionnel qui découle de la réévaluation à la juste valeur liée à la répartition du prix d achat touchant les actifs incorporels acquis de Morningstar au cours de la période de leur avantage prévu, et elle s établit comme suit : Période de neuf mois Exercice terminé le 31 mars 2012 terminée le 31 décembre 2012 $ $ Amortissement l) La charge d amortissement de Morningstar inclut une charge liée à une installation située à Rockford, en Illinois, et à des actifs utilisés pour certaines catégories de produits conservées par le vendeur. Ces montants ont été retirés des résultats consolidés et ils s établissent comme suit : Période de neuf mois Exercice terminé le 31 mars 2012 terminée le 31 décembre 2012 $ $ Amortissement (1 208) (716) 4m) L achat de Morningstar a été financé au moyen de la trésorerie disponible et d une nouvelle facilité d emprunt bancaire à terme de quatre ans d un montant de $. Par suite de l acquisition, la Société a conclu des swaps de taux d intérêt pour la durée totale de cette facilité, qui portera intérêt à un taux de 1,41 % majoré de 0,85 % jusqu à un maximum de 2,0 %, selon un ratio financier de la Société. L ajustement des charges d intérêts sur la dette à long terme qui découle de la dette acquise s établit comme suit : Période de neuf mois Exercice terminé le 31 mars 2012 terminée le 31 décembre 2012 $ $ Intérêts sur la dette à long terme SAPUTO INC. DÉCLARATION D ACQUISITION D ENTREPRISE Page 13

78 NOTES COMPLÉMENTAIRES AUX ÉTATS FINANCIERS CONSOLIDÉS RÉSUMÉS PRO FORMA NON AUDITÉS 4n) L incidence de la charge d impôts sur les bénéfices et les taux d imposition effectifs consolidés pour les éléments susmentionnés s établissent comme suit : Période de neuf mois Exercice terminé le 31 mars 2012 terminée le 31 décembre 2012 $ $ Impôts sur les bénéfices (5 604) 715 Taux d imposition effectif 33,8 % 28,6 % 4o) Le nombre moyen pondéré d actions ordinaires en circulation et le nombre moyen pondéré dilué d actions ordinaires en circulation utilisés pour calculer le bénéfice par action de base et dilué s établissent comme suit : Exercice terminé le 31 mars 2012 Période de neuf mois terminée le 31 décembre 2012 Nombre moyen pondéré d actions ordinaires en circulation Nombre moyen pondéré dilué d actions ordinaires en circulation p) La Société a engagé des coûts d acquisition d environ $ pour l acquisition de Morningstar, lesquels n ont pas été reflétés dans les états financiers pro forma car ils ne sont pas des coûts récurrents. SAPUTO INC. DÉCLARATION D ACQUISITION D ENTREPRISE Page 14