SUIZA FOODS CORP, S-1, 1996-12-19

SUIZA FOODS CORP
S-1, 1996-12-19
ICE CREAM & FROZEN DESSERTS

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
------------------------------

SUIZA FOODS CORPORATION

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 2026 75-2559681
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>

3811 TURTLE CREEK BLVD.
SUITE 1300
DALLAS, TEXAS 75219
(214) 528-0939

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

GREGG L. ENGLES
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
3811 TURTLE CREEK BLVD.
SUITE 1300
DALLAS, TEXAS 75219
(214) 528-0939

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------

COPIES TO:

<TABLE>
<S> <C>
WILLIAM A. MCCORMACK KATHERINE M. SEABORN
JON L. MOSLE RANDALL G. RAY
HUGHES & LUCE, L.L.P. GARDERE & WYNNE, L.L.P.
1717 MAIN STREET 1601 ELM STREET
SUITE 2800 SUITE 3000
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
(214) 939-5500 (214) 999-3000
</TABLE>

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

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
------------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 3,335,000 20.31 $67,733,850 $20,525.41
</TABLE>

(1) Includes up to 435,000 shares subject to an over-allotment option granted to
the Underwriters. See "Underwriting".

(2) Estimated solely for the purpose of calculating the registration fee on the
basis of the average of the high and low price paid per share of Common
Stock, as reported on the Nasdaq National Market on December 16, 1996, in
accordance with Rule 457(c) promulgated under the Securities Act of 1933, as
amended.
------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED , 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS

2,900,000 SHARES

[LOGO]

COMMON STOCK
---------------
Of the 2,900,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), offered hereby (the "Offering"), 2,200,000 shares are being
sold by Suiza Foods Corporation ("Suiza Foods" or the "Company"), and 700,000
shares are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders". The Company will not
receive any proceeds from the sale of Common Stock by the Selling Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"SWZA". On December 17, 1996, the closing sale price of the Common Stock on the
Nasdaq National Market was $19.75 per share. See "Price Range of Common Stock".

ANY INVESTMENT IN THE SECURITIES OFFERED HEREIN INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total (3)..................... $ $ $ $
</TABLE>

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities arising
under the Securities Act of 1933, as amended ("Securities Act"). See
"Underwriting".
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $500,000.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to an additional 435,000 shares of Common Stock on the same
terms as the Common Stock offered hereby solely to cover over-allotments, if
any (the "Over-Allotment Option"). If the Over-Allotment Option is exercised
in full, the Price to Public, and Underwriting Discounts and Commissions
will be $ and $ respectively. The Company will not receive any
proceeds from the exercise of the Over-Allotment Option. See "Underwriting".
--------------------------

The shares of Common Stock are offered subject to prior sale, when, as and
if delivered to and accepted by the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made on or about ,
1997, at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New
York 10167.
--------------------------

BEAR, STEARNS & CO. INC. A.G. EDWARDS & SONS, INC.

, 1997
<PAGE>
[GRAPHICS TO COME]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>
PROSPECTUS SUMMARY

AS USED IN THIS PROSPECTUS, EXCEPT AS OTHERWISE STATED OR UNLESS THE CONTEXT
OTHERWISE REQUIRES, THE TERMS "SUIZA FOODS" AND THE "COMPANY" REFER TO SUIZA
FOODS CORPORATION AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS AND THE
HISTORICAL OPERATIONS AND ACTIVITIES OF CERTAIN ENTITIES (THE "COMBINED
ENTITIES") THAT BECAME SUBSIDIARIES OF THE COMPANY IN MARCH 1995 PURSUANT TO A
CORPORATE COMBINATION ACCOUNTED FOR AS A POOLING OF INTERESTS (THE
"COMBINATION"). SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--HISTORIC
RELATIONSHIPS AND RELATED TRANSACTIONS--THE COMBINATION". THE COMPANY'S
OPERATING SUBSIDIARIES ARE REFERRED TO INDIVIDUALLY HEREIN AS "SUIZA-PUERTO
RICO", "VELDA FARMS", "SWISS DAIRY", "MODEL DAIRY" AND "REDDY ICE". UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS WILL NOT EXERCISE THEIR OVER-ALLOTMENT OPTION. THE FOLLOWING
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH,
THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND RELATED NOTES
INCLUDED ELSEWHERE HEREIN.

THE COMPANY

Suiza Foods is a leading manufacturer and distributor of fresh milk
products, refrigerated ready-to-serve fruit drinks and coffee in Puerto Rico,
fresh milk and related dairy products in Florida, California and Nevada and
packaged ice in Florida and the southwestern United States. The Company has
grown primarily through a successful acquisition strategy, having consummated 37
acquisitions since its inception in May 1988, including 11 acquisitions since
its initial public offering in April 1996 (the "IPO"). As a result of its
acquisition strategy, the Company's net sales grew from $51.7 million in 1993 to
$430.5 million in 1995, during which time its operating income increased from
$8.7 million to $30.6 million. Pro forma net sales and operating income for the
nine months ended September 30, 1996 were $496.3 million and $34.5 million,
respectively.

Management believes that the dairy, ice and related distribution oriented
food industries provide attractive acquisition opportunities. The Company's
strategy is to continue to expand its dairy, ice and related food businesses
primarily through acquisitions of strong regional operators in new markets and
consolidating or add-on acquisitions in its existing markets. Through
acquisitions in the Company's existing markets, management believes that the
Company can continue to realize substantial operating efficiencies and economies
of scale. The Company also seeks to expand its existing operations by adding new
customers, extending its product lines and securing distribution rights for
additional branded products.

The Company conducts its operations through strong regional operating
companies, which have long-standing reputations for customer service and product
quality. Currently, the Company's operations are organized under two major
business lines, dairy and ice.

DAIRY

- Suiza-Puerto Rico manufactures and distributes approximately 66% of the
fresh milk sold in Puerto Rico and manufactures and markets a line of
refrigerated ready-to-serve fruit drinks under its Suiza Fruit-TM- name, a
leading brand in Puerto Rico. The Company distributes its dairy products
to grocery stores, retail outlets and schools, and also distributes third
party brand name ice cream and other refrigerated and frozen foods,
principally to grocery stores. The Company also processes and distributes
coffee in Puerto Rico and exports specialty super premium coffees to the
mainland United States and international markets through Garrido &
Compania, Inc. ("Garrido"). Garrido is the second largest coffee processor
in Puerto Rico and operates the largest office and hotel coffee service on
the island.

- Velda Farms manufactures and distributes fresh milk, ice cream and related
products throughout peninsular Florida under its own brand names and under
brands licensed from third parties. Velda Farms serves approximately 9,500
customers and distributes its products and third party branded products to
food service accounts, convenience stores, club stores and schools.

- Swiss Dairy manufactures and distributes fresh milk and related products
in southern California and southern Nevada. Swiss Dairy offers a limited
product line in order to cost effectively service its high volume retail
customers.

- Model Dairy manufactures and distributes fresh milk, ice cream and related
products in northern Nevada and certain areas of northern California.
Model Dairy is the largest dairy processor in northern Nevada and
distributes its full line of products to grocery stores, retail outlets,
schools and food service accounts.

3
<PAGE>
ICE

- Reddy Ice manufactures and distributes ice products for retail, commercial
and industrial uses. The Company currently manufactures ice at 21
facilities and serves approximately 21,000 retail locations in Texas,
Florida, Arizona, New Mexico, Nevada, Oklahoma and Utah. Management
believes that the Company is one of the largest manufacturers and
distributors of packaged ice in the United States and that it has
significant market share in each of its markets.

RECENT DEVELOPMENTS

In April 1996, the Company completed its IPO with net proceeds to the
Company of approximately $48.6 million. These proceeds were applied to repay a
portion of the Company's senior and subordinated indebtedness. Since its IPO,
the Company has completed a number of acquisitions within its two major business
lines, including the following:

- In July 1996, the Company acquired Garrido, a leading Puerto Rico
processor and distributor of coffee, for approximately $35.0 million plus
future performance based payments of up to $5.5 million. Garrido's sales
for its fiscal year ended June 30, 1996 were approximately $26.2 million.

- In September 1996, the Company acquired Swiss Dairy, a manufacturer and
distributor of fresh milk and related products in southern California and
southern Nevada, for approximately $54.0 million. Swiss Dairy had sales of
approximately $108.2 million for the twelve months ended September 7,
1996.

- In December 1996, the Company acquired Model Dairy, a manufacturer and
distributor of fresh milk and related products in northern Nevada and
northern California, for approximately $26.0 million. Model Dairy's sales
for its fiscal year ended October 31, 1996 were approximately $56.9
million.

- The Company has also completed seven acquisitions of small ice businesses
since its IPO for total consideration of $4.6 million. These businesses
have been consolidated into the Company's existing ice operations.

Since its IPO, the Company has also completed the following financing
transactions:

- In August 1996, the Company completed a private placement of 625,000
shares of Common Stock to T. Rowe Price Small Cap Value Fund with net
proceeds to the Company of approximately $9.7 million (the "Private
Placement"). The proceeds were applied to repay a portion of the Company's
senior indebtedness.

- In connection with its acquisition of Swiss Dairy in September 1996, the
Company amended its Senior Credit Facility (as defined herein) to provide
for a new $90.0 million acquisition facility. The Company financed its
acquisitions of Swiss Dairy and Model Dairy with borrowings under this
acquisition facility. The Company intends to apply the net proceeds from
this offering to repay a portion of the outstanding indebtedness under
its acquisition facility.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company........................... 2,200,000 shares
Common Stock offered by the Selling Stockholders.............. 700,000 shares
Common Stock to be outstanding after the Offering (1)......... 12,941,729 shares
Use of Proceeds............................................... To repay certain outstanding
indebtedness. See "Use of Proceeds".
Nasdaq National Market symbol................................. SWZA
</TABLE>

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

(1) Total shares outstanding is as of November 30, 1996 and excludes 1,444,238
shares of Common Stock subject to options outstanding as of that date, which
are exercisable at a weighted average exercise price of $7.94 per share. See
"Management--Executive Compensation--Option and Restricted Stock Plan" and
"Certain Relationships and Related Transactions--Historic Relationships and
Related Transactions--The Combination-- Stock Options".

* * *

The Company was formed to become a holding company for Suiza-Puerto Rico,
Velda Farms and Reddy Ice pursuant to the Combination. See "Certain
Relationships and Related Transactions--Historic Relationships and Related
Transactions--The Combination". The Company is a Delaware corporation with its
principal offices located at 3811 Turtle Creek Boulevard, Suite 1300, Dallas,
Texas 75219 (telephone number 214-528-0939).

4
<PAGE>
SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)

The following summary consolidated financial data for the three years ended
December 31, 1995 have been derived from the audited consolidated financial
statements of the Company. The summary consolidated financial data for the
nine-month periods ended September 30, 1995 and 1996 were derived from the
unaudited financial statements of the Company and include, in management's
opinion, all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the results for such periods. The summary financial
data do not purport to indicate results of operations as of any future date or
for any future period. Effective with the Combination, the Company became the
holding company for the operations of Suiza-Puerto Rico, Velda Farms and Reddy
Ice. The Combination was accounted for using the pooling of interests method of
accounting. Results of operations of Suiza-Puerto Rico and Velda Farms are
included from the dates such operations were acquired in purchase business
combinations (December 16, 1993 and April 10, 1994, respectively). The pro forma
operating data give effect to the Garrido, Swiss Dairy and Model Dairy
acquisitions as if such transactions had been consummated on January 1, 1995.
The pro forma balance sheet data give effect to the Model Dairy acquisition as
if such transaction had occurred on September 30, 1996. There is no pro forma
balance sheet impact from the Garrido and Swiss Dairy acquisitions since they
were consummated prior to September 30, 1996 and are reflected in the historical
balance sheet. See "Unaudited Pro Forma Financial Data".

<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31, ---------------------------------
-------------------------------------------- PRO FORMA
1993 1994 1995 1995 1996 1996
--------- --------- --------- --------- --------- -----------
PRO FORMA
1995
-----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................................. $ 51,675 $ 341,108 $ 430,466 $ 634,186 $ 325,454 $ 364,611 $ 496,333
Gross profit.............................. 31,263 100,640 117,833 152,281 90,692 97,480 120,459
Operating income.......................... 8,702 25,760 30,564 42,882 24,234 26,404 34,463
Interest expense, net..................... 7,697 19,279 19,921 27,864 15,285 12,844 17,600
Income (loss) before extraordinary loss... 1,420 4,245 (1,576) 2,008 (2,846) 23,873 26,424
Net income (loss) (1)..................... 1,420 4,048 (10,038) 2,008 (11,308) 21,658 26,424
Weighted average shares
outstanding............................. 2,487,174 6,156,387 6,109,398 6,782,907 6,041,000 9,360,539 9,360,539
Earnings (loss) per share:
Income (loss) before extraordinary loss... $ .57 $ .69 $ (.26) $ .30 $ (.47) $ 2.55 $ 2.82
Extraordinary loss........................ -- (.03) (1.38) -- (1.40) (.24) --
--------- --------- --------- ----------- --------- --------- -----------
Net income (loss) (1)..................... $ .57 $ .66 $ (1.64) $ .30 $ (1.87) $ 2.31 $ 2.82
--------- --------- --------- ----------- --------- --------- -----------
--------- --------- --------- ----------- --------- --------- -----------
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED (2)
--------- ----------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................... $ 22,281 $ 26,654 $ 26,654
Total assets............................................................. 349,670 381,114 381,114
Total debt............................................................... 215,953 242,801 202,349
Total stockholders' equity............................................... 89,476 89,476 129,928
</TABLE>

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

(1) Net income (loss) and related per share amounts include the following
nonrecurring and extraordinary charges and benefits:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, NINE MONTHS ENDED
------------------------------- SEPTEMBER 30,
1993 1994 1995(D) --------------------------
--------- --------- --------- 1995 1996(D)
----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Merger, financing and other costs (a)..................... $ -- $ (1,602) $ (9,554) $ (9,544) $ (354)
--------- --------- --------- ----------- -------------
Tax benefits (b).......................................... -- -- -- -- 13,950
Extraordinary loss from early extinguishment of debt
(c)..................................................... -- (197) (8,462) (8,462) (2,215)
--------- --------- --------- ----------- -------------
$ -- $ (1,799) $ (18,016) $ (18,016) $ 11,381
--------- --------- --------- ----------- -------------
--------- --------- --------- ----------- -------------
</TABLE>

5
<PAGE>
(a) Consists of costs incurred in connection with the Combination, an
uncompleted public offering of Common Stock, an uncompleted debt
offering, uncompleted acquisitions and debt refinancing costs, net of
associated income taxes of $58 in 1994, $684 in 1995 and $217 in the nine
months ended September 30, 1996.

(b) Includes sale of Puerto Rico tax credits of $3,400 (net of related
expenses), reflected in other income, and the recognition of $11,750 in
deferred income tax benefits, recorded as a credit to tax expense, both
effects related to tax credits generated by Suiza-Puerto Rico, partially
offset by additional income tax expense of $1,200 related to the sale of
the tax credits. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Tax Benefits".

(d) The nonrecurring and extraordinary charges and benefits are reflected in
pro forma net income and per share amounts for the corresponding periods.

(2) As adjusted to reflect the sale of the 2,200,000 shares of Common Stock
offered hereby by the Company at an assumed public offering price of $19.75
and the application of the net proceeds therefrom. See "Use of Proceeds".

6
<PAGE>
RISK FACTORS
ANY INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY AND
SHOULD CONSIDER, AMONG OTHER THINGS, THE RISKS AND THE SPECULATIVE FACTORS
INHERENT IN AND AFFECTING THE COMPANY'S BUSINESS DESCRIBED BELOW AND THROUGHOUT
THIS PROSPECTUS.

POTENTIAL LIMITATIONS ON EXPANSION

The Company's strategy is to continue to expand its dairy, ice, food
distribution and related food businesses primarily through acquisitions of
strong regional operators in new markets and consolidating or add-on
acquisitions in its existing markets. The Company will evaluate specific
acquisition opportunities based on market conditions and economic factors
existing at the time and intends to pursue favorable opportunities as they
arise. The Company may encounter increased competition for acquisitions in the
future, which could result in acquisition prices the Company does not consider
acceptable. There can be no assurance that the Company will find suitable
acquisition candidates at acceptable prices or succeed in integrating any
acquired business into the Company's existing business or in retaining key
customers of acquired businesses. There can also be no assurance that the
Company will have sufficient available capital resources to realize its
acquisition strategy. See "--Substantial Indebtedness", "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business--Business Strategy".

COMPETITION

The Company's regional dairy businesses are subject to significant
competition from regional dairy operations and large national food service
distributors that operate in the Company's markets. Competition in the dairy
processing, fruit drink and food distribution businesses is based primarily on
service, price, brand recognition, quality and breadth of product line. Many of
the Company's competitors are larger, better capitalized and have greater
financial, operational and marketing resources than the Company. See
"Business--Competition--Dairy".

The packaged ice business is also highly competitive. The Company faces a
number of competitors in the packaged ice business, including smaller
independent ice manufacturers, convenience and grocery retailers that operate
captive commercial ice plants and retailers that manufacture and package ice at
store locations. Competition exists primarily on a regional basis, with service,
price and quality as the principal competitive factors. A significant increase
in the utilization of captive commercial ice plants or on-site manufacturing by
operators of large retail chains served by the Company could have an adverse
effect on the Company's operations. See "Business--Competition--Ice".

SUBSTANTIAL INDEBTEDNESS

On September 30, 1996, the Company's total indebtedness and long-term debt
(excluding current portion) were $216.0 million and $204.3 million,
respectively. On a pro forma as adjusted basis, after giving effect to (i) the
incurrence of borrowings to fund the acquisition of Model Dairy and (ii) the
application of the net proceeds from the Offering as if each such transaction
had occurred on September 30, 1996, the Company would have had total
indebtedness and long-term indebtedness (excluding current portion) of $202.3
million and $190.7 million, respectively, with long-term indebtedness (excluding
current portion) representing 59.5% of pro forma as adjusted total
capitalization. The Company's Senior Credit Facility,

7
<PAGE>
Subordinated Notes (as defined herein) and related debt service obligations (i)
limit the Company's ability to obtain additional financing in the future; (ii)
require the Company to dedicate a significant portion of the Company's cash flow
to the payment of principal and interest on its indebtedness, thereby reducing
the funds available to the Company for other purposes; (iii) limit the Company's
flexibility in planning for, or reacting to, changes in its business and market
conditions; and (iv) impose additional financial and operational restrictions on
the Company, including restrictions on dividends.

The Company's ability to make scheduled payments on its indebtedness depends
on its financial and operating performance, which is subject to prevailing
economic conditions and to financial, business and other factors, some of which
are beyond the Company's control. The Company has pledged substantially all its
assets to secure the Company's indebtedness under the Senior Credit Facility.
The failure of the Company to comply with the financial and other restrictive
covenants under the Senior Credit Facility or Subordinated Notes may result in
an event of default which, if not cured or waived, could have a material adverse
effect on the Company. The Company has entered into various interest rate
agreements to reduce its exposure to interest rate fluctuations under the Senior
Credit Facility. These agreements have the effect of fixing the Company's
interest rate with respect to a portion of its indebtedness under the Senior
Credit Facility. The Company remains subject to interest rate risk, however,
with respect to a substantial portion of its indebtedness. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".

GOVERNMENT REGULATION; RAW MATERIAL COSTS

The supply and price of milk in Puerto Rico are regulated under Puerto Rico
law. The government of Puerto Rico establishes an industry-wide production
ceiling and sets the prices that may be charged for milk at the dairy farm level
and the maximum prices that may be charged at the processor and retail levels.
These prices are reviewed (typically on an annual basis) and remain fixed unless
changed by the government. The price controls in Puerto Rico make the Company
vulnerable to increases in the costs of manufacturing, packaging and
distributing its products. There can be no assurance that the Company's
operating results will not be adversely affected by price levels set by Puerto
Rico. See "Business--Raw Materials and Supply--Dairy" and "Business--Government
Regulation--Puerto Rico Milk Industry Regulation".

The price of raw milk in the mainland United States fluctuates based on
supply and demand, with minimum support prices established monthly on a regional
basis by federal or state government agencies. Congress has recently passed
legislation to phase out support prices over a specified period. There can be no
assurance that a material increase in milk prices in the mainland United States
will not occur or that any such increase would not reduce the profitability of
the Company's operations. See "Business--Raw Materials and Supply--Dairy" and
"Business--Government Regulation--U.S. Dairy Support Program".

The Company's operations are also subject to other federal, Puerto Rico,
state and local governmental regulation. See "Business--Government Regulation".

SEASONALITY OF ICE BUSINESS

The Company's ice business is seasonal, with its highest sales occurring
during the second and third calendar quarters. In 1994 and 1995, the Company
recorded an average of approximately 69% of its annual net sales of ice during
these two quarters. Because the Company's results of operations for its ice
business depend significantly on sales during its peak season, adverse weather
during this season (such as an unusually mild or rainy period) could have a
disproportionate impact on the Company's results of operations for the full
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Seasonality".

8
<PAGE>
DEPENDENCE ON KEY PERSONNEL

The future success of the Company's business operations is dependent in part
on the efforts and skills of certain key members of management, including Gregg
L. Engles, Chairman and Chief Executive Officer of the Company. The loss of any
of its key members of management could have an adverse effect on the Company.
The Company has not obtained key man life insurance with respect to any of its
key members of management. See "Management--Executive Compensation--Employment
Agreements and Other Arrangements".

LIMITATIONS ON FAVORABLE TAX TREATMENT

Under Section 936 of the Internal Revenue Code of 1986, as amended, a
portion of the Company's income derived from its dairy, fruit drink and plastic
bottle operations in Puerto Rico qualifies for a tax credit that has the effect
of reducing or eliminating United States income taxes on income derived from
these operations. In the Revenue Reconciliation Act of 1993, the United States
Congress imposed certain limitations on the availability of the Section 936
credit. In August 1996, Congress passed the Small Business Job Protection Act of
1996 which contains further restrictions on the availability of Section 936
credits and eliminates Section 936 altogether by December 31, 2005. These
limitations, combined with certain other provisions in the Internal Revenue Code
that govern the allocation among affiliated corporations of credits derived
under Section 936, may limit the amount of the tax credit available to the
Company prior to the expiration of Section 936. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Tax Benefits".

CONTROL OF THE COMPANY

As of November 30, 1996 the Company's executive officers and directors and
their affiliates beneficially owned 33.7% of the outstanding shares of Common
Stock. The Company's executive officers and directors acting in concert can
influence the business, policies and affairs of the Company and may, together
with their affiliates and related parties, be able to block approval of any
proposed merger, combination or sale of substantially all the Company's assets.
Such ownership may also make a tender offer or proxy contest involving the
Company less likely. See "Principal and Selling Stockholders" and "Description
of Capital Stock--Certain Provisions Relating to Changes in Control".

ANTITAKEOVER PROVISIONS

The Company's charter and bylaws contain provisions that may delay, defer or
prevent a change in control of the Company. Among other things, these
provisions: (i) authorize the Board of Directors to issue preferred stock in
series with the terms of each series to be fixed by the Board of Directors; (ii)
divide the Board of Directors into three classes so that only approximately
one-third of the total number of directors will be elected each year; (iii)
permit directors to be removed only for cause; and (iv) specify advance notice
requirements for stockholder proposals and director nominations. See
"Description of Capital Stock--Certain Provisions Relating to Changes in
Control".

SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 12,941,729 shares of
Common Stock outstanding. Of these shares, an aggregate of 3,795,000 shares sold
in the IPO are, and the 2,900,000 shares sold in this Offering will be, freely
tradable without restriction or further registration under the Securities Act,
except for any such shares purchased by affiliates of the Company. In addition,
the Company has filed a registration statement under the Securities Act which
will allow the resale, without restriction, of the 625,000 shares of Common
Stock sold in the Private Placement for so long as such registration statement
remains effective. The Company has also filed a registration statement under the
Securities Act which will allow the sale, without restriction, of Common Stock
acquired upon exercise of stock options or pursuant to awards of restricted
stock under the Company's Option and Restricted Stock Plan (as defined herein),

9
<PAGE>
except for any such shares acquired by affiliates of the Company. Of the
remaining shares, 5,613,479 shares, which were issued in the Combination, will
be eligible for sale in the public market upon expiration of the applicable
holding periods, or sooner if registered under the Securities Act.
The stockholders who received Common Stock in the Combination have three
demand registration rights and unlimited incidental (or piggyback) registration
rights, subject to certain limitations and conditions relating to the timing and
size of the registrations and similar matters. The first two demand registration
rights are exercisable until July 22, 1999, but no demand registration right may
be exercised before April 22, 1997 unless the market price of the Common Stock
at the time of exercise is at least $16.80 per share (120% of the IPO price).
The third demand registration right may be exercised beginning July 22, 1999.
The Company's officers and directors and the stockholders who received Common
Stock in the Combination have agreed for a period of 90 days after the date of
this Prospectus, not to offer, sell, agree to sell, grant any option to purchase
or make any other disposition (excluding certain pledges) of any shares owned by
them without the prior written consent of Bear, Stearns & Co. Inc. ("Bear
Stearns"). This agreement may be released by Bear Stearns without notice to
persons purchasing shares in this Offering and without notice to any market on
which the Common Stock is traded. Sales of substantial amounts of shares in the
public market following the Offering could adversely affect the market price of
the Common Stock. See "Certain Relationships and Related Transactions--Historic
Relationships and Related Transactions--The Combination--Registration Rights",
"Shares Eligible for Future Sale" and "Underwriting".

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended ("Exchange Act"). All statements other than statements of
historical facts included in this Prospectus, including without limitation,
statements under "Risk Factors", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" regarding the
Company's financial position, business strategy and plans and objectives of
management of the Company for future operations, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed under "Risk Factors" and elsewhere in this
Prospectus, including without limitation in conjunction with the forward-looking
statements included in this Prospectus. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.

10
<PAGE>
USE OF PROCEEDS

Assuming an offering price of $19.75 per share, the net proceeds to the
Company from the sale of shares of Common Stock offered hereby by the Company
are estimated to be approximately $40.5 million, after deducting estimated
underwriting discounts and commissions and estimated offering expenses. The
Company intends to use the net proceeds from the Offering to repay certain
outstanding indebtedness under the Senior Credit Facility.

At September 30, 1996, the Company had approximately $179.0 million in
principal amount of senior indebtedness (including the current portion)
outstanding under its Senior Credit Facility. Of this amount, approximately
$127.5 million was outstanding under a term loan facility, which is being
amortized over seven years ending on March 31, 2002, approximately $8.6 million
was outstanding under a revolving loan facility, which matures on March 31,
2000, and approximately $42.9 million was outstanding under the acquisition
facility, which will be amortized over four years commencing September 30, 1998.
Indebtedness under the Senior Credit Facility bears interest at floating rates.
As of September 30, 1996, the blended interest rate on the Senior Credit
Facility was 6.9%. The Company entered into the Senior Credit Facility in
connection with the Combination in order to replace the previously outstanding
senior indebtedness of the Combined Entities. The Senior Credit Facility was
amended in July 1996 in connection with the acquisition of Garrido. In September
1996, the Company entered into a supplemental credit facility as part of an
amendment to the Senior Credit Facility providing for a $90.0 million
acquisition facility. The Company originally borrowed an aggregate of $71.2
million under the acquisition facility to fund its acquisitions of Swiss Dairy
and Model Dairy. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Current
Debt Obligations". The Company intends to apply the net proceeds of the Offering
to repay a portion of the amount outstanding under its acquisition facility.

The Company will not receive any of the proceeds from the sale of the
700,000 shares of Common Stock by the Selling Stockholders.

PRICE RANGE OF COMMON STOCK
The Common Stock began trading in the Nasdaq National Market on April 17,
1996. The following table sets forth, for the periods from April 17, 1996 to
December 17, 1996, the high and low sales prices of the Common Stock as quoted
on the Nasdaq National Market. On December 17, 1996, the last reported sale
price of the Common Stock on the Nasdaq National Market was $19.75 per share. At
December 12, 1996, there were approximately 38 record holders of Common Stock.

<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Year Ended December 31, 1996:
Second Quarter (from April 17, 1996)..................................... $ 18.75 $ 14.00
Third Quarter............................................................ $ 17.75 $ 15.75
Fourth Quarter (through December 17, 1996)............................... $ 20.75 $ 16.75
</TABLE>

DIVIDEND POLICY
The Company has never declared or paid a cash dividend on the Common Stock.
Management intends to retain all earnings to cover working capital fluctuations
and to fund capital expenditures, scheduled debt repayments and acquisitions and
does not anticipate paying cash dividends on the Common Stock in the foreseeable
future. The Company's Senior Credit Facility and Subordinated Notes prohibit the
payment of dividends by the Company on any shares of Common Stock, other than
dividends payable solely in Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources".

11
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1996: (i) on an actual basis; (ii) on a pro forma basis, after
giving effect to the borrowing to fund the acquisition of Model Dairy; and (iii)
on a pro forma basis, as adjusted to give effect to the sale of shares of Common
Stock offered by the Company hereunder and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds". This table should be
read in conjunction with the other financial information appearing elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term debt........................................... $ 11,637 $ 11,637 $ 11,637
---------- ----------- -----------
---------- ----------- -----------

Long-term debt, net of current portion:
Senior Credit Facility
Revolving loan facility................................................. $ 8,600 $ 8,600 $ 8,600
Term loan facility...................................................... 116,250 116,250 116,250
Acquisition loan facility............................................... 42,900 69,748 29,296
Subordinated indebtedness................................................. 36,000 36,000 36,000
Other long-term debt...................................................... 566 566 566
---------- ----------- -----------
Total long-term debt.................................................... 204,316 231,164 190,712
---------- ----------- -----------
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares authorized; none
outstanding............................................................. -- -- --
Common Stock, $.01 par value, 20,000,000 shares authorized; 10,739,729
actual and pro forma shares outstanding (1); and 12,939,729 pro forma
shares outstanding...................................................... 107 107 129
Additional paid-in capital................................................ 89,337 89,337 129,767
Retained earnings......................................................... 32 32 32
---------- ----------- -----------
Total stockholders' equity.............................................. 89,476 89,476 129,928
---------- ----------- -----------
Total capitalization.................................................. $ 293,792 $ 320,640 $ 320,640
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

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

(1) Excludes 1,446,238 shares of Common Stock subject to options outstanding as
of September 30, 1996, which are exercisable at a weighted average exercise
price of $7.93 per share. See "Management-- Executive Compensation--Option
and Restricted Stock Plan" and "Certain Relationships and Related
Transactions--Historic Relationships and Related Transactions--The
Combination--Stock Options".

12
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma financial data have been derived by the
application of pro forma adjustments to the financial statements of the Company.
The pro forma statement of operations data represent income from continuing
operations for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 and give effect to: (i) the acquisition of Garrido; (ii) the
acquisition of Swiss Dairy; (iii) the acquisition of Model Dairy; and (iv) the
related borrowings to fund such acquisitions (collectively, the "Transactions"),
as if the Transactions had been consummated on January 1, 1995. The pro forma
balance sheet data give effect to the acquisition of Model Dairy as if the
acquisition had been consummated on September 30, 1996. There is no pro forma
balance sheet impact from the Garrido and Swiss Dairy acquisitions because these
acquisitions were consummated prior to September 30, 1996 and are reflected in
the historical balance sheet as of that date. The pro forma adjustments, which
are described in the accompanying notes, are based on available information and
certain assumptions that management of the Company believes are reasonable. The
pro forma financial data should not be considered indicative of actual results
that would have been achieved if the Transactions had been consummated on the
dates or for the periods indicated and do not purport to indicate results of
operations as of any future date or for any future period.

The historical amounts in the pro forma statements of operations for
Garrido, Swiss Dairy and Model Dairy include the operating results of these
entities only for the applicable periods prior to the effective dates of their
acquisition by the Company (July 1996 for Garrido, September 1996 for Swiss
Dairy and December 1996 for Model Dairy). Because the fiscal year for Garrido
ends on June 30 of each year, the financial data for the year ended December 31,
1995 were derived from the aggregation of the unaudited financial information of
Garrido for the six month period ended June 30, 1995 in Garrido's 1995 fiscal
year and the six month period ended December 31, 1995 in Garrido's 1996 fiscal
year; and the financial data for the nine months ended September 30, 1996 were
derived from unaudited financial information of Garrido for the six month period
ended June 30, 1996 in Garrido's 1996 fiscal year. Because the fiscal year for
Model Dairy ends on October 31 of each year, the financial data for the year
ended December 31, 1995 represent the financial information of Model Dairy for
the fiscal year ended October 31, 1995; and the financial data for the nine
months ended September 30, 1996 represent the unaudited financial data of Model
Dairy for the same nine month period.

The following pro forma financial data does not give effect to the sales of
Common Stock and the application of the net proceeds therefrom in the IPO, the
Private Placement or this Offering. The unaudited pro forma financial data
should be read in conjunction with the financial statements of the Company,
Garrido, Swiss Dairy and Model Dairy and the related notes appearing elsewhere
herein.

13
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1995

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------
THE SWISS MODEL PRO FORMA
COMPANY GARRIDO DAIRY DAIRY ADJUSTMENTS PRO FORMA
--------- --------- --------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................. $ 430,466 $ 26,226 $ 126,647 $ 50,847 $ -- $ 634,186
Cost of sales............................. 312,633 17,242 111,798 41,309 (1,077)(a)(b) 481,905
--------- --------- --------- --------- -----------
Gross profit............................ 117,833 8,984 14,849 9,538 152,281
Operating expenses:
Selling and distribution................ 64,289 2,506 7,852 3,920 (1,241)(a)(b) 77,326
General and administrative.............. 19,277 2,041 2,483 3,724 (1,354)(a)(b) 26,171
Amortization of intangibles and other... 3,703 -- -- 20 2,179(c) 5,902
--------- --------- --------- --------- -----------
Total operating costs and expenses.... 87,269 4,547 10,335 7,664 109,399
--------- --------- --------- --------- -----------
Income from operations.................... 30,564 4,437 4,514 1,874 42,882
Other (income) expense:
Interest expense, net................... 19,921 349 -- 66 7,528(d) 27,864
Merger and other costs.................. 10,238 -- -- -- 10,238
Other income, net....................... (469) (110) (270) (116) (965)
--------- --------- --------- --------- -----------
Total other (income) expense.......... 29,690 239 (270) (50) 37,137
--------- --------- --------- --------- -----------
Income before income taxes................ 874 4,198 4,784 1,924 5,745
Income taxes.............................. 2,450 589 65 5 628(e) 3,737
--------- --------- --------- --------- -----------
Income (loss) from continuing operations.. $ (1,576) $ 3,609 $ 4,719 $ 1,919 $ 2,008
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Income (loss) per share from continuing
operations.............................. $ (0.26) $ 0.30
--------- -----------
--------- -----------
Weighted average shares outstanding....... 6,109,398 6,782,907
--------- -----------
--------- -----------
</TABLE>

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

(a) Excess of historical depreciation expense over the depreciation of the fair
value of property and equipment acquired, as follows:

<TABLE>
<CAPTION>
GARRIDO SWISS DAIRY MODEL DAIRY TOTAL
----------- ------------- --------------- ---------
<S> <C> <C> <C> <C>
Cost of sales.......................................... $ (84) $ (170) $ (68) $ (322)
Selling and distribution............................... (15) (149) (68) (232)
General and administration............................. (13) (16) (15) (44)
----- ----- ----- ---------
$ (112) $ (335) $ (151) $ (598)
----- ----- ----- ---------
----- ----- ----- ---------
</TABLE>

(b) Elimination of (i) salaries and benefits paid primarily to former
shareholders of Swiss Dairy and Model Dairy, whose employment was either
terminated or salaries reduced, and (ii) certain related party rentals at
Model Dairy, as part of the respective acquisition agreements, resulting in
a reduction of historical costs of sales, selling and distribution and
general and administrative costs, as follows:

<TABLE>
<CAPTION>
SWISS DAIRY MODEL DAIRY TOTAL
------------- ------------- ---------
<S> <C> <C> <C>
Cost of sales................................................... $ (620) $ (135) $ (755)
Selling and distribution........................................ (245) (764) (1,009)
General and administration...................................... (702) (608) (1,310)
------------- ------------- ---------
$ (1,567) $ (1,507) $ (3,074)
------------- ------------- ---------
------------- ------------- ---------
</TABLE>

14
<PAGE>
(c) Amortization of goodwill and other intangibles in excess of historical
amounts, as follows:

<TABLE>
<CAPTION>
LIFE GARRIDO SWISS DAIRY MODEL DAIRY TOTAL
--- ----------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Organization costs.............................. 5 $ 5 $ 5 $ 5 $ 15
Tradename....................................... 25 -- -- 120 120
Customer list................................... 10 -- -- 400 400
Goodwill........................................ 40 494 1,000 150 1,644
----- ------ ----- ---------
$ 499 $ 1,005 $ 675 2,179
----- ------ ----- ---------
----- ------ ----- ---------
</TABLE>

(d) Pro forma interest expense on the average outstanding balance of new
borrowings used to fund the acquisitions at an assumed interest rate of
7.25%, net of the reduction of historical interest expense related to the
historical debt repaid.

<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
Garrido..................................................................................... $ 2,083
Swiss Dairy................................................................................. 3,737
Model Dairy................................................................................. 1,708
---------
$ 7,528
---------
---------
</TABLE>

(e) Estimated pro forma adjustment to reflect income taxes at the Company's
estimated effective tax rate of 4% for Garrido, 40% for Swiss Dairy and 35%
for Model Dairy.

<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
Garrido...................................................................................... $ (502)
Swiss Dairy.................................................................................. 715
Model Dairy.................................................................................. 415
---------
$ 628
---------
---------
</TABLE>

15
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------
THE SWISS MODEL PRO FORMA
COMPANY GARRIDO DAIRY DAIRY ADJUSTMENTS PRO FORMA
--------- --------- --------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 364,611 $ 13,228 $ 75,615 $ 42,879 $ -- $ 496,333
Cost of sales........................... 267,131 8,982 65,462 35,171 (872)(a)(b) 375,874
--------- --------- --------- --------- -----------
Gross profit........................ 97,480 4,246 10,153 7,708 120,459
Operating expenses:
Selling and distribution.............. 52,215 1,428 5,153 3,350 (1,131)(a)(b) 61,015
General and administrative............ 15,661 1,163 1,458 3,019 (983)(a)(b) 20,318
Amortization of intangibles and
other............................... 3,200 -- -- 8 1,455(c) 4,663
--------- --------- --------- --------- -----------
Total operating costs and expenses.. 71,076 2,591 6,611 6,377 85,996
--------- --------- --------- --------- -----------
Income from operations.................. 26,404 1,655 3,542 1,331 34,463
Other (income) expense:
Interest expense, net................. 12,844 131 (51) 51 4,625(d) 17,600
Merger and other costs................ 571 -- -- -- 571
Other income, net..................... (3,389) (237) (318) 23 (3,921)
--------- --------- --------- --------- -----------
Total other (income) expense........ 10,026 (106) (369) 74 14,250
--------- --------- --------- --------- -----------
Income before income taxes.............. 16,378 1,761 3,911 1,257 20,213
Income taxes (benefit).................. (7,495) (478) 57 -- 1,705(e) (6,211)
--------- --------- --------- --------- -----------
Income from continuing operations....... $ 23,873 $ 2,239 $ 3,854 $ 1,257 $ 26,424
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Income per share from continuing
operations............................. $ 2.55 $ 2.82
--------- -----------
--------- -----------
Weighted average shares outstanding..... 9,360,539 9,360,539
--------- -----------
--------- -----------
</TABLE>

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

(a) Excess of historical depreciation expense over the depreciation of the fair
value of property and equipment acquired, as follows:

<TABLE>
<CAPTION>
GARRIDO SWISS DAIRY MODEL DAIRY TOTAL
----------- ------------- --------------- ---------
<S> <C> <C> <C> <C>
Cost of sales................................................ $ (42) $ (225) $ (88) $ (355)
Selling and distribution..................................... (8) (199) (88) (295)
General and administration................................... (6) (22) (20) (48)
--- ----- ----- ---------
$ (56) $ (446) $ (196) $ (698)
--- ----- ----- ---------
--- ----- ----- ---------
</TABLE>

<TABLE>
<CAPTION>
SWISS DAIRY MODEL DAIRY TOTAL
------------- ------------- ---------
<S> <C> <C> <C>
Cost of sales......................................................... $ (517) $ -- $ (517)
Selling and distribution.............................................. (240) (596) (836)
General and administration............................................ (352) (583) (935)
------------- ------------- ---------
$ (1,109) $ (1,179) $ (2,288)
------------- ------------- ---------
------------- ------------- ---------
</TABLE>

<TABLE>
<CAPTION>
LIFE GARRIDO SWISS DAIRY MODEL DAIRY TOTAL
--- ----------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Organization costs.................................... 5 $ 3 $ 4 $ 4 $ 11
Tradename............................................. 25 -- -- 90 90
Customer list......................................... 10 -- -- 300 300
Goodwill.............................................. 40 250 684 120 1,054
----- ----- ----- ---------
$ 253 $ 688 $ 514 $ 1,455
----- ----- ----- ---------
----- ----- ----- ---------
</TABLE>

16
<PAGE>
(d) Pro forma interest expense on the average outstanding balance of new
borrowings used to fund the acquisitions at an assumed interest rate of
7.25%, net of the reduction of historical interest expense related to the
historical debt repaid.

<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
Garrido........................................................................................... $ 979
Swiss Dairy....................................................................................... 2,502
Model Dairy....................................................................................... 1,144
---------
$ 4,625
---------
---------
</TABLE>

(e) Estimated pro forma adjustment to reflect income taxes at the Company's
estimated effective tax rate of 4% for Garrido, 40% for Swiss Dairy and 35%
for Model Dairy.

<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
Garrido........................................................................................... $ 511
Swiss Dairy....................................................................................... 853
Model Dairy....................................................................................... 341
---------
$ 1,705
---------
---------
</TABLE>

17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL
---------------------
THE MODEL PRO FORMA
COMPANY DAIRY ADJUSTMENTS PRO FORMA
---------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 9,288 $ 1,110 $ -- $ 10,398
Accounts receivable, net.................................... 47,729 5,662 (19)(b) 53,372
Inventories................................................. 15,853 2,052 17,905
Prepaid expenses and other current assets................... 3,162 164 3,326
Deferred income taxes....................................... 2,127 -- 2,127
---------- --------- -----------
Total current assets...................................... 78,159 8,988 87,128
Property and equipment........................................ 112,280 4,873 3,578(b) 120,731
Deferred income taxes......................................... 7,792 -- 7,792
Intangible and other assets................................... 151,439 627 13,397(b) 165,463
---------- --------- -----------
Total assets.................................................. $ 349,670 $ 14,488 $ 381,114
---------- --------- -----------
---------- --------- -----------
Current liabilities:
Accounts payable and accrued expenses....................... $ 43,702 $ 4,358 $ 238(a) $ 48,298
Income taxes payable........................................ 539 -- 539
Current portion of long-term debt........................... 11,637 663 (663)(a) 11,637
---------- --------- -----------
Total current liabilities................................. 55,878 5,021 60,474
Long-term debt................................................ 204,316 2,394 24,454(a) 231,164
Stockholders' equity:
Common stock................................................ 107 67 (67)(b) 107
Additional paid-in capital.................................. 89,337 -- 89,337
Retained earnings........................................... 32 7,006 (7,006)(b) 32
---------- --------- -----------
Total stockholders equity................................. 89,476 7,073 89,476
---------- --------- -----------
Total liabilities and equity.................................. $ 349,670 $ 14,488 $ 381,114
---------- --------- -----------
---------- --------- -----------
</TABLE>

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

(a) In December 1996, the Company completed the acquisition of substantially all
the net assets of Model Dairy for a purchase price of $26.2 million,
including acquired cash and excluding $.9 million in related expenses. The
total purchase price was funded primarily with borrowings under the
Company's Senior Credit Facility, a portion of which was used to repay
indebtedness at Model Dairy, as follows (in thousands):

<TABLE>
<S> <C>
Credit agreement borrowings.............................................................................. $ 26,848
Accrued expenses......................................................................................... 250
-----------
Total purchase price..................................................................................... 27,098
Repayment of existing indebtedness
Accrued interest....................................................................................... (12)
Current portion........................................................................................ (663)
Long-term portion...................................................................................... (2,394)
-----------
Net purchase price................................................................................... $ 24,029
-----------
-----------
</TABLE>

18
<PAGE>
(b) The above acquisition resulted in an excess of the purchase price over the
historical net assets acquired, which was allocated to the net assets
acquired as follows:

<TABLE>
<S> <C>
Net purchase price....................................................................................... $ 24,029
Historical carrying value of net assets:
Total net assets....................................................................................... 7,073
Less net assets not assumed:
Accounts receivable.................................................................................. (19)
Intangible and other assets.......................................................................... (439)
---------
Historical carrying value of net assets acquired................................................... 6,615
---------
Excess of net purchase price over historical carrying value.............................................. $ 17,414
---------
---------
Allocation of excess purchase price:
Excess fair value of property and equipment............................................................ $ 3,578
Intangible assets...................................................................................... 13,836
---------
$ 17,414
---------
---------
</TABLE>

19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

(IN THOUSANDS, EXCEPT SHARE DATA)

The following table presents selected consolidated financial data of the
Company for the five years ended December 31, 1995 derived from the Company's
audited consolidated financial statements. The selected consolidated financial
data for the nine-month periods ended September 30, 1995 and 1996 are unaudited,
and in the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) that are necessary to present fairly the financial results
for such periods. The selected financial data do not purport to indicate results
of operations as of any future date or for any future period. Effective with the
Combination, the Company became the holding company for the operations of
Suiza-Puerto Rico, Velda Farms and Reddy Ice. The Combination has been accounted
for using the pooling of interests method of accounting. Results of operations
of Suiza-Puerto Rico and Velda Farms are included from the dates such operations
were acquired in purchase business combinations (December 16, 1993 and April 10,
1994, respectively). The Selected Consolidated Financial Data should be read in
conjunction with the Consolidated Financial Statements and related notes of the
Company included elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
--------- ----------- --------- --------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............................. $ 45,513 $ 44,452 $ 51,675 $ 341,108 $ 430,466 $ 325,454 $ 364,611
Costs of sales........................ 15,016 14,586 20,412 240,468 312,633 234,762 267,131
--------- ----------- --------- --------- ----------- ----------- ---------
Gross profit.......................... 30,497 29,866 31,263 100,640 117,833 90,692 97,480
Operating costs and expenses:
Selling and distribution.............. 14,806 14,483 15,434 54,248 64,289 48,295 52,215
General and administrative............ 6,699 6,110 6,305 16,935 19,277 15,298 15,661
Amortization of intangibles and
other............................... 720 1,911 822 3,697 3,703 2,865 3,200
--------- ----------- --------- --------- ----------- ----------- ---------
Total operating costs and
expenses.......................... 22,225 22,504 22,561 74,880 87,269 66,458 71,076
--------- ----------- --------- --------- ----------- ----------- ---------
Income from operations.................. 8,272 7,362 8,702 25,760 30,564 24,234 26,404
Other (income) expense:
Interest expense, net................. 9,212 8,495 7,697 19,279 19,921 15,285 12,844
Merger and other costs................ 467 1,199 -- 1,660 10,238 10,238 571
Other income, net..................... (245) (408) (419) (268) (469) (406) (3,389)
--------- ----------- --------- --------- ----------- ----------- ---------
Total other (income) expense........ 9,434 9,286 7,278 20,671 29,690 25,117 10,026
--------- ----------- --------- --------- ----------- ----------- ---------
Income (loss) before income taxes and
extraordinary loss.................. (1,162) (1,924) 1,424 5,089 874 (883) 16,378
Income taxes (benefit)................ -- -- 4 844 2,450 1,963 (7,495)
--------- ----------- --------- --------- ----------- ----------- ---------
Income (loss) before extraordinary
loss................................ (1,162) (1,924) 1,420 4,245 (1,576) (2,846) 23,873
Extraordinary loss from early
extinguishment of debt.............. 1,272 2,491 -- 197 8,462 8,462 2,215
--------- ----------- --------- --------- ----------- ----------- ---------
Net income (loss) (1)................. $ (2,434) $ (4,415) $ 1,420 $ 4,048 $ (10,038) $ (11,308) $ 21,658
--------- ----------- --------- --------- ----------- ----------- ---------
--------- ----------- --------- --------- ----------- ----------- ---------
Weighted average shares outstanding... 1,763,502 1,763,502 2,487,174 6,156,387 6,109,398 6,041,000 9,360,539
Income (loss) before extraordinary
loss per share...................... $ (.66) $ (1.09) $ .57 $ .69 $ (.26) $ (0.47) $ 2.55
Extraordinary loss per share.......... (.72) (1.41) -- (.03) (1.38) (1.40) (0.24)
--------- ----------- --------- --------- ----------- ----------- ---------
Net income (loss) per share (1)....... $ (1.38) $ (2.50) $ .57 $ .66 $ (1.64) $ (1.87) $ 2.31
--------- ----------- --------- --------- ----------- ----------- ---------
--------- ----------- --------- --------- ----------- ----------- ---------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit)............. $ (3,851) $ 616 $ (3,609) $ (2,099) $ (1,554) $ (1,331) $ 22,281
Total assets.......................... 52,103 46,991 167,948 238,952 232,522 234,474 349,670
Long-term debt, net of current
portion............................. 51,588 54,739 132,123 173,327 171,745 173,729 204,316
Total stockholders' equity
(deficit)........................... (9,469) (15,408) 162 9,887 9,460 8,190 89,476
</TABLE>

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

20
<PAGE>
(1) Net income (loss) and related per share amounts include the following
nonrecurring and extraordinary charges and benefits:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
----------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 --------------------------
--------- --------- --------- --------- --------- 1995 1996
----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Merger, financing and other costs (a)....... $ (467) $ (1,199) $ -- $ (1,602) $ (9,554) $ (9,544) $ (354)
--------- --------- --------- --------- --------- ----------- -------------
Tax benefits (b)............................ -- -- -- -- -- -- 13,950
Extraordinary loss from early extinguishment
of debt (c)............................... -- -- -- (197) (8,462) (8,462) (2,215)
--------- --------- --------- --------- --------- ----------- -------------
$ (467) $ (1,199) $ -- $ (1,799) $ (18,016) $ (18,016) $ 11,381
--------- --------- --------- --------- --------- ----------- -------------
--------- --------- --------- --------- --------- ----------- -------------
</TABLE>

(a) Consists of costs incurred in connection with the Combination and a
prior merger, an uncompleted public offering of Common Stock, an
uncompleted debt offering, uncompleted acquisitions and debt refinancing
costs, net of associated income taxes of $58 in 1994, $684 in 1995 and
$217 in the nine months ended September 30, 1996.

(b) Includes sale of Puerto Rico tax credits of $3,400 (net of related
expenses), reflected in other income, and the recognition of $11,750 in
deferred income tax benefits recorded as a credit to tax expense, both
effects related to tax credits generated by Suiza-Puerto Rico, partially
offset by additional income tax expense of $1,200 related to the sale of
the tax credits. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Tax Benefits".

21
<PAGE>
SELECTED PRE-ACQUISITION HISTORICAL FINANCIAL DATA

(IN THOUSANDS)

The following tables set forth selected historical financial data for
Pre-Acquisition Suiza-Puerto Rico and Pre-Acquisition Velda Farms as of and for
the periods indicated. The historical financial data for Pre-Acquisition
Suiza-Puerto Rico and Pre-Acquisition Velda Farms are presented for periods
prior to December 16, 1993 and April 10, 1994, respectively, the respective
dates of acquisition of Suiza-Puerto Rico and Velda Farms. This information
should be read in conjunction with the financial statements and related notes
for Pre-Acquisition Suiza-Puerto Rico and Pre-Acquisition Velda Farms included
elsewhere herein.

PRE-ACQUISITION SUIZA-PUERTO RICO

<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 15,
---------------------- 1993
1991 1992 (50 WEEKS)
---------- ---------- ------------
<S> <C> <C> <C>
OPERATING DATA:
Net sales................................................................ $ 172,347 $ 184,022 $ 174,771
Operating income......................................................... 12,438 14,178 11,720
Income from continuing operations (1).................................... 8,538 10,288 12,893
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................................................. 68,139 65,110 68,357
Long-term debt........................................................... 16,431 12,514 --
OTHER DATA:
Cash dividends paid...................................................... 3,247 14,251 14,994
</TABLE>

PRE-ACQUISITION VELDA FARMS

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1994
------------------------------- TO
1991 1992 1993 APRIL 9, 1994
--------- --------- --------- -------------
OPERATING DATA:
<S> <C> <C> <C> <C>
Net sales..................................... $ 115,688 $ 123,774 $ 125,908 $ 38,269
Operating income (2).......................... 4,443 2,977 3,422 1,460
Income from continuing operations (2)......... 1,274 379 910 730
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.................................. 43,599 39,337 38,215 39,867
Long-term debt................................ 30,556 30,506 30,497 30,517
OTHER DATA:
Cash dividends paid........................... -- -- -- --
</TABLE>

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

(1) Includes a deferred tax benefit in 1993 of $2,734 from the settlement of
deferred tax liabilities with the Department of Treasury of the Commonwealth
of Puerto Rico.

(2) Includes non-recurring expenses for restructuring costs allocated by Velda
Farms' former parent of $1,048 in 1992 and $1,023 in 1993.

22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Suiza Foods is a leading manufacturer and distributor of fresh milk
products, refrigerated ready-to-serve fruit drinks and coffee in Puerto Rico,
fresh milk and related dairy products in Florida, California and Nevada, and
packaged ice in Florida and the southwestern United States. The markets in which
the Company operates tend to be relatively mature and do not offer opportunities
for rapid internal growth. However, these markets are relatively stable in
nature and thus provide some level of predictability for the Company's
operations. As a result of these dynamics, the Company's strategy has been to
grow primarily through acquisitions and to realize economies of scale and
operating efficiencies by eliminating duplicative manufacturing, distribution,
purchasing and administrative operations.

RESULTS OF OPERATIONS
Effective with the Combination, the Company became the holding company for
the operations of Suiza-Puerto Rico, Velda Farms and Reddy Ice. The Combination
has been accounted for using the pooling of interests method of accounting.
Results of operations of Suiza-Puerto Rico and Velda Farms are included from the
dates such operations were acquired in purchase business combinations (December
16, 1993 and April 10, 1994, respectively). These transactions and other
consolidating acquisitions made throughout the periods presented increased the
Company's combined sales from $51.7 million for the year ended December 31, 1993
to $430.5 million for the year ended December 31, 1995.

The following table presents certain information concerning the Company's
results of operations, including information presented as a percentage of net
sales (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995
---------------- ----------------- -----------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Dairy........................................... $ 6,587 $293,407 $379,959
Ice............................................. 45,088 47,701 50,507
------- -------- --------
Net sales..................................... 51,675 100.0% 341,108 100.0% 430,466 100.0%
Cost of sales..................................... 20,412 39.5 240,468 70.5 312,633 72.6
------- ------- -------- ------- -------- -------
Gross profit.................................... 31,263 60.5 100,640 29.5 117,833 27.4
Operating expenses:
Selling and distribution........................ 15,434 29.9 54,248 15.9 64,289 14.9
General and administrative...................... 6,305 12.2 16,935 5.0 19,277 4.5
Amortization of intangibles..................... 822 1.6 3,697 1.1 3,703 0.9
------- ------- -------- ------- -------- -------
Total operating expenses...................... 22,561 43.7 74,880 22.0 87,269 20.3
Operating income:
Dairy........................................... 92 17,122 22,386
Ice............................................. 8,610 8,638 9,218
Corporate office................................ -- -- (1,040)
------- ------- -------- ------- -------- -------
Operating income.............................. $ 8,702 16.8% $ 25,760 7.6% $ 30,564 7.1%
------- ------- -------- ------- -------- -------
------- ------- -------- ------- -------- -------

<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------

1995 1996
----------------- -----------------
DOLLARS PERCENT DOLLARS PERCENT
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales:
Dairy........................................... $284,536 $321,522
Ice............................................. 40,918 43,089
-------- --------
Net sales..................................... 325,454 100% 364,611 100.0%
Cost of sales..................................... 234,762 72.1 267,131 73.3
-------- ------- -------- -------
Gross profit.................................... 90,692 27.9 97,480 26.7
Operating expenses:
Selling and distribution........................ 48,295 14.8 52,215 14.3
General and administrative...................... 15,298 4.7 15,661 4.3
Amortization of intangibles..................... 2,865 0.9 3,200 0.9
-------- ------- -------- -------
Total operating expenses...................... 66,458 20.4 71,076 19.5
Operating income:
Dairy........................................... 17,441 18,919
Ice............................................. 8,800 10,040
Corporate office................................ (2,007) (2,555)
-------- ------- -------- -------
Operating income.............................. $ 24,234 7.5% $ 26,404 7.2%
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995

NET SALES. The Company's net sales increased by 12.0% for the first nine
months of 1996 when compared to the like period of 1995. Net sales for the
Company's dairy operations increased by 13.0% for the first nine months of 1996
when compared to the first nine months of 1995, primarily due to (i) the
acquisition of Skinners' Dairy in January 1996, Garrido in July 1996 and Swiss
Dairy in September 1996 which collectively reported net sales of $24.3 million
for the first nine months of 1996 for periods subsequent to their acquisition
and (ii) an increase in prices charged for milk to recoup increases in raw

23
<PAGE>
milk costs in the U.S. Net sales for the Company's ice operations increased by
5.3% for the first nine months of 1996 when compared to the first nine months of
1995 due to the addition of new customers and the acquisition of ten small ice
businesses during the first nine months of 1996.

COST OF SALES. The Company's cost of sales margin was 73.3% for the first
nine months of 1996 compared to 72.1% for the same period in 1995. Cost of sales
margins for the Company's dairy operations increased primarily due to higher raw
milk costs. Cost of sales margins for the Company's ice operations decreased,
reflecting additional efficiencies realized from acquired business and increased
volumes when compared to the same periods over last year.

OPERATING EXPENSES. The Company's operating expense ratio was 19.5% for the
first nine months of 1996 compared to 20.4% for the same period in 1995.
Operating expense increases were experienced in both dairy and ice as the result
of acquisitions. The operating expense margin decreased in the nine-month
comparison because of (i) increased dairy net sales due to higher milk costs
(which had little impact on operating expense levels) and (ii) the addition of
Garrido and Swiss Dairy during the third quarter, which had lower operating
expense margins than the other operations.

OPERATING INCOME. The Company's operating income for the first nine months
of 1996 was $26.4 million, an increase of 9.0% from operating income for the
first nine months of 1995 of $24.2 million. The Company's operating income
margin decreased to 7.2% in the first nine months of 1996 from 7.5% in the first
nine months of 1995 due primarily to the effect of higher milk costs and
increased dairy influence in the Company's mix of business. The Company's ice
business has higher operating income margins than the Company's dairy business.

OTHER (INCOME) EXPENSE. Interest expense declined to $12.8 million during
the first nine months of 1996 from $15.3 million during the first nine months of
1995. The reduction in interest expense resulted from a decrease in interest
rates from the repayment of certain subordinated notes in 1996 and lower average
debt levels during the 1996 nine month period. The Company also incurred $8.8
million in non-recurring merger expenses on March 31, 1995 related to the
Combination and $1.4 million in non-recurring merger costs during the second
quarter of 1995 related to several uncompleted acquisitions and to an
uncompleted debt offering. Other income rose to $3.1 million in the third
quarter of 1996 primarily as a result of $3.4 million realized from the sale of
tax credits associated with the Company's Puerto Rico operations. See "--Tax
Benefits".

EXTRAORDINARY ITEMS. During the second quarter of 1996, the Company
incurred $2.2 million in extraordinary costs (net of a $0.9 million tax benefit)
as a result of the early extinguishment of debt from the net cash proceeds of
the Companys' initial public offering. These costs included $1.3 million for the
write-off of deferred financing costs and $1.8 million in prepayment penalties.
During the first nine months of 1995, the Company incurred $8.5 million in
extraordinary costs (net of $0.7 million tax benefit) to refinance the Company's
debt in conjunction with the Combination, which included the write-off of
deferred financing costs and certain prepayment penalties.

NET INCOME (LOSS). The Company reported net income of $21.7 million for the
first nine months of 1996 compared to a loss of $11.3 million for the first nine
months of 1995. The 1996 net income improved due to a one-time gain from tax
credits associated with the Company's Puerto Rico operations, resulting in a tax
benefit of $7.5 million, in addition to improved operating income. See "--Tax
Benefits". The 1995 loss resulted primarily from the $10.2 million in one-time
non-operating charges related to the Combination and uncompleted acquisitions
and to the $8.5 million extraordinary loss on early extinguishment of debt
mentioned above.

24
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

NET SALES. The Company's net sales increased 26.2% to $430.5 million in
1995 from $341.1 million in 1994. Net sales for the Company's dairy operations
increased 29.5%, or $86.6 million, primarily due to (i) the acquisition of Velda
Farms in April 1994, (ii) the acquisition of Mayaguez Dairy in June 1994, and
(iii) the acquisition of Flav-O-Rich in November 1994. Net sales for the
Company's ice operations increased 5.9%, or $2.8 million. Unit volumes of ice
increased 5.2% from the addition of new customers and from four small
acquisitions made during 1995. During the pre-acquisition periods during 1994,
Velda Farms, Mayaguez Dairy and Flav-O-Rich reported sales of $38.3 million,
$8.5 million and $32.7 million, respectively.

COST OF SALES. The cost of sales margin for the dairy business
substantially exceeds that of its ice business because of higher raw material
cost for dairy products compared to ice. The Company's cost of sales increased
$72.2 million, resulting in an increase in the cost of sales margin to 72.6% in
1995 from 70.5% in 1994. The increase in cost of sales was due to (i) the
inclusion of the operating results of Velda Farms, Flav-O-Rich and Mayaguez
Dairy for the full year of 1995, (ii) an increase in dairy cost of sales of $1.3
million due to higher plastic resin costs and $4.7 million in higher milk costs,
and (iii) an increase of $0.9 million in plastic bag costs in the ice business.
Velda Farms, Flav-O-Rich and Mayaguez Dairy reported an aggregate of $62.7
million in cost of sales for their respective pre-acquisition periods in 1994.

OPERATING EXPENSES. The Company's operating expenses increased $12.4
million in 1995, while the operating expense margin decreased to 20.3% in 1995
from 22.0% in 1994. The operating expense increase was due to the inclusion of a
full year of operating expenses of Velda Farms, Flav-O-Rich and Mayaguez Dairy,
which reported aggregate operating expenses of $16.3 million for their
respective pre-acquisition periods in 1994. The operating expense margin
declined primarily because the ice business, which has higher operating expense
margins than the dairy business, became a smaller component of the Company.

OPERATING INCOME. The Company's operating income increased 18.6% to $30.6
million in 1995 from $25.8 million in 1994 primarily as a result of the dairy
acquisitions discussed above. The Company's operating income margin decreased
from 7.6% in 1994 to 7.1% in 1995 primarily due to an increased proportion of
net sales attributable to its dairy business.

OTHER (INCOME) EXPENSE. Interest expense rose to $19.9 million in 1995 from
$19.3 million in 1994 primarily due to the additional indebtedness incurred to
finance the dairy acquisitions. The Company incurred $8.8 million in
nonrecurring expenses in 1995 related to the Combination and $1.4 million
related to negotiation and due diligence in connection with uncompleted
acquisitions and an uncompleted debt offering. The Company incurred $1.7 million
in nonrecurring costs in 1994 related to the Combination and to an uncompleted
initial public offering.

EXTRAORDINARY ITEMS. The Company incurred $8.5 million in extraordinary
costs (net of a $0.7 million tax benefit) in 1995 to refinance the Company's
debt in conjunction with the Combination, which costs included the write-off of
deferred financing costs and certain prepayment penalties. The Company incurred
$0.2 million in extraordinary costs in 1994 for the early retirement of debt
related to its ice business.

NET INCOME (LOSS). The Company reported a net loss of $10.0 million in 1995
compared to net income of $4.0 million in 1994. The primary causes of the 1995
net loss were $10.2 million in non-recurring merger and other costs and $8.5
million in extraordinary losses from the early retirement of debt. The Company
incurred a $2.5 million income tax expense in 1995 on pre-tax income of $0.9
million due to the non-deductibility of certain nonrecurring merger costs.

25
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

NET SALES. The Company's net sales increased to $341.1 million in 1994 from
$51.7 million in 1993 due to the acquisitions of Suiza-Puerto Rico in December
1993 and Velda Farms in April 1994. The Company reported $293.4 million of dairy
net sales during 1994, as compared to $6.6 million in 1993. Net sales of ice
increased 5.8%, or $2.6 million. Unit volumes in the Company's ice business
increased 6.6% as a result of generally warmer weather conditions and four small
acquisitions completed during 1993 and 1994.

COST OF SALES. The cost of sales margin for the Company's dairy business
substantially exceeds that of its ice business because of the higher raw
material cost for dairy products compared to ice. The Company's cost of sales
increased $220.1 million, primarily due to the acquisitions of Suiza-Puerto Rico
in December 1993 and Velda Farms in April 1994. The Company reported $224.3
million in dairy cost of sales in 1994, as compared to $5.3 million of dairy
cost of sales in 1993. The cost of sales margin rose to 70.5% in 1994 from 39.5%
in 1993, primarily due to the Company's increased dairy activity.

OPERATING EXPENSES. The Company's operating expenses increased $52.3
million, while the operating expense margin decreased to 22.0% in 1994 from
43.7% in 1993. The operating expense increase was due to the inclusion of $52.0
million of operating expenses for the Suiza-Puerto Rico and Velda Farms dairy
operations acquired in December 1993 and April 1994, respectively, as compared
to $1.2 million of operating expenses in 1993. The operating expense margin
declined primarily because the Company's ice business, which has a higher
operating expense margin than the dairy business, became a smaller component of
the Company.

OPERATING INCOME. The Company's operating income increased to $25.8 million
in 1994 from $8.7 million in 1993 primarily due to the acquisitions discussed
above. The Company's operating income margin decreased from 16.8% in 1993 to
7.6% in 1994 primarily due to an increased proportion of net sales attributable
to its dairy business.

OTHER (INCOME) EXPENSE. Interest expense rose to $19.3 million in 1994 from
$7.7 million in 1993 primarily due to the additional indebtedness incurred to
finance the acquisitions discussed above. The Company also expensed $1.7 million
in nonrecurring costs in 1994 related to the Combination and to an uncompleted
initial public offering.

NET INCOME. Net income increased to $4.0 million in 1994 from $1.4 million
in 1993 primarily due to increased operating income from the dairy business.
Increased interest expense resulting from the acquisitions discussed above,
income taxes and an extraordinary loss on the early retirement of refinanced
debt partially offset this increased operating income.

SEASONALITY

The Company's ice business is seasonal with peak demand for its products
occurring during the second and third calendar quarters. In 1994 and 1995, the
Company recorded an average of approximately 69% of its annual net sales of ice
during these two quarters. While this percentage for the second and third
quarters has remained relatively constant over recent years, the timing of the
hottest summer weather can impact the distribution of sales between these two
quarters. Because the Company's results of operations for its ice business
depend significantly on sales generated during its peak season, adverse weather
during this season (such as an unusually mild or rainy period) could have a
disproportionate impact on the Company's results of operations for the full
year. Management believes, however, that the geographic diversity of its ice
business helps mitigate the potential for a significant impact from such adverse
weather conditions.

The Company's dairy operations are not subject to large seasonal sales
fluctuations. The Company sells milk to schools, most of which are closed during
the summer months. Approximately 8% of the

26
<PAGE>
Company's dairy sales were made to schools during 1995. The Company experiences
a decrease in sales to schools during months when schools close for vacation. In
addition, the Company has traditionally experienced slight shortages in its milk
supply in Puerto Rico during the months of September and October each year.
Management estimates that these shortages reduce dairy sales by less than 2%
during these months.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1996, the Company had total stockholders' equity of
$89.5 million and total indebtedness of $216.0 million (including long-term debt
and the current portion of long-term debt). On a pro forma as adjusted basis,
after giving effect to the borrowing to fund the acquisition of Model Dairy and
the application of the net proceeds from the Offering as if each such
transaction had occurred on September 30, 1996, the Company would have had total
stockholders' equity and total indebtedness (including long-term debt and
current portion of long-term debt) of $129.9 million and $202.3 million,
respectively. The Company is currently in compliance with all covenants and
financial ratios contained in its debt agreements.

CASH FLOW. The working capital needs of the Company historically have been
met with cash flow from operations along with borrowings under revolving credit
facilities. Net cash provided by operating activities was $23.0 million for 1995
and $24.9 million for 1994. Investing activities in 1995 included $10.4 million
in capital expenditures, of which $6.7 million was spent on the Company's dairy
operations and $3.6 million was spent on its ice operations. Investing
activities also included four ice acquisitions completed during 1995 totaling
$2.4 million. Financing activities for 1995 included financing incurred to
effect the Combination on March 31, 1995. See "Certain Relationships and Related
Transactions--Historic Relationships and Related Transactions--The Combination".
Net cash provided by operating activities was $15.2 million for the first nine
months of 1996 as contrasted with net cash provided by operations of $17.0
million for the first nine months of 1995. Investing activities in the first
nine months of 1996 included $10.2 million in capital expenditures, of which
$7.9 million was spent on the Company's dairy manufacturing and distribution
facilities and $2.3 million was spent on the Company's ice facilities.

In April 1996, the Company completed the IPO, which provided net proceeds to
the Company of $48.6 million. Of this amount, $4.6 million was used to repay
amounts outstanding under the revolving credit portion of the Senior Credit
Facility, an aggregate of $26.5 million was used to repay current and long-term
maturities under the term portion of the Senior Credit Facility, $15.7 million
was used to repay the Company's 15% Subordinated Notes and $1.8 million was used
to pay prepayment penalties related to the early extinguishment of the 15%
Subordinated Notes.

In July 1996, the Company purchased the stock of Garrido, a Puerto Rico
processor and distributor of coffee and coffee-related products, for
approximately $35.0 million, plus future performance-based payments of up to an
additional $5.5 million. Funding for this purchase was provided through an
amendment to its existing Senior Credit Facility. In August 1996, the Company
completed the Private Placement of 625,000 shares of Common Stock for net
proceeds of $9.7 million. The net proceeds from this sale were used to retire
outstanding indebtedness under the revolving credit portion of the Senior Credit
Facility. In September 1996, the Company purchased the assets of Swiss Dairy, a
regional dairy based in Riverside, California, for approximately $54.0 million.
Funding for this purchase was provided primarily by a new $90.0 million
acquisition facility under the Senior Credit Facility. In December 1996, the
Company acquired the assets of Model Dairy based in Reno, Nevada, for
approximately $26.0 million. The purchase price for this acquisition was funded
through additional borrowing under the acquisition facility of the Senior Credit
Facility.

In September 1996, the Company sold certain tax credits generated pursuant
to provisions of the Puerto Rico Agricultural Tax Incentives Act of 1995 for net
proceeds of $3.4 million, before provision for

27
<PAGE>
income taxes. See "--Tax Benefits." Management used the net proceeds from this
sale to repay amounts outstanding under the acquisition facility of the Senior
Credit Facility.

In September 1996, Hurricane Hortense struck Puerto Rico and caused a power
outage that affected a portion of the island. As a result of the power outage,
the Company's San Juan dairy manufacturing facility was shut down for
approximately one week, resulting in the spoilage of inventory and a loss of
sales that affected the Company's results of operations for the third quarter of
1996. The Company is pursuing a claim under its business interruption insurance
policy.

FUTURE CAPITAL REQUIREMENTS. The Company intends to invest approximately
$14.9 million in its manufacturing facilities and distribution capabilities
during 1996, of which $10.2 million was spent during the first nine months of
1996. Of this amount, the Company intends to spend approximately $11.2 million
to expand and maintain its dairy manufacturing and distribution facilities and
for fleet replacement and approximately $3.7 million to maintain and increase
the production capacity of its ice facilities.

Management expects that cash flow from operations along with additional
borrowings under existing and future credit facilities will be sufficient to
meet the Company's requirements for the remainder of 1996 and for the
foreseeable future. In the future, the Company intends to pursue additional
acquisitions in its existing regional markets and to seek acquisition
opportunities that are compatible with its core businesses. Management believes
that upon completion of the Offering and the application of the net proceeds
therefrom, the Company will have the ability to secure additional financing to
pursue its acquisition and consolidation strategy. There can be no assurance,
however, that the Company will have sufficient available capital resources to
realize its acquisition and consolidation strategy.

CURRENT DEBT OBLIGATIONS. In September 1996, the Company amended its
existing credit facility and entered into a supplemental credit facility with a
group of lenders, including First Union National Bank of North Carolina, as
agent, and The First National Bank of Chicago, as syndication agent, which
provide for an aggregate senior credit facility (the "Senior Credit Facility")
of $250.0 million comprised of: (i) a $130.0 million term loan; (ii) a $30.0
million revolving credit facility; and (iii) a $90.0 million acquisition
facility. Under the terms of the Senior Credit Facility, the term loan is
amortized over five and one-half years and the revolving credit facility expires
on March 31, 2000. Any amounts drawn under the acquisition facility that are
outstanding on September 30, 1998 will be amortized in fifteen quarterly
installments. Amounts outstanding under the Senior Credit Facility bear interest
at a rate per annum equal to one of the following rates, at the Company's
option: (i) the sum of a base rate equal to the higher of the Federal Funds rate
plus 50 basis points or First Union National Bank of North Carolina's prime
commercial lending rate, plus a margin that varies from 0 to 75 basis points
depending on the Company's ratio of defined indebtedness to EBITDA (as defined
in the Senior Credit Facility); or (ii) The London Interbank Offering Rate
("LIBOR") plus a margin that varies from 75 to 200 basis points depending on the
Company's ratio of defined indebtedness to EBITDA. The Company pays a commitment
fee on unused amounts of the revolving facility and the acquisition facility
that ranges from 20 basis points to 37.5 basis points, based on the Company's
ratio of defined indebtedness to EBITDA.

As of September 30, 1996, the Company had approximately $179.0 million of
indebtedness outstanding under the Senior Credit Facility at a blended interest
rate of 6.9% and approximately $67.0 million in unused borrowing capacity. The
Company may prepay loans outstanding under the Senior Credit Facility at any
time in increments of $100,000 or, in the case of a LIBOR loan, $1.0 million
(subject to a $500,000 minimum or, in the case of a LIBOR loan, a $2.0 million
minimum), in whole or in part, without penalty. In addition, the Senior Credit
Facility requires mandatory prepayments, subject to certain limitations, from
the defined net proceeds of certain casualty events, certain sales of assets,
equity issuances and from excess cash flow.

The Company's Senior Credit Facility requires the Company to comply with the
following financial covenants at all times: (i) the leverage ratio (defined as
the ratio of aggregate debt to EBITDA) will not exceed 4.25 to 1 through June
29, 1997, declining thereafter to 2.75 to 1 by June 30, 1999; (ii) the leverage

28
<PAGE>
ratio for senior debt will not exceed 3.75 to 1 through June 29, 1997, declining
thereafter to 2.25 to 1 by June 30, 1999; (iii) net worth will not be less than
$63.0 million after September 10, 1996, plus 50% of net income for each quarter
commencing on or after January 1, 1997, plus certain additional amounts as a
result of public or private offerings of Common Stock by the Company; (iv) the
fixed charges ratio will not be less than 1.05 to 1; (v) the interest coverage
ratio will not be less than 2.20 to 1 through June 29, 1997, increasing
thereafter to 3.75 to 1 by June 30, 2000; and (vi) the interest coverage ratio
for senior debt will not be less than 3.50 to 1 through June 29, 1997,
increasing thereafter to 5.00 to 1 by June 30, 2000.

Without lender consent, the Senior Credit Facility also: (i) prohibits the
payment of cash dividends; (ii) prohibits capital expenditures in excess of
specified amounts; (iii) prohibits acquisitions exceeding $30.0 million in a
single transaction and limits the use of the revolving credit facility to fund
acquisitions not exceeding $1.0 million in a single transaction or $5.0 million
in the aggregate for any year; (iv) limits the incurrence of additional debt;
and (v) limits transactions with affiliates.

The Company has pledged all the capital stock of its subsidiaries (except
for 35% of the capital stock of Garrido) to secure the Senior Credit Facility.
Each of the Company's subsidiaries (other than Garrido) has guaranteed, and
pledged substantially all its assets and the proceeds therefrom, to secure the
indebtedness under the term loans, revolving facility and/or the acquisition
facility of the Senior Credit Facility. A default with respect to any loan under
the Senior Credit Facility is a default with respect to all other loans under
the Senior Credit Facility. The Senior Credit Facility includes various events
of default customary for similar senior credit facilities, including defaults
resulting from nonpayment of principal when due, nonpayment of interest and
fees, material misrepresentations, default in the performance of any covenant
and the expiration of any applicable grace period, bankruptcy or insolvency,
certain judgments and a change in control of the Company (including certain
changes in the board of directors, certain acquisitions of Common Stock by third
parties or any reduction in Mr. Engles' beneficial ownership of Common Stock
below 75% of the Common Stock he owned on June 1, 1996).

The Company has four interest rate derivative agreements currently in place,
which have been designated as hedges against the Company's variable interest
rate exposure on its loans under the Senior Credit Facility. The first
agreement, which has a notional amount of $14.0 million, matures in May 1997 and
caps interest on LIBOR loans at 7.5%, plus the applicable LIBOR margin. The
second and third agreements, each of which has a notional amount of $27.5
million and matures in June 1998, fixes the interest rate on LIBOR loans at
6.0%, plus the applicable LIBOR margin. The fourth agreement, which has a
notional amount of $50.0 million and matures in December 1997, fixes the
interest rate on LIBOR loans at 6.01%, plus the applicable LIBOR margin. These
derivative agreements provide hedges for the term loans and the acquisition
facility under the Senior Credit Facility by limiting or fixing the LIBOR loan
rates on the amounts stated in the agreements until the indicated expiration
dates. The original costs and premiums of these derivative agreements are being
amortized on a straight-line basis as a component of interest expense. There was
no material income or expense attributable to the amortization or periodic
settlements of the derivative agreements in 1995 or 1996.

On March 31, 1995, the Company issued certain subordinated notes
(collectively, the "Subordinated Notes") to replace certain of the existing
subordinated notes of each of Suiza-Puerto Rico, Velda Farms and Reddy Ice. The
Subordinated Notes that remain outstanding bear interest at rates of 12% and
13.5% (12.5% on a weighted average basis), payable semiannually in March and
September of each year. The Subordinated Notes require semiannual principal
payments in varying amounts commencing in 2001, with the remaining unpaid
principal balances due at maturity on March 31, 2004. The Subordinated Notes are
junior in right of payment to the loans under the Senior Credit Facility. The
Subordinated Notes place restrictions on the Company similar to, but generally
less stringent than, those imposed under the Senior Credit Facility. The Company
used $15.7 million of the net proceeds from the IPO to repay the Company's 15%
Subordinated Notes and $1.8 million to pay prepayment penalties related to the
early extinguishment of the 15% Subordinated Notes.

29
<PAGE>
Concurrently with the consummation of the IPO and the application of the net
proceeds therefrom, the Company expensed approximately $1.3 million to write off
previously incurred deferred financing costs related to the indebtedness repaid
with the proceeds from the IPO. This expense combined with the $1.8 million in
prepayment penalties related to the 15% Subordinated Notes have been accounted
for as an extraordinary loss on the early extinguishment of debt, which, net of
income tax benefit, is approximately $2.2 million. In September 1996, the
Company expensed approximately $571,000 for amendment fees in connection with
the amendment of the Senior Credit Facility.

TAX BENEFITS

Management believes that the Company's effective tax rate will range from
25% to 35% for the next several years. The Company's effective tax rate is
significantly affected by various tax advantages applicable to the Company's
Puerto Rico based operations. Any additional acquisitions could affect this
effective tax rate.

The Company's Puerto Rico fruit drink and plastic bottle operations are 90%
exempt from Puerto Rico income and property taxes. These operations are also 60%
exempt from Puerto Rico municipal taxes. These exemptions were granted through
ten-year exemption decrees issued pursuant to the Puerto Rico Tax Incentives
Act. The decrees have eight and six years remaining for the fruit drink and
plastic bottle entities, respectively. These types of grants are typically
renewable beyond their initial ten-year terms at reduced rates of exemption. The
Company's Puerto Rico dairy and coffee processing, sales and distribution
operations are 90% exempt from Puerto Rico income taxes and 100% exempt from
property, municipal, certain excise and other taxes and fees pursuant to the
Puerto Rico Agricultural Tax Incentives Act of 1995. Dividends to the Company
from Suiza-Puerto Rico will generally be subject to a ten percent "tollgate" tax
in Puerto Rico.

The Company currently is able to maintain the tax benefits from its dairy,
fruit drink and plastic bottle operations described above through U.S. tax
credits specified under Section 936 of the U.S. Internal Revenue Code of 1986,
as amended. The Section 936 credit eliminates or reduces United States income
taxes for U.S. corporations on certain income derived from Puerto Rico and is
available to certain domestic corporations that earn 80% or more of their gross
income from sources within Puerto Rico and earn 75% or more of their gross
income from the active conduct of a trade or business in Puerto Rico over a
three-year period (or such shorter period as may be applicable). Management
believes that each of the operating subsidiaries based in Puerto Rico (except
Garrido) satisfy these conditions. In the Revenue Reconciliation Act of 1993,
Congress imposed certain limitations on the availability of the Section 936
credit. Pursuant to these limitations, the Section 936 credit for each eligible
corporation generally cannot exceed the sum of 60% of certain wage and fringe
benefit expenses and a portion of depreciation allowances for a taxable year or,
if elected, a reduced credit computed without regard to these economic activity
limitations.

The Puerto Rico Agricultural Tax Incentives Act of 1995 provides a 50% tax
credit for certain "eligible investments" in qualified agricultural businesses
in Puerto Rico. These credits may be transferred to other taxpaying entities.
During 1996, the Company made investments in its Puerto Rico dairy, fruit,
plastics and coffee operations, all of which have been certified as qualified
agricultural businesses in Puerto Rico. The Company believes that it has met the
eligible investment criteria of this act related to its investment in its Puerto
Rico dairy operations. During the quarter ended September 30, 1996, the Company
recognized $15.75 million in tax credits related to this qualifying investment.
In September 1996, the Company sold $4.0 million of these tax credits to third
parties, resulting in net proceeds of $3.4 million before provision for income
taxes, and recognized a deferred tax asset for the remainder of the tax credit
in the amount of $11.75 million. The Company is currently investigating whether
its investment in its Puerto Rico fruit, plastics and coffee operations will
qualify for additional credits. If the Company qualifies for such credits, there
can be no assurances as to the amounts or timing of any benefits that the
Company may realize or whether there will be opportunities for further sales of
these credits to third parties.

30
<PAGE>
The Small Business Job Protection Act of 1996 (the "Job Protection Act")
eliminated the Section 936 credit for corporations other than "existing credit
claimants". As an existing credit claimant, the Company's Puerto Rico based
dairy, fruit drink and plastic bottle operations will continue to realize the
benefits of Section 936 through December 31, 2005, the year in which Section 936
will be eliminated. However, for tax years beginning after December 31, 2001 and
before January 1, 2006, the total amount of the Company's Puerto Rico income
that is eligible to be offset by the 936 credit cannot exceed the "base period
income" of the Company as determined under the Job Protection Act. This
limitation may reduce the amount of credits otherwise available to the Company.

ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 14, "Financial Reporting for
Segments of a Business Enterprise" requires disclosure related to an entity's
operations in different industries, its foreign operations and export sales and
its major customers. See Note 19 of Notes to Consolidated Financial Statements
for information about the Company's operations in the dairy and ice businesses
and in different geographic areas.

During 1996, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for Long-Lived Assets and for Long-Lived Assets to be
Disposed of", which requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Impairment is evaluated by comparing future cash flows
(undiscounted and without interest charges) expected to result from use of the
asset and its eventual disposition to the carrying amount of the asset. The
adoption of this pronouncement had no material impact on the Company's results
of operations or financial condition.

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees based on new fair value accounting rules.
Although expense recognition for employee stock based compensation is not
mandatory, SFAS 123 requires companies that choose not to adopt the new fair
value accounting to disclose pro forma net income and earnings per share under
the new method. During 1996, the Company implemented the disclosure requirements
of this pronouncement. See Note 13 of Notes to Consolidated Financial Statements
for disclosures required by SFAS 123.

31
<PAGE>
BUSINESS

GENERAL

Suiza Foods is a leading manufacturer and distributor of fresh milk
products, refrigerated ready-to-serve fruit drinks and coffee in Puerto Rico,
fresh milk and related dairy products in Florida, California and Nevada, and
packaged ice in Florida and the southwestern United States. The Company conducts
its dairy operations primarily through Suiza-Puerto Rico, Velda Farms, Swiss
Dairy and Model Dairy and its ice operations through Reddy Ice. Each of these
operating subsidiaries is a strong regional competitor with an established
reputation for customer service and product quality. These subsidiaries market
their products through extensive distribution networks to a diverse group of
customers, including convenience stores, grocery stores, schools and
institutional food service customers.

The Company has grown primarily through acquisitions, having consummated 37
acquisitions since it was formed in 1988. Through these acquisitions, the
Company has realized economies of scale and operating efficiencies by
eliminating duplicative manufacturing, distribution, purchasing and
administrative operations.

BUSINESS STRATEGY

The Company's strategy is to continue to expand its dairy, ice and related
food businesses primarily through acquisitions of dairy, ice and related food
businesses in new markets and subsequent consolidating or add-on acquisitions in
its existing markets. After entering new markets through acquisitions of strong
regional operators, the Company will pursue consolidating or add-on acquisitions
where such opportunities exist. In addition, the Company will seek to expand its
existing operations by adding new customers, extending its product lines and
securing distribution rights for additional branded product lines.

The Company's acquisition strategy has historically focused on established
regional dairy and ice operations that have significant market share and
long-standing customer relationships. Suiza-Puerto Rico, which was founded in
1939, has served the Puerto Rico market for over 50 years, and Velda Farms has
served the Florida dairy market for over 40 years. Reddy Ice entered the retail
ice business in the 1920s. Garrido and Swiss Dairy, which were acquired in July
1996 and September 1996, respectively, have each served their respective markets
for over 50 years. The predecessor of Model Dairy was founded in 1906.

The Company has recently implemented its consolidation strategy by acquiring
and integrating dairy operations into Suiza-Puerto Rico and Velda Farms, and a
number of ice companies into Reddy Ice. Management has enhanced the
profitability of the acquired operations through enhanced purchasing power and
by consolidating delivery routes, production, acquired brand names and human
resources into the Company's larger scale operations. In June 1994, the Company
acquired Mayaguez Dairy, Inc. ("Mayaguez Dairy"), formerly the third largest
dairy manufacturer and distributor in Puerto Rico. Since the acquisition, the
Company has consolidated Mayaguez Dairy's production into its existing Puerto
Rico facilities and has eliminated the fixed costs of Mayaguez Dairy's former
manufacturing facility and duplicative administrative expenses. In November
1994, the Company acquired the Florida Division of Flav-O-Rich, Inc., a
subsidiary of Mid-America Dairymen, Inc. ("Flav-O-Rich"). Located in St.
Petersburg, Florida, Flav-O-Rich manufactured and distributed fresh dairy
products in peninsular Florida. Since the acquisition, the Company has
re-allocated production among its Florida facilities, consolidated Flav-O-Rich's
distribution operations with its own and reduced Flav-O-Rich's personnel
expenses. In January 1996, the Company acquired Skinners' Dairy, Inc.
("Skinners") in Jacksonville, Florida. Skinners' manufactured and distributed
fresh dairy products in peninsular Florida, primarily in the Jacksonville area.
Since the acquisition, the Company has closed the Skinners' manufacturing plant,
transferred Skinners' volume to the Company's Winter Haven facility,
consolidated Skinners' distribution with its own and reduced Skinners' personnel
expenses. In most cases, the Company has closed the manufacturing facilities of
acquired ice businesses and tranfers the acquired business's volume to one of
the Company's existing ice manufacturing facilities.

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<PAGE>
INDUSTRY OVERVIEW

DAIRY

According to published industry statistics, approximately $22.8 billion of
fresh milk products were sold in 1995 at the wholesale level in the United
States compared to $21.5 billion sold in 1988. Management believes that the
dairy industry is mature in both the mainland United States and Puerto Rico.

The dairy industry has excess capacity and has been in the process of
consolidation for many years. Excess capacity has resulted from the development
of more efficient manufacturing techniques, the establishment of captive dairy
manufacturing operations by large grocery retailers and relatively little growth
in the demand for fresh milk products. As the industry has consolidated, many
smaller dairy processors have been eliminated and several large regional dairy
processors have emerged. According to published industry statistics, in 1995
there were approximately 651 fresh milk processing plants in the United States,
a decline of 540 from the 1,191 plants operating in 1982. The number of plants
with 20 or more manufacturing employees declined from 792 to 447 over the same
period. As a result of this consolidation trend, which management believes will
continue, the Company has had favorable opportunities to pursue its business
strategy.

ICE

The ice industry is highly fragmented and is regional because of the
relatively high cost of transporting ice. Demand for ice is seasonal, with peak
demand occurring in the second and third calendar quarters. The availability of
ice during periods of high demand is important to grocery retailers and
convenience stores. The ice industry has therefore emerged as a service oriented
business requiring efficient manufacturing facilities and distribution systems
capable of accommodating peak demand levels. Management believes that the
Company is one of the largest manufacturers and distributors of ice in the
United States and that it has significant market share in each of the markets in
which it operates.

PRODUCTS AND SERVICES

The following table sets forth the total net sales of the Company's largest
product lines, fresh milk products and ice, in dollars and as a percentage of
consolidated total net sales in 1993, 1994 and 1995 (dollars in millions):

<TABLE>
<CAPTION>
1993 1994 1995
------------------------ ---------------------- ----------------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
----------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fresh milk products................. $ 5.3 10.3% $ 227.9 66.8% $ 291.8 67.8%
Ice................................. 45.1 87.3 47.7 14.0 50.5 11.7
</TABLE>

The change in the percentage of consolidated total net sales represented by
sales of fresh milk and by sales of ice from 1993 to 1995 is primarily the
result of the significant dairy acquisitions in December 1993 and in April 1994.
Management anticipates that ice will constitute less than 10% of consolidated
total net sales on a pro forma basis for the year ended December 31, 1996.

DAIRY

The Company's regional dairy operations manufacture and distribute fluid
milk, fruit drinks, coffee, juices, water and related products under proprietary
brand names and on a private-label basis for large customers. The Company also
purchases and distributes certain other products such as yogurt, packaged ice
cream and ice cream novelties.

33
<PAGE>
ICE

The Company manufactures and distributes ice products for retail, commercial
and institutional markets. The Company's primary product is cocktail ice in
eight pound bags, which it sells principally to convenience and grocery stores.
The Company also sells cocktail ice in various bag sizes ranging from three
pounds to 40 pounds to restaurants, bars, stadiums, vendors and caterers. In
addition, the Company sells block ice in ten and 300 pound sizes to commercial
and industrial customers.

SALES AND DISTRIBUTION

DAIRY

The Company markets and sells its dairy product line to a variety of retail
and food service outlets including grocery stores, club stores, convenience
stores, gas stores, schools, restaurants, hotels and cruise ships. The Company's
regional dairy operations serve over 19,000 customers in its markets utilizing a
fleet of approximately 1,000 delivery vehicles. Suiza-Puerto Rico is the larger
of two fresh milk processors in Puerto Rico and distributes its products to
approximately 8,800 grocery stores, retail outlets and schools, and also
distributes third party brand name ice cream and other refrigerated and frozen
foods principally to medium-sized and large grocery stores. Velda Farms serves
approximately 9,500 customers throughout peninsular Florida and focuses its
distribution efforts on food service accounts, convenience stores, club stores
and schools. Swiss Dairy distributes fresh milk and a limited number of other
products to high volume retailers in Southern California and Nevada, including
grocery and club stores. Approximately 85% of Swiss Dairy's net sales during the
first nine months of 1996 were made to three large retailers. Model Dairy
distributes fresh milk, ice cream and related products to grocery stores, retail
outlets, schools and food service accounts in northern Nevada and in certain
adjoining areas of northern California.

ICE

The Company markets its ice products to convenience and grocery stores for
retail sales and, to a lesser extent, to business and institutional customers
that utilize the Company's products in their operations. The Company serves
approximately 21,000 sites from 21 ice manufacturing facilities and 5
distribution centers. The Company provides ice merchandisers to a substantial
majority of these sites. During 1995, the Company's largest two ice customers
accounted for approximately 23% of net ice sales (2.7% of total net sales).

The Company's ice distribution fleet consists of approximately 120 delivery
vehicles, the majority of which are owned. In order to meet peak demand, the
Company expands its fleet during the summer season with short-term leased
vehicles.

RAW MATERIALS AND SUPPLY

DAIRY

The Company purchases milk, its primary raw material, from farmers and farm
co-operatives under contractual arrangements. Certain aspects of the Company's
milk supply arrangements are regulated by governmental authorities. See
"--Government Regulation--Milk". Fluid milk is generally readily available. The
Company has traditionally experienced slight shortages in its milk supply in
Puerto Rico during the months of September and October each year. Management
estimates that these shortages, when they occur, reduce its Puerto Rico dairy
sales by less than 2% during these months. Other raw materials, such as coffee,
juice concentrates, sweeteners, and packaging supplies are generally available
from numerous suppliers and the Company is not dependent on any single supplier
for these materials. Certain of these raw materials are purchased under long
term contracts in order to obtain lower costs.

34
<PAGE>
ICE

Except with respect to its water supply and electricity, the Company is not
dependent upon any single supplier for materials used in the manufacturing and
packaging of its ice products. The Company has not experienced any material
supply problems in the past with respect to its ice business.

COMPETITION

The Company's businesses are highly competitive. The Company has a number of
competitors in each of its major product, service and geographic markets, and
many of these competitors are larger, more established and better capitalized
than the Company.

DAIRY

PUERTO RICO

The Company owns and operates two of the three fresh milk manufacturing
facilities in Puerto Rico. The Company's competitor, Vaqueria Tres Monjitas
("Tres Monjitas"), operates a single manufacturing plant. The Company
manufactures and distributes approximately 66% of the fresh milk sold in Puerto
Rico while Tres Monjitas, which is well capitalized and operates an efficient
manufacturing plant, manufactures and distributes approximately 34%. The Company
competes primarily on the basis of service, price, brand name recognition and
quality. Because of the Company's size, the quality of its manufacturing
facilities, the efficiency of its largely non-union work force, the strength of
its distribution network and the strength of its brand name, management believes
the Company can continue to compete effectively in the Puerto Rico dairy
business.

The Company does not presently face competition in the Puerto Rico fresh
dairy business from outside Puerto Rico, nor does it expect to in the
foreseeable future. The Company's fresh dairy business does, however, compete
with shelf stable milk products, which are manufactured by one manufacturer in
Puerto Rico and also imported from the mainland United States and Canada.
Management believes that shelf stable milk competes with fresh milk primarily
where the consumer lacks adequate refrigeration or in small quantity uses, such
as coffee creamers. Management further believes that sales of shelf stable milk
are approximately one-tenth as large as sales of fresh milk and that sales of
shelf stable products have shown moderate volume increases in recent years.

In the refrigerated ready-to-serve fruit drink segment, Tres Monjitas is the
Company's largest direct competitor located in Puerto Rico. In addition to
competition from other local manufacturers and distributors of refrigerated
ready-to-serve fruit drinks, the Company competes against numerous other
beverage companies, including large United States-based manufacturers and
marketers of carbonated and non-carbonated beverages. These competitors are
generally larger and better capitalized than the Company. Although management
believes that competition will continue to grow from fruit drink and other
beverage companies, management anticipates that the Company will be able to
continue to compete effectively in the fruit drink segment because of the
strength and efficiency of its distribution network, its recognizable brands and
the established presence of its products in the dairy case.

UNITED STATES

The Company's competitors in its U.S. dairy processing and distribution
business include other large, independent dairy processing companies and dairy
processors owned by grocery chains, many of which are larger and better
capitalized than the Company. Due to the cost of transporting fresh milk,
competition in the fluid dairy business tends to be regional rather than
national, with flexibility of service, price, breadth of product line and
quality as the primary competitive factors.

In addition to competition from other dairy manufacturers, the Company's
Florida and Nevada dairy operations compete with food service companies and
other distributors of dairy products, many of which

35
<PAGE>
are large, well-capitalized, national companies. Although competition in the
dairy and food distribution business is intense, management believes that the
Company's focus on customer service and tailored product lines and the strength
and efficiency of its distribution system allow it to compete effectively. In
its Florida and Nevada ice cream distribution businesses, the Company competes
with large integrated dairy and ice cream manufacturing companies and
independent distributors of national ice cream brands. Because the Company
offers brands manufactured by third parties as well as its own brand of ice
cream products, the Company competes effectively in these markets by offering
convenience stores and other small retailers a broad line of ice cream products
and frozen novelties. By carrying a broad line of popular national and other
brands, the Company generates profitable sales volumes from retail sites that
single line or other more limited distributors may find uneconomical to service.

ICE

The Company competes primarily with smaller independent regional ice
manufacturers and machines that manufacture and package ice at store locations.
In addition to this direct competition, certain convenience and grocery
retailers operate commercial ice plants for internal use. During peak season,
however, the Company frequently services retailers that manufacture their own
ice. To further compete in this segment, the Company also offers ice machines
that manufacture and package ice at customer locations.

Competition in the ice business is based primarily on service, price and
quality. In order to successfully compete, an ice manufacturer must be able to
substantially increase production and distribution on a seasonal basis while
maintaining cost efficiency. Management believes that the size and quality of
the Company's ice facilities, its high regional market share and its route
density allow it to compete effectively. Because only one ice manufacturer
typically serves an individual retail site, the Company's ice products generally
do not face competition at the retail level.

Several major grocery chains within the Company's ice markets manufacture
ice at their own ice plants. While the Company does not supply these and other
vertically integrated grocery retailers/ manufacturers, such companies generally
manufacture ice products for internal use only and do not compete for third
party accounts. However, a significant increase in the utilization of captive
commercial ice plants or on-site manufacturing by retailers currently serviced
by the Company could have an adverse effect on the Company's operations.

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<PAGE>
FACILITIES

The Company conducts its manufacturing and distribution operations from the
following facilities:

<TABLE>
<CAPTION>
MANUFACTURING &
REGION DISTRIBUTION DISTRIBUTION ONLY
-------------- ---------------------- --------------------
<S> <C> <C> <C>
DAIRY: California Riverside
Florida Miami Daytona Beach
St. Petersburg Fort Myers
Winterhaven Jacksonville
Naples
Orlando
Ocala
Riviera Beach
Sarasota
Tampa
Vero Beach
Nevada Reno
Puerto Rico Aguadilla Adjuntas (coffee)
Caguas (coffee) Arecibo
Lares (coffee) Ponce (2)
San Juan San Juan (coffee)

ICE: Arizona Phoenix
Tucson
Yuma
Florida Auburndale Crescent St. Petersburg
City
Davie
New Smyrna Beach
Opa Locka
Tampa
Nevada Las Vegas
New Mexico Albuquerque
Oklahoma Ardmore
Texas Austin Bryan
Dallas Port Neches
Fort Worth
Houston (2)
Killeen
Pilot Point
Rockwall
Splendora
Waco
Utah Salt Lake City
</TABLE>

The Company maintains two administrative offices located in leased premises
in Dallas, including its executive offices located at 3811 Turtle Creek
Boulevard, Suite 1300, Dallas, Texas 75219.

TRADEMARKS

The Company has developed or acquired a number of trademarks and brand
names, of which eight are registered, for use in its dairy and ice businesses,
and holds licenses for the use of several additional registered trademarks from
third parties. Although the Company's use of its trademarks has created

37
<PAGE>
goodwill and results in product differentiation, management does not believe
that the loss of any of the Company's trademarks would have a material adverse
effect on its operations. The Company also holds a patent on an ice machine that
manufactures and packages ice at store locations.

GOVERNMENT REGULATION

PUBLIC HEALTH

As a manufacturer and distributor of food products, the Company is subject
to the Federal Food, Drug and Cosmetic Act and regulations promulgated
thereunder by the Food and Drug Administration ("FDA"). This comprehensive
regulatory scheme governs the manufacture (including composition and
ingredients), labeling, packaging and safety of food. The FDA regulates
manufacturing practices for foods through its current good manufacturing
practices regulations, specifies the standards of identity for certain foods,
including many of the products sold by the Company, and prescribes the format
and content of certain information required to appear on food product labels.

In addition, the FDA enforces the Public Health Service Act and regulations
issued thereunder, which authorize regulatory activity necessary to prevent the
introduction, transmission or spread of communicable diseases. These regulations
require, for example, pasteurization of milk and milk products. The Company and
its products are also subject to state and local regulation through such
measures as the licensing of dairy manufacturing facilities, enforcement by
state and local health agencies of state standards for the Company's products,
inspection of the Company's facilities and regulation of the Company's trade
practices in connection with the sale of dairy products.

The Company utilizes quality control laboratories to test milk and other
ingredients and finished products. Product quality and freshness are essential
to the successful retail distribution of dairy and refrigerated ready-to-serve
fruit drinks. To monitor product quality at its facilities, the Company
maintains quality control programs to test products during various processing
stages. Management believes that the Company's dairy and ice facilities and
manufacturing practices comply with applicable government regulations.

EMPLOYEE SAFETY REGULATIONS

The Company is subject to certain health and safety regulations including
regulations issued pursuant to the Occupational Safety and Health Act. These
regulations require the Company to comply with certain manufacturing, health and
safety standards to protect its employees from accidents.

ENVIRONMENTAL REGULATIONS

The Company is subject to certain federal, state and local environmental
regulations. Certain of the Company's dairy facilities discharge biodegradable
wastewater into municipal waste treatment facilities in excess of levels
permitted under local regulations. Because of this, Velda Farms pays wastewater
surcharges of approximately $150,000 annually to municipal water treatment
authorities. These authorities may, however, require Velda Farms to comply with
such regulations and construct pre-treatment facilities or take other action to
reduce effluent discharge in the future.

The Company maintains above-ground or underground petroleum storage tanks at
many of its facilities. These tanks are periodically inspected to determine
compliance with applicable regulations. The Company may be required to make
expenditures from time to time in order to maintain compliance of these tanks.

The federal government has banned the production of a refrigerant used by
the Company in its ice merchandisers. The continued use of this refrigerant,
however, is permitted and there are sufficient quantities of the refrigerant
available to meet the Company's needs for the next several years. The

38
<PAGE>
Company is taking steps to facilitate its conversion to new, reformulated
refrigerants. Management does not anticipate that conversion costs will be
material.

Management does not expect environmental compliance to have a material
impact on the Company's capital expenditures, earnings or competitive position
in the foreseeable future.

U.S. MILK INDUSTRY REGULATION

The average price paid to producers for Grade A milk in most of the mainland
United States is monitored by Federal Milk Marketing Orders. In California and
Nevada, milk prices are monitored by state agencies. In the federal milk markets
and the California and Nevada milk markets, raw milk prices are currently
supported by the federal government through standing offers to buy storable
forms of dairy products such as cheese, nonfat dry milk powder and butter.
Congress has recently passed legislation to phase out federal support prices by
December 31, 1999.

PUERTO RICO MILK INDUSTRY REGULATION

The milk industry in Puerto Rico is regulated under Puerto Rico law Number
34 of June 11, 1957. This statute establishes a production ceiling for milk
production by dairy farmers in order to manage the supply and demand of milk
products and to stabilize prices. In addition, the Puerto Rico statute provides
that the government will establish maximum prices for the dairy farm, processor
and retail levels and that such prices be reviewed at least once a year.

The Office for the Regulation of the Milk Industry, an agency of the Puerto
Rico Department of Agriculture, is charged with: (i) ensuring the quality of
milk products; (ii) setting the price of milk at the dairy farm level and
maximum prices at the processor and retail levels; and (iii) administering and
managing licenses and other matters within the industry. As part of its review
and price setting process, this agency examines the financial condition of each
of the participants in the industry as well as overall economic trends within
the industry. As a general rule, pricing at each of the industry levels reflects
an attempt to provide a fair return to processors and farmers and maintain
prices acceptable to consumers. The latest price increase for dairy
manufacturers in Puerto Rico was in 1994 and, prior to that, in 1990.

EMPLOYEES

As of November 30, 1996, the Company (including Model Dairy) employed 2,474
employees in the following categories:

<TABLE>
<CAPTION>
NON-UNION UNION TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
Dairy
Puerto Rico.................................................... 958 69 1,027
Florida........................................................ 729 -- 729
California..................................................... 12 121 133
Nevada......................................................... 46 116 162
Ice.............................................................. 413 -- 413
Corporate........................................................ 10 -- 10
----- --- ---------
Total........................................................ 2,168 306 2,474
----- --- ---------
----- --- ---------
</TABLE>

The Puerto Rico union employees are subject to two collective bargaining
agreements that expire in July and October 1997. The California and Nevada union
employees are subject to collective bargaining agreements that expire in August
1999 and June 2000, respectively.

LEGAL PROCEEDINGS

The Company is from time to time a party to legal proceedings that arise in
the ordinary course of business. Management does not believe that the resolution
of any threatened or pending legal proceedings will have a material adverse
affect on the Company's operations.

39
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the names, ages and positions of the
executive officers and directors of the Company. Their respective backgrounds
are described following the table.

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------------------------
<S> <C> <C>
Gregg L. Engles (1).............. 39 Chairman of the Board and Chief Executive Officer

Cletes O. Beshears (1)(2)........ 70 President and Director

Hector M. Nevares (1)............ 46 Vice Chairman of the Board

William P. Brick................. 45 Executive Vice President and Chief Operating Officer

Gayle O. Beshears (2)............ 68 Executive Vice President and Director

Tracy L. Noll.................... 48 Vice President, Chief Financial Officer and Secretary

John W. Madden................... 31 Vice President

Robert Bartholomew (3)........... 50 Director

Stephen L. Green................. 45 Director

Robert L. Kaminski............... 46 Director

P. Eugene Pender (3)(4)(5)....... 65 Director

Robert Piccinini (3)(4)(5)....... 54 Director
</TABLE>

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

(1) Member of the Executive Committee of the Board of Directors.

(2) Cletes O. Beshears and Gayle O. Beshears are brothers.

(3) Member of the Audit Committee of the Board of Directors.

(4) Member of the Compensation Committee of the Board of Directors.

(5) Member of the Stock Option Committee of the Board of Directors.

GREGG L. ENGLES. Mr. Engles joined the Company in October 1994 as Chairman
of the Board and Chief Executive Officer. Mr. Engles has served as Chairman of
the Board and Chief Executive Officer of Reddy Ice since May 1988, Chairman of
the Board of Suiza-Puerto Rico since December 1993, and Chairman of the Board of
Velda Farms since April 1994. In addition, Mr. Engles has served as President of
Kaminski Engles Capital Corporation ("KECC") since May 1988 and as President of
Engles Management Corporation ("EMC") since February 1993. KECC and EMC are
investment banking and consulting firms. Mr. Engles was also President of Engles
Capital Corporation, an investment banking and consulting firm, from May 1989 to
October 1992. Mr. Engles is a director and member of the compensation committee
of Columbus Realty Trust, a public real estate investment trust.

CLETES O. BESHEARS. Mr. C.O. Beshears joined the Company in October 1994 as
director, President and Chief Operating Officer. Mr. C.O. Beshears served as
President and Chief Executive Officer of Velda Farms from April 1994 to April
1995. From March 1988 to April 1994, Mr. C.O. Beshears provided consulting
services to companies pursuing acquisitions of dairy companies. From 1980 to
1988, Mr. C.O. Beshears served as Vice President of The Southland Corporation
and Chief Operating Officer of its Dairy Group. From 1965 to 1980, Mr. C.O.
Beshears served as Division Manager of several of The Southland Corporation's
regional dairies, including Velda Farms. Mr. Beshears relinquished the title of
Chief Operating Officer in October 1996.

HECTOR M. NEVARES. Mr. Nevares joined the Company as a director in October
1994. Mr. Nevares served as President of Suiza-Puerto Rico from June 1983 until
September 1996, having served in additional executive capacities at Suiza-Puerto
Rico since June 1974. In September 1996, Mr. Nevares became Vice

40
<PAGE>
Chairman of the Board. Mr. Nevares is a director of First Federal Savings Bank,
a public company, in San Juan, Puerto Rico.

WILLIAM P. BRICK. Mr. Brick joined the Company in July 1996 as Executive
Vice President and became Chief Operating Officer of the Company in October
1996. Prior to joining the Company, Mr. Brick served as Vice President--Sales
and Marketing for the Metropoulos Management Group from February 1996 until June
1996. From August 1995 until January 1996, Mr. Brick served as Vice
President--Sales and Marketing for Ultra Products. From April 1995 until August
1995, Mr. Brick owned and operated a private golf course in Ontario, Canada. Mr.
Brick served in various marketing capacities, including Vice President of Sales,
for The Morningstar Group, Inc. from October 1991 until December 1994. From 1988
until August 1991, Mr. Brick served in various marketing capacities for Palm
Dairies Inc. in Calgary, Alberta.

GAYLE O. BESHEARS. Mr. G.O. Beshears joined the Company as a director in
October 1994. In September 1996, Mr. G.O. Beshears became an Executive Vice
President of the Company. Mr. G.O. Beshears served as President of Reddy Ice
from May 1988 until September 1996. From January 1985 to May 1988, Mr. G.O.
Beshears served as Division Manager of the Reddy Ice division of The Southland
Corporation. Prior to January 1985, Mr. G.O. Beshears served in a number of
capacities for The Southland Corporation's Dairy Group, including Division
Manager of Midwest Farms Dairy.

TRACY L. NOLL. Mr. Noll joined the Company in October 1994 as Vice
President, Chief Financial Officer and Secretary. Prior to joining the Company,
Mr. Noll served as Controller of Foxmeyer Corporation from June 1994 until
September 1994. From March 1988 until June 1994, Mr. Noll served as Vice
President and Chief Financial Officer of The Morningstar Group Inc., the parent
company of Velda Farms until its acquisition by the Company in April 1994.

JOHN W. MADDEN. Mr. Madden joined the Company in October 1994 as Vice
President and Treasurer. From November 1990 to October 1994, Mr. Madden was
employed by and associated during various periods with KECC, EMC and Engles
Capital Corporation. From July 1988 to July 1990, Mr. Madden was employed as an
analyst with Bankers Trust Company.

ROBERT BARTHOLOMEW. Mr. Bartholomew was elected to the Company's Board of
Directors in October 1994. Since June 1990, Mr. Bartholomew has been a principal
of Pacific Mezzanine Investors, L.P. ("PMI") and an officer of Pacific Mezzanine
Associates, Inc., the general partner of PMI and an indirect, wholly owned
subsidiary of Pacific Mutual Life Insurance Company, a principal stockholder of
the Company.

STEPHEN L. GREEN. Mr. Green was elected to the Company's Board of Directors
in October 1994. Mr. Green has served as a General Partner of Canaan Capital
Partners, L.P., the general partner of Canaan Capital Limited Partnership and
Canaan Capital Offshore Limited Partnership, C.V., principal stockholders of the
Company, since November 1991. From October 1985 until November 1991, Mr. Green
served as Managing Director of GE Capital Corporation's Corporate Finance Group.
Mr. Green is a director of Chartwell Re Corporation and CapMAC Holdings Inc.,
each of which is a public company.

ROBERT L. KAMINSKI. Mr. Kaminski was elected to the Company's Board of
Directors in November 1994. Mr. Kaminski has served as President of Robert
Kaminski Interests, Inc. since 1984 and has been a principal in KECC since 1988.
Robert Kaminski Interests, Inc. and KECC are both investment banking and
consulting firms.

P. EUGENE PENDER. Mr. Pender was elected to the Company's Board of
Directors in October 1994. Prior to his retirement in December 1987, Mr. Pender
served as Vice President and Controller of The Southland Corporation.
Thereafter, Mr. Pender served as a consultant to The Southland Corporation until
March 1991.

ROBERT PICCININI. Mr. Piccinini was elected to the Company's Board of
Directors in November 1995. Mr. Piccinini has served as Chairman of the Board
and Chief Executive Officer of Save Mart Supermarkets

41
<PAGE>
since 1985. Prior to 1985, Mr. Piccinini served in a number of capacities at
Save Mart, including President from 1981 to 1985 and Vice President from 1971 to
1981.

The Company's Certificate of Incorporation divides the Board of Directors
into three classes, with regular three-year staggered terms. C.O. Beshears,
Hector M. Nevares, and Robert Bartholomew will serve until the annual meeting of
stockholders in 1997, Gregg L. Engles, P. Eugene Pender and Robert Piccinini
will serve until the annual meeting of stockholders in 1998, and G.O. Beshears,
Robert L. Kaminski and Stephen Green will serve until the annual meeting of
stockholders in 1999.
Upon completion of the Combination, the Company entered into employment
agreements with Messrs. Engles and C.O. Beshears and agreed to nominate and
support their election as members of the Board of Directors during the term of
their employment with the Company. Additionally, the Company agreed to nominate
and support Mr. Engles' election as Chairman of the Board. The executive
officers of the Company are appointed by and serve at the discretion of the
Board of Directors.

DIRECTOR COMPENSATION

The Company pays its unaffiliated outside directors an annual fee of
$15,000, payable quarterly, plus a fee of $1,000 for each board meeting
attended. (As referred to herein, an unaffiliated outside director is a director
who is not an employee or officer of the Company or any of its subsidiaries, nor
a beneficial owner of 345,000 or more shares of Common Stock, nor an employee or
affiliate of a beneficial owner of 345,000 or more shares of Common Stock; the
Company's current unaffiliated outside directors are Messrs. Pender and
Piccinini). The Company also pays its unaffiliated outside directors $1,000
annually for serving on a board committee and an additional $2,000 annually for
chairing any such committee. The Company reimburses its directors for expenses
incurred in attending board and committee meetings.

Directors are eligible to receive stock options and restricted stock awards
pursuant to the Suiza Foods Corporation 1995 Stock Option and Restricted Stock
Plan (the "Option and Restricted Stock Plan"). On March 31, 1995, Mr. Pender
received nonqualified stock options to purchase 3,450 shares of Common Stock at
$10.51 per share, and on January 1, 1996 Mr. Piccinini received nonqualified
stock options to purchase 3,450 shares of Common Stock at $12.32 per share. The
Option and Restricted Stock Plan provides that each unaffiliated outside
director will automatically receive nonqualified stock options to purchase 3,450
shares of Common Stock on the date such person becomes a director of the Company
and on each June 30 thereafter that such person continues to serve as a
director. These options vest immediately and are exercisable at fair market
value on the date of grant, as determined by the Board of Directors. Directors
receive stock options and restricted stock awards as described in "--Executive
Compensation--Option and Restricted Stock Plan".

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Compensation decisions concerning the executive officers of the Company for
1995 were made by the Board of Directors. Messrs. Engles, C.O. Beshears and
Nevares participated in deliberations but abstained from voting with respect to
their own employment agreements. Pursuant to the Combination: (i) certain
directors and stockholders affiliated with certain directors received shares of
Common Stock or options to acquire Common Stock in amounts based on their
percentage ownership interest (or right to acquire such ownership interest) in
Suiza-Puerto Rico, Velda Farms and Reddy Ice; (ii) stockholders of the Company,
including certain directors, received certain registration rights with respect
to their shares of Common Stock; (iii) Messrs. Engles and C.O. Beshears received
Common Stock in exchange for certain profit interests granted as compensation
for services related to the acquisition of Suiza-Puerto Rico and Velda Farms;
(iv) Mr. Nevares was paid the redemption value of certain preferred stock of
Suiza-Puerto Rico; and (v) Mr. Kaminski entered into a new noncompetition and
consulting agreement with the Company and received a one-time fee in connection
with the termination of a preexisting consulting agreement. During the first
three months of 1995, Messrs. Engles and Kaminski were paid an aggregate of
$150,000 by the

42
<PAGE>
Company and EMC (an affiliate of Mr. Engles) was paid an aggregate of $87,500 by
the Company under management consulting agreements that were terminated at the
time of the Combination. In addition, at the time of the Combination, Reddy Ice
sold its minority equity interest in a plastic bag manufacturer to an entity
formed by the stockholders of Reddy Ice, including Messrs. Engles and Kaminski.
Pacific Mutual Life Insurance Company and an affiliate (which are affiliated
with one current director of the Company and with a director who served through
November 1995) held $5.0 million of the Company's Subordinated Notes at
September 30, 1996. For a more detailed description of each of these
transactions and relationships, see "Certain Relationships and Related
Transactions--Historic Relationships and Related Transactions". Velda Farms
purchases a portion of its requirements for frozen concentrated orange juice
from an entity in which Messrs. Engles, Kaminski and Madden collectively own a
minority limited partner interest. Purchases by Velda Farms from this supplier
totaled approximately $1.3 million in 1995. An affiliate of Robert Piccinini
purchases fresh milk from Model Dairy. In addition, Model Dairy purchases
certain supplies and products used in its business, primarily plastic bottles
and cottage cheese, from this entity. Sales of fresh milk by Model Dairy to this
entity, and purchases of supplies and products by Model Dairy from this entity
totaled $15.3 million and $1.3 million, respectively, for Model Dairy's 1995
fiscal year. For a more detailed description of these transactions and this
relationship, see "Certain Relationships and Related Transactions--Current
Relationships and Related Transactions".

43
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE
Prior to the completion of the Combination in March 1995, the executive
officers of the Company did not receive any compensation from the Company,
although certain of these officers received compensation from Suiza-Puerto Rico,
Velda Farms or Reddy Ice. Messrs. Engles, C.O. Beshears and Noll now receive
compensation from Suiza Management Corporation, a wholly owned subsidiary of the
Company, in accordance with their respective employment agreements. Mr. Nevares,
who was formerly the President of Suiza-Puerto Rico, receives compensation from
Suiza-Puerto Rico and Mr. G.O. Beshears, who was formerly the President of Reddy
Ice, receives compensation from Reddy Ice.

The following table sets forth the annual cash compensation paid or accrued
by the Company to its Chief Executive Officer and its other four most highly
compensated executive officers for the year ended December 31, 1995.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------- LONG-TERM
OTHER ANNUAL COMPENSATION ALL OTHER
COMPENSATION SHARES UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1) OPTIONS (#) ($)(2)
- ------------------------------ --------- ---------- ---------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gregg L. Engles (3)........... 1995 $ 299,467 $ 180,000 -- 138,000 --
Chairman of the Board and
Chief Executive Officer

Cletes O. Beshears............ 1995 291,509 175,300 -- 138,000 --
President

Hector M. Nevares............. 1995 280,000 92,400 -- 34,500 --
Vice Chairman of the Board

Gayle O. Beshears............. 1995 216,711 95,172 -- 34,500 $ 9,019
Executive Vice President

Tracy L. Noll................. 1995 160,000 43,200 -- 77,625 --
Vice President and Chief
Financial Officer
</TABLE>

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

(1) In each case, the aggregate value of perquisites and other personal benefits
does not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for the named executive officer.

(2) The amounts shown in the "All Other Compensation" column consist of
contributions by the Company to a 401(k) plan on behalf of the named
executive.
(3) Reflects only payments for the nine months following completion of the
Combination prior to which no compensation was paid by any of the Combined
Entities.

OPTION AND RESTRICTED STOCK PLAN

In March 1995, the Board of Directors of the Company adopted the Option and
Restricted Stock Plan, which provides for grants of incentive and nonqualified
stock options and awards of restricted stock to directors and key employees of
the Company and its subsidiaries. The Option and Restricted Stock Plan permits
grants and awards covering up to 1,069,500 shares of Common Stock, provided that
no more than 379,500 shares may be awarded as restricted stock. Any shares
subject to unexercised portions of stock options that terminate or subject to
restricted stock awards that fail to vest and are forfeited may be reissued
under new stock option grants or restricted stock awards. At November 30, 1996,
options to purchase an aggregate of 864,478 shares of Common Stock and 6,250
shares of restricted stock were

44
<PAGE>
outstanding under the Option and Restricted Stock Plan and an additional 196,772
shares were available for future grants. The Company also has options to
purchase an aggregate of 579,760 shares outstanding under the Exchange Stock
Option and Restricted Stock Plan (the "Exchange Plan"). See "Certain
Relationships and Related Transactions--Historic Relationships and Related
Transactions--The Combination--Stock Options".

The Option and Restricted Stock Plan is administered by a committee of
disinterested directors (the "Stock Option Committee"), which has the authority
to determine who will receive stock options or restricted stock, the number of
shares of Common Stock subject to such stock options or restricted stock awards,
and the terms of such stock options or restricted stock awards, including the
exercise price of the stock options and any vesting periods.

In accordance with the Option and Restricted Stock Plan, the exercise price
of stock options will not be less than the fair market value of the Common Stock
on the date of grant, as determined by the Stock Option Committee, and in the
case of an incentive stock option granted to an employee owning 10% of the
Common Stock of the Company on the date of grant, not less than 110% of the fair
market value. The Option and Restricted Stock Plan permits the exercise of stock
options by delivery of shares of Common Stock owned by the optionee in lieu of
or in addition to cash or by financing made available by the Company. The Option
and Restricted Stock Plan also permits the Stock Option Committee to grant stock
options with terms that provide for acceleration of vesting upon a change in
control.

During 1995, options to purchase an aggregate of 477,825 shares of Common
Stock at $10.51 per share were granted under the Option and Restricted Stock
Plan. The following table provides information regarding stock options granted
during 1995 to the executive officers of the Company named in the Summary
Compensation Table.

OPTION GRANTS DURING 1995

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR OPTION
SECURITIES GRANTED TO EXERCISE TERM (2)
UNDERLYING OPTIONS EMPLOYEES PRICE EXPIRATION ------------------------
NAME GRANTED (#)(1) DURING 1995 ($/SHARE) DATE 5% ($) 10% ($)
- ---------------------------------------- ------------------ ------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gregg L. Engles......................... 138,000 29.1% $ 10.51 3/31/2005 $ 911,897 $ 2,310,927
Cletes O. Beshears...................... 138,000 29.1 10.51 3/31/2005 911,897 2,310,927
Hector M. Nevares....................... 34,500 7.3 10.51 3/31/2005 227,974 577,732
Gayle O. Beshears....................... 34,500 7.3 10.51 3/31/2005 227,974 577,732
Tracy L. Noll........................... 77,625 16.4 10.51 3/31/2005 512,942 1,299,896
</TABLE>

- ------------------------
(1) Excludes options granted in the Combination pursuant to the Exchange Plan in
exchange for the cancellation of options granted in prior years by the
Combined Entities. See "Certain Relationships and Related
Transactions--Historical Relationships and Related Transactions--The
Combination-- Stock Options".

(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission. The
actual value, if any, an executive officer may realize will depend on the
excess of the stock price over the exercise price on the date the option is
exercised. There is no assurance the value realized by an executive officer
will be at or near the assumed 5% or 10% levels.

45
<PAGE>
The following table provides information regarding the exercise of stock
options during 1995 and the year-end option values.

AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR END (#) AT YEAR END ($)(1)
SHARES ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- --------------- ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gregg L. Engles........................ -- -- -- 138,000 $ -- $ 250,000
Cletes O. Beshears..................... -- -- 1,766 145,065 9,757 289,028
Hector M. Nevares...................... -- -- -- 34,500 -- 62,500
Gayle O. Beshears...................... -- -- 281,645 34,500 3,362,596 62,500
Tracy L. Noll.......................... -- -- -- 77,625 -- 140,625
</TABLE>

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

(1) The value of in-the-money options at year-end is based on the fair market
value of $12.32 per share of Common Stock, as determined by the Stock Option
Committee of the Board of Directors in connection with the grant of options
under the Option and Restricted Stock Plan as of January 1, 1996.

EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS

The Company entered into employment agreements with Messrs. Engles and C.O.
Beshears in March 1995, pursuant to which Mr. Engles serves as Chairman of the
Board and Chief Executive Officer of the Company and Mr. C.O. Beshears serves as
President of the Company. The employment agreements provide that Messrs. Engles
and C.O. Beshears will receive annual base salaries of $400,000 and $350,000,
respectively, as well as incentive cash bonuses. If certain minimum levels of
net income are met, Mr. Engles and Mr. C.O. Beshears may earn an incentive cash
bonus of up to 100% and 90%, respectively, of their respective annual base
salaries. Based on the Company's net income during 1995, Mr. Engles received an
incentive cash bonus of $180,000 and Mr. C.O. Beshears received an incentive
cash bonus of $141,750. The Board of Directors is required to review cash
compensation arrangements for Messrs. Engles and C.O. Beshears annually and
provide for such increases as may be warranted in accordance with the Company's
policies.

The employment agreements of Messrs. Engles and C.O. Beshears had initial
terms of three years, but have been extended until March 31, 1999. These
agreements may be terminated by the Company prior to completion of the term upon
the death or disability of the employee, "with cause", or in the event the
employee materially breaches the agreement. As defined in the employment
agreements, the term "with cause" means any termination of the employee for: (i)
commission of an act of fraud or embezzlement against the Company; (ii)
conviction of a felony or a crime involving moral turpitude; (iii) gross
negligence or willful misconduct in performing the employee's duties; or (iv)
breach of fiduciary duty in connection with the employee's employment. Messrs.
Engles' and C.O. Beshears' employment agreements also contain two-year
non-compete provisions, which apply if the respective employee is terminated
with cause or in the event the employee materially breaches the agreement.

Hector M. Nevares serves as Vice Chairman of the Board and receives an
annual base salary of $280,000 and an annual bonus equal to 33% of his base
salary, pursuant to an employment agreement entered into in December 1993 and
amended in March 1995. Mr. Nevares may earn up to an additional 27% (or a
combined maximum of up to 60%) of his annual base salary if certain minimum
levels of operating income are met at Suiza-Puerto Rico. Based on operating
income at Suiza-Puerto Rico during 1995, Mr. Nevares received an incentive cash
bonus of $92,400 for 1995. The Company is required to review Mr. Nevares' cash
compensation arrangements annually and provide for such increases as may be
warranted in accordance with the Company's policies. The agreement had an
initial term expiring on

46
<PAGE>
December 15, 1996, but has been extended until March 31, 1999. This Agreement is
terminable by the Company prior to the completion of its term only upon the
death or disability of Mr. Nevares or "for cause". As defined in Mr. Nevares'
employment agreement, the term "for cause" means any termination of the employee
for: (i) misconduct or action damaging or detrimental to the Company; (ii)
engaging in conduct that would constitute a crime; (iii) the use, possession,
sale, transportation, distribution or being under the influence of a controlled
substance other than as prescribed by a licensed physician; or (iv)
misappropriation of the Company's funds or conviction of a crime involving a
felony. Mr. Nevares' employment agreement contains a five-year non-compete
provision, which applies upon termination of his employment agreement for any
reason.

Mr. G.O. Beshears has agreed to a three-year noncompetition covenant, which
applies if he is terminated for any reason.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Certificate of Incorporation provides, consistent with the
provisions of the Delaware General Corporation Law, that no director of the
Company will be personally liable to the Company or any of its stockholders for
monetary damages arising from the director's breach of fiduciary duty as a
director. This does not apply, however, with respect to any action for unlawful
payments of dividends, stock purchases or redemptions, nor does it apply if the
director: (i) has breached his duty of loyalty to the Company and its
stockholders; (ii) does not act in good faith or, in failing to act, does not
act in good faith; (iii) has acted in a manner involving intentional misconduct
or a knowing violation of law or, in failing to act, has acted in a manner
involving intentional misconduct or a knowing violation of law; or (iv) has
derived an improper personal benefit. The provisions of the Certificate of
Incorporation eliminating liability of directors for monetary damages do not
affect the standard of conduct to which directors must adhere, nor do such
provisions affect the availability of equitable relief. In addition, such
limitations on personal liability do not affect the availability of monetary
damages under causes of action based on federal law.

The Company's Certificate of Incorporation provides for indemnification of
its officers and directors to the fullest extent permitted by the Delaware
General Corporation Law. In addition, the Company intends to purchase and
maintain insurance on behalf of its directors and executive officers insuring
them against any liability asserted against them in their capacities as
directors or executive officers or arising out of such status.

47
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CURRENT RELATIONSHIPS AND RELATED TRANSACTIONS

As of September 30, 1996, John Hancock and Pacific Mutual held $31.0 million
and $5.0 million, respectively, of the Company's outstanding Subordinated Notes.
In April 1996, John Hancock Mutual Life Insurance Company and an affiliate
("John Hancock") and Pacific Mutual Life Insurance Company and an affiliate
("Pacific Mutual") were paid approximately $14.0 million (including
approximately $1.4 million in prepayment penalties) and approximately $3.5
million (including approximately $0.4 million in prepayment penalties),
respectively, from the net proceeds from the IPO in repayment of the 15%
Subordinated Notes, together with accrued interest on the principal amounts
repaid.

The Company purchases plastic bags for use in its ice business from a
plastic bag manufacturer in which certain affiliates of the Company own a
minority equity interest. The seller principally manufactures bread bags. The
Company's purchases from this supplier totaled approximately $347,000 through
November 30, 1996. Management believes that the terms of the purchase orders are
at least as favorable to the Company as could have been obtained in an
arms'-length transaction with an unaffiliated third party. See "--Historic
Relationships and Related Transactions--Other Historic Relationships and Related
Transactions".

Velda Farms purchases a portion of its requirements for frozen concentrated
orange juice from an entity in which Messrs. Engles, Kaminski and Madden
collectively own a minority limited partner interest. Velda Farms has no written
agreement with this supplier, and all purchases are based on purchase orders.
Management of Velda Farms monitors the market price for frozen concentrated
orange juice by maintaining contact with a number of potential suppliers and
purchases the product from the supplier offering the lowest price, inclusive of
delivery and other service charges. Management believes that the terms of the
purchase orders are at least as favorable to the Company as could be obtained in
an arms'-length transaction with an unaffiliated third party. Purchases by Velda
Farms from this supplier totaled approximately $457,000 in 1994, $1.3 million in
1995 and $1.6 million through November 1996.

An affiliate of Robert Piccinini purchases fresh milk from Model Dairy.
Sales of fresh milk by Model Dairy to this entity totaled approximately $15.0
million, $15.3 million and $16.0 million, respectively, for Model Dairy's 1994,
1995 and 1996 fiscal years. This entity is Model Dairy's largest customer. In
addition, Model Dairy purchases certain supplies and products used in its
business, primarily plastic bottles and cottage cheese, from this entity.
Purchases of these items by Model Dairy from this entity totaled approximately
$1.3 million, $1.3 million and $1.4 million, respectively, for Model Dairy's
1994, 1995 and 1996 fiscal years.
In connection with the Combination, the Company granted certain registration
rights to the Predecessor Owners (defined below) and issued new options in
exchange for options previously granted by the Combined Entities. The Company
will have ongoing obligations with respect to these registration rights and
stock options. See "--Historic Relationships and Related Transactions--The
Combination--Registration Rights" and "--Historic Relationships and Related
Transactions--The Combination--Stock Options".

HISTORIC RELATIONSHIPS AND RELATED TRANSACTIONS

ACQUISITIONS

In December 1993, Suiza Holdings, L.P. (the "Suiza Partnership") (one of the
Combined Entities) purchased Suiza-Puerto Rico from the Nevares family. The
total purchase price was $99.4 million, which included: (i) a cash payment of
$85.9 million to the Nevares family; (ii) the payment of certain liabilities to
third parties at closing; (iii) preferred stock of Suiza-Puerto Rico with an
aggregate liquidation preference of $5.0 million, which was issued to Mr.
Nevares and his sister; and (iv) preferred stock of Suiza-Puerto Rico with an
aggregate annual dividend of $50,000, which was issued to Mr. Nevares. The cash
portion of

48
<PAGE>
the purchase price and payments made to third parties at closing were financed
with the proceeds from the following: (i) the issuance by the Suiza Partnership
and its general partner of $15.0 million of equity to certain investors
(collectively, the "Predecessor Owners"), including John Hancock, Pacific
Mutual, Canaan Capital Limited Partnership and an affiliate ("Canaan") and
Messrs. Engles, C.O. Beshears, Nevares and Madden, each of whom is a director
and/or executive officer of the Company; (ii) the issuance by the Suiza
Partnership of $25.0 million in principal amount of subordinated indebtedness
(including lender warrants), to John Hancock and Pacific Mutual; and (iii) a
portion of the proceeds from an aggregate $72.0 million senior term loan and
revolving line of credit provided by The Chase Manhattan Bank, N.A. to
Suiza-Puerto Rico. The $15.0 million of equity issued by the Suiza Partnership
and its general partner to the Predecessor Owners included limited partnership
interests of the Suiza Partnership and shares of common stock of its general
partner. The $15.0 million purchase price paid by the Predecessor Owners for
this equity was determined through arms'-length negotiations among the
Predecessor Owners.
In April 1994, Velda Holdings, L.P. (the "Velda Partnership") (one of the
Combined Entities) and its general partner purchased Velda Farms from The
Morningstar Group Inc. The total purchase price was $54.8 million, which
included: (i) a cash payment of $48.4 million; and (ii) preferred stock of Velda
Farms with a liquidation preference of $3.0 million. The cash portion of the
purchase price was financed with the proceeds from the following: (i) the
issuance by the Velda Partnership, its general partner and one of its
subsidiaries of $6.2 million of equity to the Predecessor Owners, including John
Hancock, Pacific Mutual, Canaan, and Messrs. Engles, C.O. Beshears, Nevares and
Madden; (ii) the issuance by the Velda Partnership of $14.0 million in principal
amount of subordinated indebtedness (including lender warrants) to John Hancock
and Pacific Mutual; and (iii) a portion of the proceeds from an aggregate $34.5
million senior term loan and revolving line of credit provided by a group of
banks to Velda Farms. The $6.2 million of equity issued by the Velda
Partnership, its general partner and one of its subsidiaries included limited
partnership interests of the Velda Partnership, shares of common stock of its
general partner and shares of common stock of a subsidiary of the Velda
Partnership. The $6.2 million purchase price for this equity was determined
through arms'-length negotiations among the Predecessor Owners.
THE COMBINATION
As a result of the Combination, the Company became a holding company for
Suiza-Puerto Rico, Velda Farms and Reddy Ice. The Combined Entities were
corporations and partnerships originally formed to acquire Suiza-Puerto Rico,
Velda Farms and Reddy Ice. The Combined Entities and Predecessor Owners entered
into an agreement (the "Combination Agreement") pursuant to which certain
mergers, exchanges and related transactions were consummated simultaneously.
Pursuant to the Combination Agreement, all of the Predecessor Owner's equity
interests in the Combined Entities were converted into shares of Common Stock,
or options to acquire shares of Common Stock, of the Company.
The exchange ratios for conversion or exchange in the Combination of the
pre-existing equity interests in the Combined Entities were determined through
negotiations among the Combined Entities and the Predecessor Owners as to the
relative values of Suiza-Puerto Rico, Velda Farms and Reddy Ice. These relative
values, expressed as a percentage of the value of the Company, are as follows:

<TABLE>
<S> <C>
Suiza-Puerto Rico.......................................... 51.02%
Velda Farms................................................ 13.74%
Reddy Ice.................................................. 35.24%
</TABLE>

Based on these relative values, the Predecessor Owners of Suiza-Puerto Rico
received shares of Common Stock and options to acquire shares of Common Stock in
the Combination in an aggregate amount equal to 51.02% of the 6,900,002 shares
of Common Stock outstanding or subject to options immediately after

49
<PAGE>
the Combination (excluding options granted under the Option and Restricted Stock
Plan). The Predecessor Owners of Velda Farms and Reddy Ice likewise received
shares of Common Stock and options to acquire shares of Common Stock in an
aggregate amount equal to 13.74% and 35.24%, respectively, of such 6,900,002
shares. Each of the Predecessor Owners received shares or options to acquire
shares of Common Stock in an amount equal to such Predecessor Owner's percentage
ownership interest or right to acquire such ownership interest on a fully
diluted basis in Suiza-Puerto Rico, Velda Farms or Reddy Ice, multiplied by the
aggregate number of shares of Common Stock and shares of Common Stock subject to
options to be received by the Predecessor Owners in Suiza-Puerto Rico, Velda
Farms and Reddy Ice, as applicable. The options held in Suiza-Puerto Rico, Velda
Farms or Reddy Ice were exchanged for options to acquire the same number of
shares of Common Stock as the holders of the predecessor options would have
acquired if they had exercised such options prior to the Combination and then
exchanged the equity acquired upon such exercise for shares of Common Stock in
the Combination. Each of the new options has substantially the same terms as the
predecessor option for which it was exchanged, with the same aggregate exercise
price and vesting schedule. See "--Stock Options".

As discussed in more detail in the following table, certain executive
officers, directors and 5% stockholders of the Company received certain benefits
in connection with the Combination.
COMMON STOCK RECEIVED IN THE COMBINATION

The following table reflects, for each of the executive officers, directors
and 5% stockholders of the Company, for all such officers, directors and 5%
stockholders as a group and for all the Predecessor Owners as a group: (i) the
number of shares of Common Stock received (of record and beneficially) in the
Combination for his or its equity interests in the Combined Entities; (ii) the
aggregate cost to such person or group of the shares of Common Stock received in
the Combination (which is the aggregate amount of the investment by such person
or group in the Combined Entities); and (iii) the resulting average cost per
share of the shares of Common Stock received in the Combination by each such
person or group for his or its equity interests in the Combined Entities:

<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK AGGREGATE COST
RECEIVED IN OF SHARES OF
THE COMMON STOCK AVERAGE COST
NAME COMBINATION RECEIVED PER SHARE
- -------------------------------------------------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
Gregg L. Engles..................................................... 1,352,169(1) $ 932,500 $ 0.69
Cletes O. Beshears.................................................. 50,489 220,000 4.36
Hector M. Nevares................................................... 317,767 2,100,000 6.61
Gayle O. Beshears................................................... 16,370 45,000 2.75
William P. Brick.................................................... -- -- --
Tracy L. Noll....................................................... -- -- --
John W. Madden...................................................... 51,495(2) 71,000 1.38
Robert L. Kaminski.................................................. 865,367(1) 52,000 0.06
P. Eugene Pender.................................................... -- -- --
Robert Bartholomew.................................................. -- (3) -- --
Robert Piccinini.................................................... -- -- --
Stephen L. Green.................................................... 847,379(4) 5,600,000 6.61
John Hancock........................................................ 1,542,418(5) 9,008,543 5.84
Pacific Mutual...................................................... 968,745(6) 6,281,363 6.48
Canaan.............................................................. 847,379(7) 5,600,000 6.61
All executive officers, directors and 5% stockholders as a group.... 6,012,199 24,310,406 4.05
All Predecessor Owners as a group................................... 6,313,479 25,592,520 4.05
</TABLE>

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

(1) Includes 11,757 shares that are held subject to an option in favor of Mr.
Madden.

50
<PAGE>
(2) Excludes 11,757 shares held by each of Messrs. Engles and Kaminski subject
to options in favor of Mr. Madden.

(3) Excludes 879,941 shares held by Pacific Mutual Life Insurance Company and
88,804 shares held by PM Group Life Insurance Co., each of which exercises
independent voting and investment power with respect to such shares. Mr.
Bartholomew, who is an officer of Pacific Mezzanine Associates, Inc., an
indirect, wholly owned subsidiary of Pacific Mutual Life Insurance Company,
disclaims beneficial ownership of such shares.

(4) Consists solely of shares owned by Canaan Capital Limited Partnership and
Canaan Capital Offshore Limited Partnership, C.V. Mr. Green may be deemed
to share beneficial ownership of such shares since he serves as a general
partner of Canaan Capital Partners, L.P., the general partner of such
entities (the "Canaan General Partner"), and shares voting and investment
power with the other general partners of the Canaan General Partner.

(5) Includes 1,515,977 shares held by John Hancock Mutual Life Insurance Company
and 26,441 shares held by John Hancock Life Insurance Company of America, an
indirect, wholly owned subsidiary of John Hancock Mutual Life Insurance
Company.

(6) Includes 879,941 shares held by Pacific Mutual Life Insurance Company and
88,804 shares held by PM Group Life Insurance Co., an indirect, wholly owned
subsidiary of Pacific Mutual Life Insurance Company, each of which exercises
independent voting and investment power with respect to such shares.

(7) Includes 90,520 shares held by Canaan Capital Limited Partnership and
756,859 shares held by Canaan Capital Offshore Limited Partnership, C.V. The
Canaan General Partner exercises sole voting and investment power with
respect to such shares.

REGISTRATION RIGHTS
Pursuant to the Combination Agreement, the Predecessor Owners received three
demand registration rights and incidental (or piggyback) registration rights
with respect to their shares of Common Stock, subject to certain limitations.
See "Shares Eligible for Future Sale".

STOCK OPTIONS
In connection with the Combination, the Company's Board of Directors adopted
the Exchange Plan. Pursuant to the Exchange Plan, outstanding stock options
granted by certain of the Combined Entities (the "Predecessor Options"),
including Predecessor Options granted to certain executive officers and
directors of the Company, were converted into options to acquire an aggregate of
586,523 shares of Common Stock of the Company, representing the number of shares
of Common Stock that the holders of such Predecessor Options would have acquired
if they had exercised such Predecessor Options prior to the Combination and then
exchanged the equity acquired upon such exercise for shares of Common Stock in
the Combination. Each option granted under the Exchange Plan has substantially
the same terms as the Predecessor Option for which it was exchanged, with the
same aggregate exercise price and vesting schedule. See "--Stock Options".
Pursuant to the Exchange Plan, the Company granted Messrs. C.O. Beshears and
G.O. Beshears options to purchase 8,831 shares and 281,645 shares of Common
Stock at a per share exercise price of $6.79 per share and $0.03 per share,
respectively. The options granted to Mr. C.O. Beshears are subject to certain
vesting requirements. In addition, under the Exchange Plan, restricted stock in
OC Holdings, Inc. (one of the Combined Entities) previously granted to certain
executive officers, directors and employees of the Company was converted into a
total of 35,321 shares of Common Stock of the Company, which shares are subject
to certain restrictions on transfer. Messrs. Engles and C.O. Beshears received
9,566 shares and 11,774 shares, respectively, of restricted stock in the Company
in exchange for the restricted stock in OC Holdings, Inc. owned by each of them.
All shares of restricted stock awarded under the Exchange Plan

51
<PAGE>
vested immediately on grant. No additional options will be granted and no
additional shares of restricted stock will be awarded under the Exchange Plan.

PROFITS INTERESTS
At the time of the Combination, Engles Dairy Holdings, Inc. ("EDH"), which
was partially owned by Messrs. Engles and C.O. Beshears, received shares of
Common Stock in exchange for EDH's profits interests in the Suiza Partnership
and its general partner and the Velda Partnership and its general partner. These
profits interests were granted to EDH as compensation for the services of EMC
(Engles Management Corporation, an affiliate of Mr. Engles), in identifying,
structuring and negotiating the Suiza-Puerto Rico and Velda Farms acquisitions.
EDH's profits interests in such entities were fixed by mutual agreement of the
partners of the Suiza Partnership and the Velda Partnership. Following the
Combination, EDH was dissolved and the shares of Common Stock it received in the
Combination were distributed to its stockholders. As a result, Messrs. Engles,
C.O. Beshears and Madden received 359,364 shares, 17,530 shares and 40,902
shares of Common Stock, respectively.

REPAYMENT OF DEBT
At the time of the Combination, along with $1.0 million in prepayment
penalties, the Company repaid $16.5 million in principal amount of senior
indebtedness and $500,000 in principal amount of junior subordinated
indebtedness owed to John Hancock by Reddy Ice, including interest accrued
thereon through the date of the Combination. In addition, Suiza Foods assumed
the obligations of the Combined Entities to John Hancock and Pacific Mutual with
respect to an aggregate of approximately $50.7 million in principal amount of
subordinated notes pursuant to a restated note purchase agreement.

REDEMPTION OF PREFERRED STOCK
Pursuant to the Combination, the Company paid an aggregate of approximately
$5.0 million to redeem the shares of preferred stock issued to Hector M. Nevares
and his sister and additional shares of preferred stock issued to Mr. Nevares by
certain operating subsidiaries of Suiza-Puerto Rico in December 1993. The
Company also paid accrued dividends on these shares of preferred stock.

INVESTMENT BANKING AND CONSULTING FEES

EMC and Cletes O. Beshears received transaction fees in 1994 of $1.0 million
and $150,000, respectively, in connection with the acquisition of Velda Farms.
EMC is an investment banking and consulting firm owned by Gregg L. Engles. EMC
paid an aggregate of $225,000 from the transaction fees it received in the
Suiza-Puerto Rico and Velda Farms acquisitions to John W. Madden for his
services in connection with such acquisitions. EMC received an additional fee of
$50,000 in November 1994 in connection with the acquisition of Flav-O-Rich by
Velda Farms. Since the Combination, the Company has not paid any investment
banking or consulting fees to EMC, and the Company does not intend to pay any
such fees in the future.

STRATEGIC SERVICES AND MANAGEMENT CONSULTING AGREEMENTS

At the time of the acquisition of Suiza-Puerto Rico in 1993, EMC entered
into a Strategic Services Agreement with Suiza-Puerto Rico pursuant to which
Suiza-Puerto Rico agreed to pay EMC an annual consulting fee of $200,000 for an
initial term of three years ending in December 1996. During the year ended
December 31, 1994 and during the three months ended March 31, 1995, Suiza-Puerto
Rico paid approximately $200,000 and $50,000, respectively, under this
agreement. Pursuant to this agreement, EMC provided management consulting
services relating to strategic and financial matters, including consultation
regarding strategic acquisitions, business strategies and financial planning.
EMC entered into a similar agreement with Velda Farms pursuant to which Velda
Farms agreed to pay EMC an annual consulting fee

52
<PAGE>
of $150,000 for an initial term of three years ending in April 1997. During the
period from April 10, 1994 to December 31, 1994 and during the three months
ended March 31, 1995, Velda Farms paid approximately $107,500 and $37,500 under
this agreement. As part of the Combination, EMC terminated these agreements.

In connection with the merger of Reddy Ice with an affiliate and the related
debt financing in September 1992, Reddy Ice entered into management consulting
agreements with Gregg L. Engles and Robert L. Kaminski pursuant to which Reddy
Ice paid each of them a consulting fee of $25,000 per month for an initial term
of ten years, ending in September 2002. Under the agreements, Messrs. Engles and
Kaminski provided management consulting services similar to those provided by
EMC to Suiza-Puerto Rico and Velda Farms. Reddy Ice paid Messrs. Engles and
Kaminski an aggregate of $600,000 during the year ended December 31, 1994 and
paid an aggregate of $150,000 during the three-month period ended March 31, 1995
under the agreements, which were terminated at the time of the Combination.
In connection with the Combination, Mr. Kaminski entered into a new
noncompetition and consulting agreement with the Company pursuant to which he
received $12,500 per month in exchange for consulting services, including
assisting the Company in identifying acquisition or merger candidates engaged in
the business of manufacturing, distributing or selling fragmentary or block ice
and in negotiating and completing such acquisitions or mergers. This agreement
terminated upon completion of the IPO. The Company paid Mr. Kaminski a one-time
fee of $500,000 in connection with the termination of his preexisting management
consulting agreement and the execution of his new noncompetition and consulting
agreement.

OTHER HISTORIC RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the formation in June 1994 of a bread bag manufacturer in
which Reddy Ice was a minority investor, KECC received a transaction fee of
$200,000 and a profits interest in the manufacturer. In addition, Reddy Ice
issued $1.5 million in aggregate principal amount of junior subordinated pay-in-
kind notes and lender warrants to purchase shares of common stock of Reddy Ice
to John Hancock. The proceeds from these notes were used primarily to finance
Reddy Ice's investment in the bread bag manufacturer. The warrants entitled John
Hancock to purchase an aggregate of 34,127 shares of Reddy Ice common stock for
an exercise price of $20.00 per share, subject to adjustment. John Hancock
exercised these Reddy Ice lender warrants immediately prior to the Combination
and exchanged the shares of Reddy Ice common stock acquired upon such exercise
for 80,243 shares of the Company's Common Stock. Contemporaneously with the
completion of the Combination, Reddy Ice sold its interest in the bread bag
manufacturer to an entity formed by the equity owners of Reddy Ice at the same
price Reddy Ice paid for such interest, including expenses related to the
investment. In connection with this sale, this entity assumed the $1.7 million
in junior subordinated pay-in-kind notes previously issued to John Hancock. John
Hancock and Messrs. Engles, Kaminski, G.O. Beshears and Madden (as former equity
owners of Reddy Ice) now beneficially own minority interests in the bag
manufacturer. See "--Current Relationships and Related Transactions".

Reddy Ice paid approximately $54,000 and $64,000 in life insurance premiums
for Gregg L. Engles and Robert L. Kaminski, respectively, during 1994. Pursuant
to a buy-sell provision contained in a shareholders' agreement, Reddy Ice, as
beneficiary under the policies, was required to utilize the proceeds of such
policies to purchase Mr. Engles' and Mr. Kaminski's equity interests in Reddy
Ice from their estates. As part of the Combination, this agreement was
terminated.

FUTURE TRANSACTIONS

Although the Company has no present intention to do so, it may in the future
enter into other transactions and agreements incident to its business with its
directors, officers, principal stockholders and other affiliates. The Company
has no current procedure to resolve conflicts of interest arising from

53
<PAGE>
affiliated transactions; however, the Company intends for all such transactions
and agreements to be on terms no less favorable to the Company than those
obtainable from unaffiliated third parties on an arms'-length basis. In
addition, all such transactions will be approved by a majority of the Company's
disinterested directors.

PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of the Company's
Common Stock by: (i) each stockholder known by the Company to beneficially own
more than 5% of the Company's outstanding Common Stock; (ii) each director of
the Company; (iii) each executive officer named in the Summary Compensation
Table; (iv) all executive officers and directors as a group; and (v) each
Selling Stockholder as of September 30, 1996 and as adjusted to reflect the sale
of shares in the Offering.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
BEFORE THE OFFERING NUMBER OF SHARES BENEFICIALLY OWNED AFTER
---------------------------- SHARES TO THE OFFERING
NUMBER OF BE SOLD IN ----------------------------------
SHARES PERCENT OF THE NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER OF COMMON STOCK CLASS (1) OFFERING OF COMMON STOCK CLASS
- ------------------------------------------------- --------------- ----------- ---------- ----------------- -------
<S> <C> <C> <C> <C> <C>
Gregg L. Engles.................................. 1,366,544(2) 12.7
Cletes O. Beshears............................... 124,171(3) 1.2
Hector M. Nevares................................ 330,992(4) 3.1
Tracy L. Noll.................................... 35,075(5) *
Gayle O. Beshears................................ 311,240(6) 2.8
Robert L. Kaminski............................... 684,518(7) 6.4
P. Eugene Pender................................. 7,400(8) *
Robert Bartholomew............................... -- (9) --
Robert Piccinini................................. 6,900(10) *
Stephen L. Green................................. 847,379(11) 7.9
John Hancock..................................... 1,723,267(12) 16.0
Pacific Mutual................................... 968,745(13) 9.0
Canaan........................................... 847,379(14) 7.9
T. Rowe Price Small-Cap Value Fund............... 625,000(15) 5.8
All executive officers and directors as a group
(12 persons)................................... 3,777,789 33.7
</TABLE>

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

* Less than 1%

(1) Percentages are based on the total number of shares outstanding, plus the
total number of outstanding options that are exercisable within 60 days.

(2) Includes 50,600 shares subject to options granted under the Option and
Restricted Stock Plan that are exercisable within 60 days and 11,757 shares
subject to an option granted by Mr. Engles in favor of John W. Madden. Mr.
Engles' address is 3811 Turtle Creek Blvd., Suite 1300, Dallas, Texas 75219.

(3) Includes 56,432 shares subject to options granted under the Option and
Restricted Stock Plan and the Exchange Plan that are exercisable within 60
days.

(4) Includes 69,264 shares held by Neva Holdings, Inc., a company wholly owned
by Mr. Nevares and his family, and 13,225 shares subject to options granted
under the Option and Restricted Stock Plan that are exercisable within 60
days.

(5) Includes 28,175 shares subject to options granted under the Option and
Restricted Stock Plan that are exercisable within 60 days.

54
<PAGE>
(6) Includes 294,870 shares subject to options granted under the Option and
Restricted Stock Plan and the Exchange Plan that are exercisable within 60
days.

(7) Includes 11,757 shares subject to an option granted by Mr. Kaminski in favor
of John W. Madden. Mr. Kaminski's address is 3811 Turtle Creek Blvd., Suite
1300, Dallas, Texas 75219.

(8) Includes 6,900 shares subject to options granted under the Option and
Restricted Stock Plan that are exercisable within 60 days.

(9) Excludes 879,941 shares held by Pacific Mutual Life Insurance Company and
88,804 shares held by PM Group Life Insurance Company, each of which
exercises independent voting and investment power with respect to such
shares. Mr. Bartholomew, who is an officer of Pacific Mezzanine Associates,
Inc., an indirect, wholly owned subsidiary of Pacific Mutual Life Insurance
Company, disclaims beneficial ownership of such shares.

(10) Consists of shares subject to options granted under the Option and
Restricted Stock Plan that are exercisable within 60 days.

(11) Consists solely of shares owned by Canaan Capital Limited Partnership and
Canaan Capital Offshore Limited Partnership, C.V. Mr. Green may be deemed to
share beneficial ownership of such shares since he serves as a general
partner of the Canaan General Partner and shares voting and investment power
with the other general partners of the Canaan General Partner. Mr. Green's
address is c/o Canaan Capital, 105 Rowayton Avenue, Rowayton, Connecticut
06853.

(12) Includes 1,694,447 shares held by John Hancock Mutual Life Insurance
Company and 28,820 shares held by John Hancock Life Insurance Company of
America, an indirect, wholly owned subsidiary of John Hancock Mutual Life
Insurance Company. John Hancock's address is T-50th Floor, 200 Clarendon
Street, Boston, Massachusetts 02117.

(13) Includes 879,941 shares held by Pacific Mutual Life Insurance Company and
88,804 shares held by PM Group Life Insurance Co., an indirect, wholly owned
subsidiary of Pacific Mutual Life Insurance Company, each of which exercises
independent voting and investment power with respect to such shares. Pacific
Mutual's address is 700 Newport Center Drive, Newport Beach, California
92660.

(14) Includes 90,520 shares held by Canaan Capital Limited Partnership and
756,859 shares held by Canaan Capital Offshore Limited Partnership, C.V. The
Canaan General Partner exercises sole voting and investment power with
respect to such shares. Canaan's address is 105 Rowayton Avenue, Rowayton,
Connecticut 06853.

(15) T. Rowe Price Small-Cap Value Fund's address is 100 East Pratt Street,
Baltimore, Maryland 21202.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 21,000,000 shares,
of which 20,000,000 shares are Common Stock, par value $.01 per share, and
1,000,000 shares are Preferred Stock, par value $.01 per share. As of the date
of this Prospectus, there were 10,741,729 shares of Common Stock issued and
outstanding (including 6,250 shares of restricted stock awarded under the Option
and Restricted Stock Plan) and 579,760 shares reserved for issuance upon
exercise of options granted pursuant to the Exchange Plan. In addition,
1,061,250 shares of Common Stock are reserved and remain available for issuance
upon exercise of options or as grants of restricted stock under the Option and
Restricted Stock Plan, of which options to purchase a total of 864,478 shares of
Common Stock have been granted and remain outstanding. No shares of Preferred
Stock are currently outstanding.

55
<PAGE>
COMMON STOCK
All outstanding shares of Common Stock are, and the shares of Common Stock
offered by the Company hereunder will be when issued, duly authorized, validly
issued, fully paid and nonassessable. Subject to the rights of the holders of
any outstanding shares of preferred stock and any restrictions that may be
imposed by any lender to the Company, holders of Common Stock are entitled to
receive such dividends, if any, as may be declared by the Board of Directors out
of legally available funds. In the event of the liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share equally
and ratably, based on the number of shares held, in the assets, if any,
remaining after payment of all of the Company's debts and liabilities and the
liquidation preference of any outstanding preferred stock.
Holders of Common Stock are entitled to one vote per share for each share
held of record on any matter submitted to the holders of Common Stock for a
vote. Because holders of Common Stock do not have cumulative voting rights, the
holders of a majority of the shares of Common Stock represented at a meeting can
elect all the directors. The shares of Common Stock are neither redeemable nor
convertible, and the holders thereof have no preemptive rights to subscribe for
or purchase any additional shares of capital stock issued by the Company.

PREFERRED STOCK

The Company is authorized to issue shares of Preferred Stock in one or more
series, and to designate the rights, preferences, limitations and restrictions
of and upon shares of each series, including voting, redemption and conversion
rights. The Board of Directors also may designate dividend rights and
preferences in liquidation. It is not possible to state the actual effect of the
authorization and issuance of additional series of Preferred Stock upon the
rights of holders of Common Stock until the Board of Directors determines the
specific terms, rights and preferences of a series of Preferred Stock. Such
effects, however, might include, among other things, granting the holders of
Preferred Stock priority over the holders of Common Stock with respect to the
payment of dividends; diluting the voting power of the Common Stock; or granting
the holders of Preferred Stock preference with respect to liquidation rights. In
addition, under certain circumstances, the issuance of Preferred Stock may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which prohibits certain persons ("Interested Stockholders")
from engaging in a "business combination" with a Delaware corporation for three
years following the date such persons become Interested Stockholders. Interested
Stockholders generally include: (i) persons who are the beneficial owners of 15%
or more of the outstanding voting stock of the corporation; and (ii) persons who
are affiliates or associates of the corporation and who hold 15% or more of the
corporation's outstanding voting stock at any time within three years before the
date on which such person's status as an Interested Stockholder is determined.
Subject to certain exceptions, a "business combination" includes, among other
things: (i) mergers or consolidations; (ii) the sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets having an aggregate market value
equal to 10% or more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market value of
all the outstanding stock of the corporation; (iii) transactions that result in
the issuance or transfer by the corporation of any stock of the corporation to
the Interested Stockholder, except pursuant to a transaction that effects a pro
rata distribution to all stockholders of the corporation; (iv) any transaction
involving the corporation that has the effect of increasing the proportionate
share of the stock of any class or series, or securities convertible into the
stock of any class or series, of the corporation that is owned directly or
indirectly by the

56
<PAGE>
Interested Stockholder; or (v) any receipt by the Interested Stockholder of the
benefit (except proportionately as a stockholder) of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation.
Section 203 does not apply to a business combination if: (i) before a person
becomes an Interested Stockholder, the board of directors of the corporation
approves the transaction in which the Interested Stockholder became an
Interested Stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commences (other than certain excluded shares); or (iii) following a
transaction in which the person became an Interested Stockholder, the business
combination is (a) approved by the board of directors of the corporation, and
(b) authorized at a regular or special meeting of stockholders (and not by
written consent) by the affirmative vote of the holders of at least two-thirds
of the outstanding voting stock of the corporation not owned by the Interested
Stockholder.

CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL

The Company's Certificate of Incorporation and Bylaws contain several
provisions that could have the effect of delaying, deterring or preventing the
acquisition of control of the Company by means of tender offer, open market
purchases, a proxy contest or otherwise. Set forth below is a description of
those provisions.

CLASSIFIED BOARD OF DIRECTORS

The Certificate of Incorporation divides the Board of Directors into three
classes, with one class having an initial term of one year, one class having an
initial term of two years and one class having an initial term of three years.
Each class is as nearly equal in number as possible. At each annual meeting of
stockholders, commencing with the annual meeting of stockholders held in 1995,
directors will be elected to succeed those directors whose terms have expired,
and each newly elected director will serve for a three-year term. The Company
believes that a classified Board of Directors will help assure the continuity
and stability of the Company's Board of Directors and the Company's business
strategies and policies. The classified board provision could increase the
likelihood that, in the event of a takeover of the Company, incumbent directors
will retain their positions. In addition, the classified board provision will
help ensure that the Company's board of directors, if confronted with an
unsolicited proposal from a third party that has acquired a block of the voting
stock of the Company, will have sufficient time to review the proposal and
appropriate alternatives and to seek the best available result for all
stockholders.

NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES

The Bylaws provide that the exact number of directors shall be fixed from
time to time by the Board of Directors. With a classified board, directors may
only be removed "for cause" and only by the affirmative vote of a majority of
the stockholders entitled to vote. As defined in the Company's Bylaws, "for
cause" means: (i) commission of an act of fraud or embezzlement against the
Company; (ii) conviction of a felony or a crime involving moral turpitude; (iii)
gross negligence or willful misconduct in performing the director's duties to
the Company or its stockholders; or (iv) breach of fiduciary duty owed to the
Company. The Bylaws also provide that vacant directorships may be filled by the
Board of Directors.

SPECIAL MEETINGS OF STOCKHOLDERS

The Company's Bylaws provide that special meetings of stockholders may be
called only by the Chief Executive Officer, and shall be called by the Chief
Executive Officer or the Secretary at the written request of a majority of the
Board of Directors. Special meetings may not be called by the stockholders.

57
<PAGE>
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS

The Company's Bylaws establish advance notice procedures with regard to
stockholder proposals and the nomination, other than by or at the direction of
the Board of Directors or a committee thereof, of candidates for election as
directors. These procedures provide that the notice of stockholder proposals and
stockholder nominations for the election of directors at an annual meeting must
be in writing and received by the Secretary of the Company no later than March 1
of any calendar year (or if less than 35 days' notice of a meeting of
stockholders is given, stockholder nominations must be delivered to the
Secretary of the Company no later than the close of business on the seventh day
following the day notice was mailed). Stockholder proposals and nominations for
the election of directors at a special meeting must be in writing and received
by the Secretary of the Company no later than the close of business on the tenth
day following the day on which notice of the meeting was mailed or public
disclosure of the date of the meeting was made, whichever occurs first. The
notice of stockholder nominations must set forth certain information with
respect to each nominee who is not an incumbent director.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

Unissued and unreserved shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital and for
facilitating corporate acquisitions. Except pursuant to certain employee benefit
plans described in this Prospectus, the Company does not currently have any
plans to issue additional shares of Common Stock or Preferred Stock. One of the
effects of unissued and unreserved shares of capital stock may be to enable the
Board of Directors to render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby to protect the continuity of the Company's management.
If, in the due exercise of its fiduciary obligations, for example, the Board of
Directors determines that a takeover proposal was not in the Company's best
interests, such shares could be issued by the Board of Directors without
stockholder approval in one or more private transactions or other transactions
that might prevent or render more difficult or costly the completion of the
takeover transaction by diluting the voting or other rights of the proposed
acquiror or insurgent stockholder group, by creating a substantial voting block
in institutional or other hands that might undertake to support the position of
the incumbent board of directors, by effecting an acquisition that might
complicate or preclude the takeover, or otherwise.

TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank is the transfer agent and registrar for the
Common Stock.

NASDAQ NATIONAL MARKET QUOTATION
The Common Stock is quoted on the Nasdaq National Market under the symbol
"SWZA".

SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 12,941,729 shares of
Common Stock outstanding. Of these shares, an aggregate of 3,795,000 shares sold
in the IPO are, and the 2,900,000 shares sold in this Offering will be, freely
tradable without restriction or further registration under the Securities Act,
except for shares purchased by affiliates of the Company. Under the terms of the
Private Placement, the Company is required to maintain an effective registration
statement for three years with respect to the 625,000 shares sold in the Private
Placement. The Company filed a registration statement on Form S-1 with respect
to the resale of these shares on October 1, 1996, which was declared effective
on October 11, 1996. Such shares may be sold without restriction for so long as
the registration statement remains effective. The Company has also filed a
registration statement under the Securities Act which will allow the sale,
without restriction, of Common Stock acquired upon exercise of stock options or
pursuant to awards of restricted stock under the Option and Restricted Stock
Plan, except for any such shares acquired by affiliates of the

58
<PAGE>
Company. The 5,613,479 shares issued in the Combination and not offered for sale
hereunder are "restricted securities" subject to holding period, volume and
other resale restrictions under Rule 144 of the Securities Act ("Rule 144").
These shares will be eligible for sale in the public market upon expiration of
the applicable holding periods under Rule 144 or sooner if registered under the
Securities Act.

Under Rule 144 as currently in effect, any person (or persons whose shares
are aggregated) who has beneficially owned restricted securities for at least
two years is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of: (i) 1% of the then outstanding shares of
the Company's Common Stock (129,417 shares immediately after the Offering); or
(ii) the average weekly trading volume during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are also subject
to certain requirements relating to the manner of sale, notice and availability
of current public information about the Company.
The Predecessor Owners, all of whom received shares of Common Stock or
options to purchase shares of Common Stock (collectively, the "Subject Shares")
in the Combination, have an aggregate of three demand registration rights
requiring the Company to use its best efforts to effect the registration of
their shares under the Securities Act and applicable state securities laws. The
Predecessor Owners have the right to exercise two demand registration rights
until July 22, 1999, and the right to exercise one additional demand
registration right commencing on July 22, 1999 and expiring on April 22, 2001.
The Company is also obligated to offer the Predecessor Owners the right to
include the Subject Shares owned by them in certain registration statements
filed by the Company for a period expiring on April 22, 2001.

The first demand registration right may be exercised by Predecessor Owners
that collectively own at least 1,380,000 of the Subject Shares so long as at
least 1,380,000 of the Subject Shares are offered for sale in an underwritten
public offering. In order to exercise the first demand registration right prior
to April 22, 1997, the price of the Company's Common Stock in the public market
at the time of exercise must be at least $16.80, which is 120% of the initial
public offering price. The second demand registration right may be exercised by
Predecessor Owners that collectively own at least 1,035,000 of the Subject
Shares so long as at least 1,035,000 of the Subject Shares are offered for sale
in an underwritten public offering. No offering may be conducted upon exercise
of the second demand registration right sooner than nine months after completion
of the offering conducted upon exercise of the first demand registration right.
The third demand registration right may be exercised by Predecessor Owners that
collectively own at least 1,035,000 of the Subject Shares so long as at least
1,035,000 of the Subject Shares are offered for sale in an underwritten public
offering. No offering may be conducted upon exercise of the third demand
registration right sooner than nine months after completion of the offering
conducted upon exercise of the second demand registration right. The third
demand registration right will expire when none of the Predecessor Owners, other
than Gregg L. Engles, owns more than 5% of the then-current fully diluted shares
of Common Stock.

The Company will have a prior right to conduct public offerings for
corporate purposes and may pre-empt any registration undertaken upon exercise by
the Predecessor Owners of their demand registration rights. If the Company
pre-empts any demand registration, the registration will not be counted as a
demand registration. If the Company pre-empts the third demand registration
right so that Predecessor Owners are unable to exercise such right within the
five-year period described above, then such five-year period will be extended
until nine months after completion of the Company's public offering.

The Company will choose the underwriter or underwriters to conduct the
public offering of any Subject Shares upon exercise of the demand registration
rights. The Company will indemnify the Predecessor Owners and their respective
officers, directors and controlling persons for securities law liabilities in
connection with any such offering, other than liabilities resulting from
information furnished in writing by the Predecessor Owners. Except in certain
limited instances, the Company is obligated to pay all expenses incidental to a
demand registration, excluding underwriters' discounts and commissions.

59
<PAGE>
The Company has agreed with the Underwriters of this Offering not to offer,
issue, sell, agree to sell, grant any option for the sale of or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock (except for
options granted pursuant to the Option and Restricted Stock Plan) for a period
of 90 days after the date of this Prospectus, without the prior written consent
of Bear Stearns.

The officers and directors of the Company and the Predecessor Owners have
also agreed that for a period of 90 days after the date of this Prospectus, they
will not offer, sell, agree to sell, grant any option to purchase or make any
other disposition (excluding certain pledges) of any shares owned by them
without the prior written consent of Bear Stearns.
No prediction can be made as to the effect, if any, that sales of shares of
Common Stock in this Offering or otherwise, or the availability of such shares
for future sale will have on the market price of the Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
the prevailing market price for the Common Stock. Such sales may also make it
more difficult for the Company to sell equity securities or equity-related
securities in the future at a time and price that it deems appropriate.

60
<PAGE>
UNDERWRITING

The Underwriters of the Offering of Common Stock (the "Underwriters), for
whom Bear, Stearns & Co. Inc. and A.G. Edwards & Sons, Inc. are acting as
Representatives, have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the form of which is filed as an exhibit to the
Company's Registration Statement of which this Prospectus is a part), to
purchase from the Company and the Selling Stockholders an aggregate of 2,900,000
shares of Common Stock. The aggregate number of shares of Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below. The
Underwriters are committed to purchase and pay for all of such shares of Common
Stock if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Bear, Stearns & Co. Inc. ..................................................................
A.G. Edwards & Sons, Inc...................................................................

----------
Total.................................................................................... 2,900,000
----------
----------
</TABLE>

The Underwriters have advised the Company that they propose to offer
2,900,000 shares of Common Stock to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain selected
dealers (who may include the Underwriters) at such public offering price less a
concession not to exceed $ per share. The selected dealers may reallow a
concession to certain other dealers not to exceed $ per share. After the
initial offering to the public, the public offering price, the concession to
selected dealers and the reallowance to other dealers may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part. The Underwriters have informed the Company
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or will contribute to payments
the Underwriters may be required to make in respect thereof.

The Selling Stockholders have granted to the Underwriters an option to
purchase up to 435,000 additional shares of Common Stock at the public offering
price less the underwriting discount set forth on the cover page of this
Prospectus, solely to cover over-allotments, if any. This option may be
exercised at any time until 30 days after the date of this Prospectus. If the
Underwriters exercise this option, each of the Underwriters will be committed,
subject to certain conditions, to purchase a number of additional shares
proportionate to such Underwriter's initial commitment as indicated in the
preceding table.

The Company has agreed not to offer, issue, sell, agree to sell, grant any
option for the sale of or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (except for options granted pursuant to the Option
and Restricted Stock Plan) for a period of 90 days after the date of this
Prospectus without the prior written consent of Bear Stearns.

The Company's officers and directors and the Predecessor Owners have also
agreed with the Underwriters not to offer, sell, agree to sell, grant any option
to purchase or otherwise dispose (excluding certain pledges) of any shares owned
by them for a period of 90 days after the date of this Prospectus without the
prior written consent of Bear Stearns. This agreement may be released without
notice to

61
<PAGE>
persons purchasing shares in the Offering and without notice to any market on
which the Common Stock is traded.

Certain stockholders of the Company have registration rights with respect to
shares of Common Stock owned by them. See "Shares Eligible For Future Sale".

In connection with this Offering and in accordance with Rule 10b-6A under
the Exchange Act, the Underwriters and selling group members (if any) may, upon
the satisfaction of certain conditions, engage in passive market making
transactions in the Common Stock on the Nasdaq National Market during the period
when Rule 10b-6 under the Exchange Act would otherwise prohibit such activity.
Rule 10b-6A prohibits underwriters and selling group members engaged in passive
market making generally from entering a bid or effecting a purchase at a price
that exceeds the highest bid for those securities displayed on Nasdaq by a
market maker that is not participating in the distribution. Under Rule 10b-6A,
each underwriter or selling group member engaged in passive market making is
subject to a daily net purchase limitation equal to 30% of such entity's average
daily trading volume during the two full consecutive calendar months immediately
preceding the date of filing of the registration statement under the Securities
Act pertaining to the security to be distributed.

Bear Stearns provides the Company with investment banking services from time
to time for which it receives customary compensation.

LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by
Hughes & Luce, L.L.P., Dallas, Texas. Certain legal matters relating to the
Offering will be passed upon for the Underwriters by Gardere & Wynne, L.L.P. A
partner with Hughes & Luce, L.L.P., beneficially owns 41,795 shares of Common
Stock.

EXPERTS

The consolidated financial statements of Suiza Foods Corporation as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995; the combined financial statements of Pre-Acquisition
Suiza-Puerto Rico as of December 15, 1993 and for the period from December 31,
1992 to December 15, 1993; the financial statements of Pre-Acquisition Velda
Farms as of April 9, 1994 and December 31, 1993 and for the period from January
1, 1994 to April 9, 1994 and for the year ended December 31, 1993; and the
financial statements of Swiss Dairy, a Corporation, as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995
appearing in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein. The
consolidated financial statements of Garrido & Compania, Inc. as of June 30,
1996 and 1995 and for each of the years in the three year period ended June 30,
1996 have been audited by KPMG Peat Marwick LLP, independent auditors, as stated
in their report appearing herein. The financial statements of Model Dairy, Inc.
as of October 31, 1995 and 1994 and for the years then ended have been audited
by Barnard, Vogler & Co., independent auditors, as stated in their report
appearing herein. Such financial statements are included herein in reliance upon
the respective reports of such firms given upon their authority as experts in
accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, registration statements, proxy
statements, and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices: 500 West Madison Street,

62
<PAGE>
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York
10048. Copies of such materials can be obtained at prescribed rates from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Copies of reports, registration statements, proxy and
information statements filed electronically by the Company and other information
regarding the Company can be obtained from the Commission's address on the world
wide web: "http://www.sec.gov".

The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. As used herein, the term "Registration Statement"
means the initial Registration Statement and any and all amendments thereto.
This Prospectus omits certain information contained in said Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto. Statements herein concerning the contents of any contract or other
document are not necessarily complete and in each instance reference is made to
such contract or other document filed with the Commission as an exhibit to the
Registration Statement, or otherwise, each such statement being qualified by and
subject to such reference in all respects.

63
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SUIZA FOODS CORPORATION
Report of Independent Auditors--Deloitte & Touche LLP.................................................... F-2
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Operations.................................................................... F-4
Consolidated Statements of Stockholders' Equity.......................................................... F-5
Consolidated Statements of Cash Flows.................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7

PRE-ACQUISITION SUIZA-PUERTO RICO
Report of Independent Auditors--Deloitte & Touche LLP.................................................... F-28
Combined Balance Sheet................................................................................... F-29
Combined Statement of Operations......................................................................... F-30
Combined Statement of Stockholders' Equity............................................................... F-31
Combined Statement of Cash Flows......................................................................... F-32
Notes to Combined Financial Statements................................................................... F-33

PRE-ACQUISITION VELDA FARMS
Report of Independent Auditors--Deloitte & Touche LLP.................................................... F-38
Balance Sheets........................................................................................... F-39
Statements of Operations................................................................................. F-40
Statements of Stockholders' Equity....................................................................... F-41
Statements of Cash Flows................................................................................. F-42
Notes to Financial Statements............................................................................ F-43

GARRIDO & COMPANIA, INC.
Report of Independent Auditors--KPMG Peat Marwick LLP.................................................... F-51
Consolidated Balance Sheets.............................................................................. F-52
Consolidated Statements of Earnings...................................................................... F-53
Consolidated Statements of Changes in Stockholders' Equity............................................... F-54
Consolidated Statements of Cash Flows.................................................................... F-55
Notes to Consolidated Financial Statements............................................................... F-56

SWISS DAIRY
Report of Independent Auditors--Deloitte & Touche LLP.................................................... F-63
Balance Sheets........................................................................................... F-64
Statements of Earnings and Retained Earnings............................................................. F-65
Statements of Cash Flows................................................................................. F-66
Notes to Financial Statements............................................................................ F-67

MODEL DAIRY
Report of Independent Auditors--Barnard, Vogler & Co..................................................... F-71
Balance Sheets........................................................................................... F-72
Statements of Earnings and Retained Earnings............................................................. F-73
Statements of Cash Flows................................................................................. F-74
Notes to Financial Statements............................................................................ F-75
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Suiza Foods Corporation
Dallas, Texas

We have audited the accompanying consolidated balance sheets of Suiza Foods
Corporation and subsidiaries (the "Company") as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements
give retroactive effect to the Combination of Suiza-Puerto Rico, Velda Farms and
Reddy Ice, which has been accounted for as a pooling-of-interests, as described
in Note 1 of the Notes to Consolidated Financial Statements.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Suiza Foods
Corporation and subsidiaries at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Dallas, Texas
February 18, 1996
(February 29, 1996, as to Note 13)

F-2
<PAGE>
SUIZA FOODS CORPORATION

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
SEPTEMBER
30,
1996
-----------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 5,395 $ 3,177 $ 9,288
Accounts receivable....................................... 29,164 31,045 47,729
Inventories............................................... 10,747 11,346 15,853
Prepaid expenses and other current assets................. 1,821 1,380 3,162
Deferred income taxes..................................... 866 1,448 2,127
--------- --------- -----------
Total current assets.................................... 47,993 48,396 78,159
PROPERTY, PLANT AND EQUIPMENT............................... 90,874 92,715 112,280
DEFERRED INCOME TAXES....................................... 7,792
INTANGIBLE AND OTHER ASSETS................................. 100,085 91,411 151,439
--------- --------- -----------
TOTAL....................................................... $ 238,952 $ 232,522 $ 349,670
--------- --------- -----------
--------- --------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 30,945 $ 31,957 $ 43,702
Income taxes payable...................................... 266 2,415 539
Current portion of long-term debt......................... 14,683 15,578 11,637
--------- --------- -----------
Total current liabilities............................... 45,894 49,950 55,878
LONG-TERM DEBT.............................................. 173,327 171,745 204,316
DEFERRED INCOME TAXES....................................... 1,199 1,367

COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST IN SUBSIDIARIES........................... 8,645
STOCKHOLDERS' EQUITY (Note 13):
Preferred stock, par value $.01; 1,000,000 shares
authorized, no shares issued and outstanding............
Common stock, par value $.01; 20,000,000 shares
authorized, 6,313,479 shares issued and outstanding at
December 31, 1995; 10,739,729 shares issued and
outstanding at September 30, 1996....................... 1 63 107
Additional paid-in capital................................ 20,894 31,023 89,337
Warrants.................................................. 580
Retained earnings (deficit)............................... (11,588) (21,626) 32
--------- --------- -----------
Total stockholders' equity................................ 9,887 9,460 89,476
--------- --------- -----------
TOTAL....................................................... $ 238,952 $ 232,522 $ 349,670
--------- --------- -----------
--------- --------- -----------
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>
SUIZA FOODS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- --------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES...................................... $ 51,675 $ 341,108 $ 430,466 $ 325,454 $ 364,611
COST OF SALES.................................. 20,412 240,468 312,633 234,762 267,131
---------- ---------- ---------- ------------ ------------
Gross profit............................... 31,263 100,640 117,833 90,692 97,480
OPERATING COSTS AND EXPENSES:
Selling and distribution..................... 15,434 54,248 64,289 48,295 52,215
General and administrative................... 6,305 16,935 19,277 15,298 15,661
Amortization of intangibles.................. 822 3,697 3,703 2,865 3,200
---------- ---------- ---------- ------------ ------------
Total operating costs and expenses......... 22,561 74,880 87,269 66,458 71,076
---------- ---------- ---------- ------------ ------------
INCOME FROM OPERATIONS......................... 8,702 25,760 30,564 24,234 26,404
OTHER (INCOME) EXPENSE:
Interest expense, net........................ 7,697 19,279 19,921 15,285 12,844
Merger and other costs....................... 1,660 10,238 10,238 571
Other income, net............................ (419) (268) (469) (406) (3,389)
---------- ---------- ---------- ------------ ------------
Total other expense........................ 7,278 20,671 29,690 25,117 10,026
---------- ---------- ---------- ------------ ------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
LOSS......................................... 1,424 5,089 874 (883) 16,378
INCOME TAXES (BENEFIT)......................... 4 844 2,450 1,963 (7,495)
---------- ---------- ---------- ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS........ 1,420 4,245 (1,576) (2,846) 23,873
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF
DEBT......................................... 197 8,462 8,462 2,215
---------- ---------- ---------- ------------ ------------
NET INCOME (LOSS).............................. $ 1,420 $ 4,048 $ (10,038) $ (11,308) $ 21,658
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
NET EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary loss...... $ 0.57 $ 0.69 $ (0.26) $ (0.47) $ 2.55
Extraordinary loss........................... (0.03) (1.38) (1.40) (0.24)
---------- ---------- ---------- ------------ ------------
Net income (loss)............................ $ 0.57 $ 0.66 $ (1.64) $ (1.87) $ 2.31
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING............ 2,487,174 6,156,387 6,109,398 6,041,000 9,360,539
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>
SUIZA FOODS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL WARRANTS (DEFICIT) TOTAL
--------- ----------- ----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993.......... 25,558 $ -- $ 1,068 $ 276 $ (16,752) $ (15,408)
Issuance of common stock........ 42,150 1 14,149 14,150
Issuance of warrants............ 247 (247) --
Net income...................... 1,420 1,420
--------- ----- ----------- ----- --------- ---------
BALANCE, DECEMBER 31, 1993........ 67,708 1 15,217 523 (15,579) 162
Issuance of common stock........ 11,960 5,677 5,677
Increase in market value of
warrants...................... 57 (57) --
Net income...................... 4,048 4,048
--------- ----- ----------- ----- --------- ---------
BALANCE, DECEMBER 31, 1994........ 79,668 1 20,894 580 (11,588) 9,887
Issuance of common stock........ 11,832 5,080 (580) 4,500
Capital contribution (Note
13)........................... 5,111 5,111
Net loss........................ (10,038) (10,038)
69 for 1 stock split (Note
13)........................... 6,221,979 62 (62) --
--------- ----- ----------- ----- --------- ---------
BALANCE, DECEMBER 31, 1995........ 6,313,479 63 31,023 -- (21,626) 9,460
Issuance of common stock
(Unaudited)................... 4,426,250 44 58,314 58,358
Net income (Unaudited).......... 21,658 21,658
--------- ----- ----------- ----- --------- ---------
BALANCE, SEPTEMBER 30, 1996
(UNAUDITED)..................... 10,739,729 $ 107 $ 89,337 $ -- $ 32 $ 89,476
--------- ----- ----------- ----- --------- ---------
--------- ----- ----------- ----- --------- ---------
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>
SUIZA FOODS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 1,420 $ 4,048 $ (10,038) $ (11,308) $ 21,658
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 3,476 8,244 9,258 6,834 7,032
Amortization of intangible assets, including deferred
financing costs....................................... 995 4,876 4,686 3,749 3,776
Gain on the sale of assets.............................. (16) (177) (265) (98) 17
Extraordinary loss from early extinguishment of debt.... 197 8,462 8,462 2,215
Merger and other nonrecurring costs..................... 1,660 10,238 10,238 571
Noncash and imputed interest............................ 54 483 1,087 670 236
Minority interests...................................... 8 556 101 101
Deferred income taxes................................... 333 (414) 287 (9,896)
Changes in operating assets and liabilities:
Accounts and notes receivable......................... (259) (108) (1,881) (1,491) (7,639)
Inventories........................................... (344) (73) (599) (916) (1,657)
Prepaid expenses and other assets..................... 199 (222) 1,007 (1,157) (1,534)
Accounts payable and other accrued expenses........... 262 4,862 716 (2,217) 1,649
Income tax payable.................................... (16) 254 649 3,889 (1,260)
--------- --------- ---------- ---------- ----------
Net cash provided by operating activities........... 5,779 24,933 23,007 17,043 15,168
--------- --------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (1,207) (4,784) (10,392) (7,638) (10,186)
Proceeds from sale of property, plant and equipment....... 129 245 691 650 267
Sales (purchases) of cash investments and marketable
securities.............................................. 10,880 (277)
Increase in investments and other assets.................. (10) (1,331)
Cash outflows for acquisitions............................ (82,783) (61,357) (2,425) (1,808) (83,129)
--------- --------- ---------- ---------- ----------
Net cash used in investing activities............... (72,991) (67,504) (12,126) (8,796) (93,048)
--------- --------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt........................ 90,500 67,585 154,505 146,700 89,473
Repayment of debt......................................... (33,520) (30,906) (154,387) (145,546) (60,620)
Payments of deferred financing, debt restructuring and
merger costs............................................ (1,660) (8,972) (8,972) (3,220)
Issuance of common stock, net of expenses................. 14,150 5,677 4,087 4,087 58,358
Investments by (distributions to) minority interests...... 151 (61) (63) (63)
Purchase of subsidiary preferred stock.................... (8,269) (8,269)
--------- --------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities........................................ 71,281 40,635 (13,099) (12,063) 83,991
--------- --------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 4,069 (1,936) (2,218) (3,816) 6,111
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 3,262 7,331 5,395 5,395 3,177
--------- --------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 7,331 $ 5,395 $ 3,177 $ 1,579 $ 9,288
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996
1. THE COMBINATION

Suiza Foods Corporation (the "Company" or "Suiza Foods") is a Delaware
corporation, incorporated on September 19, 1994, for the sole purpose of
entering into certain mergers, exchanges and related transactions (the
"Combination"). On March 31, 1995, the Company completed the Combination
pursuant to which the Company acquired Suiza Holdings, L.P. and subsidiaries
("Suiza-Puerto Rico"), Velda Holdings, L.P., Velda Holdings, Inc. and
subsidiaries ("Velda Farms"), and Reddy Ice Corporation ("Reddy Ice")
(collectively, the "Combined Entities") by engaging in certain mergers,
exchanges and related transactions. Pursuant to the Combination, the Company
issued 6,313,479 shares, as adjusted, of its common stock in exchange for all of
the outstanding equity interests of Suiza-Puerto Rico, Velda Farms and Reddy
Ice.
The Company has accounted for the Combination using the pooling of interests
method of accounting, whereby the assets acquired and liabilities assumed are
reflected in the consolidated financial statements of the Company at the
historical amounts of the Combined Entities. The operations of Suiza-Puerto Rico
and Velda Farms are only included in the results of operations from the dates
they were acquired in purchase business combinations (December 16, 1993, for
Suiza-Puerto Rico and April 10, 1994, for Velda Farms). In connection with the
Combination, the equity accounts of Suiza-Puerto Rico, Velda Farms and Reddy Ice
were adjusted to allocate partners' capital and additional paid-in capital
between common stock, additional paid-in capital and retained earnings based on
each of the companies' historical results and the number of shares of the
Company's common stock issued in the Combination.
The Company had no operations until its acquisition of Suiza-Puerto Rico,
Velda Farms and Reddy Ice in the Combination. Separate results of the Combined
Entities preceding the Combination were as follows:

<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS
ENDED
MARCH 31,
1993 1994 1995
--------- ---------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
Revenues:
Suiza-Puerto Rico..................................... $ 6,587 $ 191,334 $ 52,229
Velda Farms........................................... 102,073 46,235
Reddy Ice............................................. 45,088 47,701 6,412
--------- ---------- -------------
Total............................................... $ 51,675 $ 341,108 $ 104,876
--------- ---------- -------------
--------- ---------- -------------
Net income (loss):
Suiza Foods........................................... $ -- $ -- $ (7,024)
Suiza-Puerto Rico..................................... (130) 2,211 (4,806)
Velda Farms........................................... 544 (219)
Reddy Ice............................................. 1,550 1,293 (5,941)
--------- ---------- -------------
Total............................................... $ 1,420 $ 4,048 $ (17,990)
--------- ---------- -------------
--------- ---------- -------------
</TABLE>

Included in net income of Reddy Ice for the year ended December 31, 1994, is
an extraordinary loss from early extinguishment of debt of $.2 million. In
addition, included in net losses of Suiza-Puerto Rico, Velda Farms and Reddy Ice
for the three-month period ended March 31, 1995 are extraordinary losses

F-7
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

1. THE COMBINATION (CONTINUED)
from the early extinguishment of debt of $5.0 million (net of income tax benefit
of $.1 million), $.9 million (net of income tax benefit of $.5 million) and $2.6
million, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS. Effective with the Combination, the Company became the parent
company for the operations of Suiza-Puerto Rico, Velda Farms and Reddy Ice.
Suiza-Puerto Rico, which includes Suiza Dairy Corporation ("Suiza Dairy"), Suiza
Fruit Corporation ("Suiza Fruit") and Neva Plastics Manufacturing Corp. ("Neva
Plastics"), manufactures and distributes fluid milk products and refrigerated
ready-to-serve fruit drinks, and distributes refrigerated and frozen foods to
various customers, including grocery stores, retail outlets and schools
throughout Puerto Rico. Velda Farms manufactures and distributes fresh milk, ice
cream and related products throughout peninsular Florida under its own brand
names and under brands licensed from third parties. Velda Farms customers
include food service accounts, convenience stores, club stores and schools.
Reddy Ice manufactures and distributes ice products for retail, commercial and
industrial use in Texas, Florida, Arizona, New Mexico and Nevada. The Company
and its subsidiaries provide credit terms to customers generally ranging up to
30 days, perform ongoing credit evaluations of their customers and maintain
allowances for potential credit losses based on historical experience. The
preparation of financial statements requires the use of significant estimates
and assumptions by management; actual results could differ from these estimates.

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries, Suiza Dairy,
Suiza Fruit, Neva Plastics, Velda Farms and Reddy Ice. All significant
intercompany balances and transactions are eliminated in consolidation.

INVENTORIES. Pasteurized and raw milk inventories are stated at the lower
of average cost or market. Raw materials, spare parts and supplies and
merchandise for resale inventories are stated at the lower of cost, using the
first-in, first-out ("FIFO") method, or market. Manufactured finished goods
inventories are stated at the lower of average production cost or market.
Production costs include raw materials, direct labor and indirect production and
overhead costs.

PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the assets, as follows:

<TABLE>
<CAPTION>
ASSET USEFUL LIFE
- --------------------------------------------------------------- ------------------------------
<S> <C>
Buildings and improvements..................................... Ten to 40 years
Machinery and equipment........................................ Five to 20 years
Motor vehicles................................................. Five to 15 years
Furniture and fixtures......................................... Three to ten years
</TABLE>

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

F-8
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS. Intangible assets include the following intangibles
which are amortized over their related useful lives:

<TABLE>
<CAPTION>
INTANGIBLE ASSET USEFUL LIFE
- -------------------------------------- ------------------------------------------------------
<S> <C>
Goodwill.............................. Straight-line method over 20 to 40 years
Identifiable intangible assets:
Customer list....................... Straight-line method over seven to ten years
Trademarks/trade names.............. Straight-line method over 30 years
Noncompetition agreements........... Straight-line method over five to ten years
Deferred financing costs.............. Interest method over the terms of the related debt
(ranging from seven to 11 years)
Organization costs.................... Straight-line method over five years
</TABLE>

The Company periodically assesses the net realizable value of its intangible
assets, as well as all other assets, by comparing the expected future net
operating cash flows, undiscounted and without interest charges, to the carrying
amount of the underlying assets. The Company would evaluate a potential
impairment if the recorded value of these assets exceeded the associated future
net operating cash flows. Any potential impairment loss would be measured as the
amount by which the carrying value exceeds the fair value of the asset. Fair
value of assets would be measured by market value, if an active market exists,
or by a forecast of expected future net operating cash flows, discounted at a
rate commensurate with the risk involved.

INTEREST RATE AGREEMENTS. Interest rate swaps, caps and floors are entered
into as a hedge against interest exposure of variable rate debt. Differences
between amounts to be paid or received on these interest rate agreements
designated as hedges are included in interest expense as payments are made or
received. Amounts paid to acquire interest rate caps and amounts received for
interest rate floors are amortized as an adjustment to interest expense over the
life of the related agreement.

REVENUE. Revenue is recognized when the product is shipped to the customer.
INCOME TAXES. At the Combination date, the Company became the parent
company of Suiza Dairy, Suiza Fruit, Neva Plastics, Velda Farms and Reddy Ice.
Velda Farms and Reddy Ice are now included in the consolidated tax return of the
Company. The Company's Puerto Rico subsidiaries, Suiza Dairy, Suiza Fruit and
Neva Plastics, which are organized as Delaware companies, will be required to
file separate U.S. and Puerto Rico income tax returns. Since their operations
are in Puerto Rico, they are eligible for Section 936 tax credits which may
reduce or eliminate U.S. income taxes due.
Prior to the Combination, Suiza-Puerto Rico, Velda Farms and Reddy Ice were
separate taxpayers and income taxes were provided for in the financial
statements, where applicable, based on each company's separate income tax
return. Suiza-Puerto Rico was organized as a U.S. limited partnership, which was
not subject to income taxes, with its operating subsidiaries, Suiza Dairy, Suiza
Fruit and Neva Plastics, organized under the laws of the Commonwealth of Puerto
Rico. As a result, each of its operating subsidiaries was required to file a
separate income tax return in Puerto Rico. Both before and after the
Combination, Suiza Fruit and Neva Plastics were eligible through grants, with
certain qualifications, for partial exemptions from Puerto Rico income, property
and municipal taxes. The grants were originally made for ten-year terms and
provide for a 90% exemption from income and property taxes and 60% exemption
from municipal taxes. Reddy Ice historically qualified as a small business
corporation under

F-9
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Section 1372 of Subchapter S of the Internal Revenue Code. Accordingly, no
provision for income taxes or income tax liabilities were recorded in its
financial statements since such amounts, if any, were the responsibility of the
individual stockholders.
Since prior to the Combination, certain of Suiza-Puerto Rico's operations
were organized as a partnership and Reddy Ice's operations were organized as a
small business corporation under Subchapter S, no income taxes were provided in
the financial statements. However, had these operations been subject to
corporate income taxes, available net operating losses would have been
sufficient to eliminate any corporate income taxes due.

Deferred income taxes are provided for temporary differences in the
financial statement and tax bases of assets and liabilities using current tax
rates. Deferred tax assets, including the benefit of net operating loss
carryforwards, are evaluated based on the guidelines for realization and may be
reduced by a valuation allowance.

CASH EQUIVALENTS. The Company considers all highly liquid investments
purchased with a remaining maturity of three months or less to be cash
equivalents.

EARNINGS (LOSS) PER SHARE--The Company computes earnings per share based on
the weighted average number of common shares outstanding during the year, as
adjusted for the stock split (Note 13), including common equivalent shares, when
dilutive. Fully diluted earnings per share are not presented since the assumed
exercise of stock options and warrants would not result in a material dilutive
effect.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment is evaluated by
comparing future cash flows (undiscounted and without interest charges) expected
to result from the use of the asset and its eventual disposition to the carrying
amount of the asset. This new accounting principle is effective for the
Company's fiscal year ending December 31, 1996. The Company believes that this
new accounting principle will not have a material impact on its financial
position.

Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock options
and other equity instruments to employees based on new fair value accounting
rules. Although expense recognition for employee stock based compensation is not
mandatory, SFAS 123 requires companies that choose not to adopt the new fair
value accounting to disclose pro forma net income and earnings per share under
the new method. This new accounting principle is effective for the Company's
fiscal year ending December 31, 1996. The Company intends to comply with the
disclosure requirements of this new accounting principle and will not adopt fair
value accounting expense recognition provisions.

UNAUDITED INTERIM FINANCIAL STATEMENTS. The Company's balance sheet as of
September 30, 1996 and the statements of operations and cash flows for the
nine-month periods ended September 30, 1995 and 1996, have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal, recurring adjustments) necessary to present fairly the
balance sheet of the Company at September 30, 1996, and the results of
operations and cash flows of the Company for the nine

F-10
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
months ended September 30, 1996 and 1995 have been made. The results of
operations for the interim periods are not necessarily indicative of the results
to be expected for the full year.

3. ACQUISITIONS

Effective December 16, 1993, the Company, through its Suiza-Puerto Rico
subsidiaries, acquired all of the outstanding common and preferred stock of
Suiza Dairy, Suiza Fruit and Neva Plastics. The total purchase price, including
related acquisition and financing costs, was approximately $99.4 million, which
was funded with the proceeds from partners' capital contributions, the proceeds
from the issuance of subordinated notes payable of $25.0 million, term loan and
revolving credit facility advances directly to the subsidiaries of $67.0 million
and preferred stock issued to the seller of $5.0 million. In connection with the
refinancing of debt on March 31, 1995, the term loan, revolving credit facility
advances and preferred stock were repaid as part of the Combination.

Effective April 10, 1994, the Company, through its Velda Farms subsidiary,
acquired all of the outstanding common stock of Velda Farms, Inc., a wholly
owned subsidiary of The Morningstar Group, Inc. The total purchase price,
including related acquisition and financing costs, was approximately $54.8
million, which was funded with the net proceeds from the issuance of common
stock, the proceeds from the issuance of subordinated notes, term loan and
revolving credit facility advances, and preferred stock issued to the seller. In
connection with the refinancing of debt at the date of the Combination, the term
loan, revolving credit facility advances and preferred stock were repaid.

Effective June 29, 1994, Suiza Dairy acquired Mayaguez Dairy, Inc. for a
total purchase price, including costs and expenses, of approximately $7.6
million, which was funded primarily by additional term loan borrowings of $7.0
million.

Effective November 1, 1994, Velda Farms acquired all of the net assets of
the Florida Division of Flav-O-Rich, Inc. The total purchase price, including
related acquisition and financing costs, was approximately $5.9 million, which
was funded with revolving credit agreement borrowings, along with a subordinated
note payable to the seller and an amount payable to the seller upon the final
purchase price settlement, which was paid subsequent to year-end.

During 1993, 1994 and 1995, the Company's Reddy Ice subsidiary entered into
noncompetition arrangements and acquired certain property, plant and equipment
of eight separate ice companies for cash, including costs and expenses, of
approximately $.4 million in 1993, $.3 million in 1994 and $2.4 million in 1995,
along with the issuance of notes payable to the sellers of approximately $.4
million in 1993, $.4 million in 1994 and $.1 million in 1995.

The above acquisitions were accounted for using the purchase method of
accounting as of their respective acquisition dates, and accordingly, only the
results of operations of the acquired companies subsequent to their respective
acquisition dates are included in the consolidated financial statements of the
Company. At the acquisition date, the purchase price was allocated to assets
acquired, including identifiable intangibles, and liabilities assumed based on
their fair market values. The excess of the total purchase

F-11
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

3. ACQUISITIONS (CONTINUED)
prices over the fair values of the net assets acquired represented goodwill. In
connection with the acquisitions, assets were acquired and liabilities were
assumed as follows:

<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchase prices:
Cash paid for capital stock................................... $ 82,783 $ 61,357 $ 2,425
Subsidiary preferred stock issued............................. 5,000 3,000
Notes and amounts payable to seller........................... 365 4,495 91
Cash acquired in acquisitions................................. 12,035 142
--------- --------- ---------
Total purchase prices........................................... 100,183 68,994 2,516
Fair values of net assets acquired:
Fair values of assets acquired................................ 92,680 53,590 2,317
Liabilities assumed........................................... (43,400) (10,924)
--------- --------- ---------
Total net assets acquired....................................... 49,280 42,666 2,317
--------- --------- ---------
Goodwill........................................................ $ 50,903 $ 26,328 $ 199
--------- --------- ---------
--------- --------- ---------
</TABLE>

The following table presents unaudited pro forma results of operations of
the Company for the year ended December 31, 1994, as if the above 1994
acquisitions had occurred at the beginning of 1994. There was no material pro
forma impact of the acquisitions in 1995.

<TABLE>
<CAPTION>
(IN
THOUSANDS,
EXCEPT PER
SHARE DATA)
-------------
<S> <C>
Net sales...................................................................... $ 426,626
-------------
-------------
Income before extraordinary loss............................................... $ 7,447
-------------
-------------
Net income..................................................................... $ 7,250
-------------
-------------
Earnings per share............................................................. $ 1.14
-------------
-------------
</TABLE>

The unaudited pro forma results of operations are not necessarily indicative
of what the actual results of operations of the Company would have been had the
acquisitions occurred at the beginning of 1994, nor do they purport to be
indicative of the future results of operations of the Company.

Subsequent to year-end, the Company, through its Velda Farms subsidiary,
acquired certain assets of Skinners' Dairy, Inc. for a purchase price of $2.7
million. The acquisition was funded with additional term loan borrowings under
the Senior Credit Facility. There was no material pro forma impact of the
acquisition.

F-12
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

4. ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
SEPTEMBER 30,
1996
-------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Trade customers, including route receivables............. $ 24,731 $ 28,435 $ 40,916
Milk industry and milk price stabilization fund.......... 3,539 1,839 2,489
Suppliers................................................ 497 604 2,612
Customer financing receivables........................... 516 353 261
Officers and employees................................... 388 425 557
Other.................................................... 709 737 2,354
--------- --------- -------------
30,380 32,393 49,189
Less allowance for doubtful accounts..................... (1,216) (1,348) (1,460)
--------- --------- -------------
$ 29,164 $ 31,045 $ 47,729
--------- --------- -------------
--------- --------- -------------
</TABLE>

5. INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
SEPTEMBER 30,
1996
-------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Pasteurized and raw milk and raw materials............... $ 3,725 $ 4,278 $ 6,062
Parts and supplies....................................... 3,075 3,105 4,482
Finished goods........................................... 3,947 3,963 5,309
--------- --------- -------------
$ 10,747 $ 11,346 $ 15,853
--------- --------- -------------
--------- --------- -------------
</TABLE>

6. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
SEPTEMBER 30,
1996
-------------
(IN THOUSANDS)(UNAUDITED)
<S> <C> <C> <C>
Land.................................................. $ 15,587 $ 15,582 $ 18,117
Buildings and improvements............................ 30,392 33,264 41,884
Machinery and equipment............................... 42,338 47,119 60,465
Motor vehicles........................................ 9,140 9,994 11,538
Furniture and fixtures................................ 16,421 18,219 18,684
---------- ---------- -------------
113,878 124,178 150,688
Less accumulated depreciation and amortization........ (23,004) (31,463) (38,408)
---------- ---------- -------------
$ 90,874 $ 92,715 $ 112,280
---------- ---------- -------------
---------- ---------- -------------
</TABLE>

F-13
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

7. INTANGIBLE AND OTHER ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
---------- ---------
SEPTEMBER 30,
1996
-------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill................................................ $ 78,304 $ 78,503 $ 140,846
Identifiable intangibles................................ 16,552 13,374 15,193
Deferred financing costs................................ 9,964 6,018 4,061
Organization costs...................................... 745
Investments............................................. 1,936 89 59
Deposits and other...................................... 1,488 905 918
---------- --------- -------------
108,989 98,889 161,077
Less accumulated amortization........................... (8,904) (7,478) (9,638)
---------- --------- -------------
$ 100,085 $ 91,411 $ 151,439
---------- --------- -------------
---------- --------- -------------
</TABLE>

In 1994, the Company's Reddy Ice subsidiary invested $1.2 million, including
expenses, to acquire a less than 20% partnership interest in a plastic bread bag
manufacturer which was accounted for using the cost method whereby no earnings
or losses are recognized until distributions are made. This investment was
funded through $1.5 million of junior subordinated notes, a portion of which was
required to be maintained in an investment collateral account. Immediately prior
to the Combination, Reddy Ice distributed this investment to an entity formed by
the stockholders of Reddy Ice at its carrying value in consideration for cash
and the assumption by this entity of the existing junior subordinated note and
the related investment collateral account used to fund the investment.

8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
SEPTEMBER 30,
1996
-------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts payable......................................... $ 19,949 $ 21,689 $ 30,882
Accrued payroll and benefits............................. 3,468 6,965 8,767
Accrued interest......................................... 3,274 1,845 42
Amount payable for acquisition........................... 1,672 1,004
Other.................................................... 2,582 1,458 3,007
--------- --------- -------------
$ 30,945 $ 31,957 $ 43,702
--------- --------- -------------
--------- --------- -------------
</TABLE>

F-14
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

9. LONG-TERM DEBT

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
SEPTEMBER 30,
1996
-------------
(IN THOUSANDS)(UNAUDITED)
<S> <C> <C> <C>
Senior credit facility:
Revolving loan facility............................. $ -- $ 10,900 $ 8,600
Acquisition facility................................ 42,900
Term loans.......................................... 123,750 127,500
Senior and subordinated debt subsequently repaid...... 135,142
Subordinated notes.................................... 50,430 51,101 36,000
Capital lease obligations and other................... 2,438 1,572 953
---------- ---------- -------------
188,010 187,323 215,953
Less current portion.................................. (14,683) (15,578) (11,637)
---------- ---------- -------------
$ 173,327 $ 171,745 $ 204,316
---------- ---------- -------------
---------- ---------- -------------
</TABLE>

SENIOR CREDIT FACILITY. Simultaneously with the Combination, the Company
entered into a senior credit facility (the "Senior Credit Facility") with a
syndicate of banks with the Chase Manhattan Bank, N.A., as agent, providing for
an aggregate senior credit facility of $160.0 million, which included: (i) a
$57.0 million term loan for its mainland United States operations; (ii) a $78.0
million term loan for its Puerto Rico operations; (iii) a $20.0 million
revolving credit facility for its mainland United States operations; and (iv) a
$5.0 million revolving credit facility for its Puerto Rico operations. Under the
terms of the Senior Credit Facility, each term loan is amortized over seven
years. The revolving credit facilities expire at the end of five years. Amounts
outstanding under the Senior Credit Facility bear interest at a rate per annum
equal to one of the following rates, at the Company's option: (i) a base rate
(Base Rate) equal to the higher of the Federal Funds rate plus 50 basis points
or the Chase Manhattan Bank's prime commercial lending rate plus a margin that
varies from 0 to 75 basis points depending on the Company's ratio of defined
indebtedness to EBITDA (as defined in the Senior Credit Facility); or (ii) a
LIBOR rate plus a margin that varies from 75 to 200 basis points depending on
the Company's ratio of defined indebtedness to EBITDA. The Company pays a
commitment fee on unused amounts of the revolving facility that ranges from 20
basis points to 37.5 basis points, based on the Company's ratio of debt to
EBITDA. The blended interest rate in effect at December 31, 1995, on the Senior
Credit Facility was 7.8%.

Interest is payable quarterly, and scheduled principal installments on the
term loan facilities are due in quarterly installments of approximately $3.8
million through March 1997, $4.4 million for each quarter thereafter through
March 1998, $5.0 million for each quarter thereafter through March 2000, $5.6
million for each quarter thereafter through March 2001 and $6.3 million for each
quarter thereafter through March 2002. Loans under the Senior Credit Facility
are collateralized by substantially all assets. Borrowings under the revolving
credit facility are limited to 85% of eligible accounts receivable and 50% of
eligible inventories.

The proceeds from this Senior Credit Facility were used to repay outstanding
senior and certain subordinated debt of the Company's subsidiaries, including
Suiza-Puerto Rico's and Velda Farms' term loan and revolving credit facility
advances, and Reddy Ice's senior secured notes, subordinated notes,

F-15
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

9. LONG-TERM DEBT (CONTINUED)
certain junior subordinated notes, senior bridge loan and certain other debt,
and to redeem the outstanding preferred stock of Suiza-Puerto Rico and Velda
Farms.

On July 19, 1996 and September 9, 1996, the Company amended its senior
credit facilities. See Note 21 "Subsequent Events" for an additional discussion
of these amendments.

SUBORDINATED NOTES. On March 31, 1995, the Company issued subordinated
notes in the Combination to replace certain of the existing subordinated notes
of each of Suiza-Puerto Rico, Velda Farms and Reddy Ice. The subordinated notes
bear interest at rates ranging from 12% to 15% (13.2% on a weighted average
basis), payable on a semiannual basis in March and September of each year, with
semi-annual principal installments due in varying amounts commencing in 2001,
with the remaining unpaid principal balances due at maturity on March 31, 2004.
Certain of the subordinated notes contain provisions which allow the Company to
pay a portion of the interest through the issuance of additional notes. The
notes are subordinated to the loans under the Senior Credit Facility. On April
22, 1996 the Company repaid $15.7 million of subordinated notes. See Note 21,
"Subsequent Events" for additional discussion of this repayment.

OTHER DEBT. Other debt includes a mortgage note payable which was
collateralized by one of the Reddy Ice properties, various promissory notes for
the purchase of property, plant and equipment and capital lease obligations. The
mortgage note payable provided for interest at the prime interest rate, plus 1%,
payable monthly with principal payments through January 1996. The various
promissory notes payable provided for interest at rates ranging from 10% to
prime plus 1% and were payable in monthly installments of principal and interest
until maturity, when the remaining principal balance was due. Capital lease
obligations represent machinery and equipment financing obligations which are
payable in monthly installments of principle and interest and are collateralized
by the related assets financed.

INTEREST RATE AGREEMENTS. During 1994, the Company entered into interest
rate cap agreements to hedge against future impacts of increases in interest
rates. The cap agreements have three-year terms and notional values of $40.0
million and $14.0 million, and cap the interest rate on LIBOR loans at 6% plus
the LIBOR margin and 7.5% plus the LIBOR margin, respectively. In July 1995, the
Company entered into an interest rate floor agreement and received an up-front
payment of $250,000. The floor agreement expires in December 1996, has a
notional value of $40.0 million and sets an interest floor of 6% plus the LIBOR
margin. The up-front payment is being amortized over the life of the floor
agreement. During 1995, the Company also entered into two interest rate swap
agreements, which mature on June 30, 1998, to fix the interest on a notional
amount of $55.0 million at a fixed cost of 6% plus the LIBOR margin. The Company
has designated these interest rate agreements as hedges against its interest
rate exposure on its variable rate loans under the Senior Credit Facility.

The Company is exposed to market risk under these swap arrangements due to
the possibility of exchanging a lower interest rate for a higher interest rate.
The counterparties are major financial institutions and the risk of incurring
losses related to credit risk is considered by the Company to be remote.

DEBT COVENANTS. The Company's Senior Credit Facility contains various
financial and other restrictive covenants and requirements that the Company
maintain certain financial ratios, including leverage (computed as the ratio of
the aggregate outstanding principal amount of defined indebtedness to EBITDA, as
defined), fixed charges (computed as the ratio of EBITDA to defined fixed
charges), interest

F-16
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

9. LONG-TERM DEBT (CONTINUED)
coverage (computed as the ratio of EBITDA to defined interest expense) and
minimum net worth. The Senior Credit Facility also contains limitations on
capital expenditures, investments, the payment of dividends and the incurrence
of additional indebtedness and requires certain mandatory prepayments from the
proceeds of certain dispositions of property.

SCHEDULED MATURITIES. The scheduled maturities of long-term debt, which
include capitalized lease obligations, at December 31, 1995, were as follows (in
thousands):

<TABLE>
<S> <C>
1996...................................................... $ 15,578
1997...................................................... 17,401
1998...................................................... 19,648
1999...................................................... 20,129
2000...................................................... 21,895
Thereafter................................................ 92,672
---------
$ 187,323
---------
---------
</TABLE>

10. LEASES

The Company leases certain property, plant and equipment used in its
operations under both capital and operating lease agreements. Such leases, which
are primarily for machinery and equipment and vehicles, have lease terms ranging
from two to nine years. Certain of the operating lease agreements require the
payment of additional rentals for maintenance, based on miles driven or units
produced. Rent expense was $.6 million, $4.5 million and $6.3 million for the
years ended December 31, 1993, 1994 and 1995, respectively and $4.3 million and
$4.6 million for the nine month periods ended September 30, 1995 and 1996,
respectively.

The composition of capital leases which are reflected as property, plant and
equipment in the balance sheets at December 31, 1994 and 1995 is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment................................................. $ 2,854 $ 2,518
Less accumulated amortization........................................... (573) (814)
--------- ---------
$ 2,281 $ 1,704
--------- ---------
--------- ---------
</TABLE>

F-17
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

10. LEASES (CONTINUED)
Future minimum payments at December 31, 1995, under noncancelable capital
and operating leases with terms in excess of one year are summarized below (in
thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1996............................................................................... $ 470 $ 4,310
1997............................................................................... 185 4,146
1998............................................................................... 151 3,270
1999............................................................................... 112 2,293
2000............................................................................... 2,057
Thereafter......................................................................... 3,071
----- -----------
Total minimum lease payments................................................... 918 $ 19,147
-----------
-----------
Less amount representing imputed interest.......................................... (69)
-----
Present value of capitalized lease obligations..................................... $ 849
-----
-----
</TABLE>

11. INCOME TAXES

There is no material provision for income taxes during 1993 primarily as a
result of Reddy Ice's S corporation election and net operating losses. The
provision for income taxes for the years ended December 31, 1994 and 1995,
excluding the tax benefit of $669,000 applicable to the extraordinary loss
during 1995, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current taxes payable (refundable):
Federal.............................................................................. $ 491 $ 2,763
State................................................................................ 20 101
Deferred income taxes.................................................................. 333 (414)
--------- ---------
$ 844 $ 2,450
--------- ---------
--------- ---------
</TABLE>

F-18
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

11. INCOME TAXES (CONTINUED)
The following is a reconciliation of income taxes reported in the statements
of operations:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Tax expense at statutory rates..................................................... $ 1,959 $ 306
Tax benefit from tax-exempt earnings............................................... (2,745) (1,532)
Tax expense from losses not subject to taxes at the corporate level................ 1,612
Minority interest.................................................................. 84 35
Net operating loss carryforwards................................................... 1,344 188
Nondeductible expenses............................................................. 202 1,841
--------- ---------
$ 844 $ 2,450
--------- ---------
--------- ---------
</TABLE>

The tax effects of temporary differences giving rise to deferred income tax
assets and liabilities at December 31, 1994 and 1995 were:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred income tax assets:
Asset valuation reserves......................................................... $ 157 $ 326
Nondeductible accruals........................................................... 1,024 1,122
Net operating loss carryforwards................................................. 914 1,989
Valuation allowance.............................................................. (1,229) (1,989)
--------- ---------
866 1,448
--------- ---------
Deferred income tax liabilities:
Depreciation..................................................................... (203) 312
Amortization of intangibles...................................................... (996) (1,185)
Foreign distributions and other.................................................. (494)
--------- ---------
1,199 1,367
--------- ---------
Net deferred income tax asset (liability)........................................ $ (333) $ 81
--------- ---------
--------- ---------
</TABLE>

The Company has established a valuation allowance for deferred tax assets of
the Company's Suiza Dairy subsidiary in Puerto Rico. The deferred tax assets of
this subsidiary represent primarily net operating loss carryforwards, which,
under Puerto Rico law, are only available for utilization against future taxable
income of this subsidiary. Because of the continuing operating losses of this
subsidiary, the Company has been unable to determine that it is more likely than
not that the net deferred tax assets of this subsidiary will be realized. Should
the Company's Suiza Dairy subsidiary become profitable in future periods, this
valuation allowance may be reduced or eliminated. The Company will continue to
review this valuation allowance on a quarterly basis and make adjustments as
appropriate.

During 1995, the Company increased the valuation allowance as a result of
operating losses incurred and reversals of deferred tax assets by its Suiza
Dairy subsidiary in 1995 which increased this subsidiary's net operating loss
carryforwards.

F-19
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

11. INCOME TAXES (CONTINUED)
During the nine months ended September 30, 1996 the deferred tax asset
related to these net operating loss carryforwards and the related valuation
allowance was substantially eliminated as a result of the reduction in tax rates
in Puerto Rico from the Puerto Rico Agricultural Tax Incentives Act of 1995.

The Company has provided for income taxes during the nine months ended
September 30, 1996 using estimated 1996 effective tax rates for each of its
taxing jurisdictions which have been allocated between current income taxes
payable and deferred income taxes based on anticipated temporary differences at
December 31, 1996. Income taxes during this nine month period determined using
these effective tax rates have been adjusted to reflect the recognition of
Puerto Rico tax credits from eligible investments during 1996 pursuant to the
Puerto Rico Agricultural Tax Incentives Act of 1995 as discussed below.

In December 1995, the Commonwealth of Puerto Rico adopted the Puerto Rico
Agricultural Tax Incentives Act of 1995 which reduced the effective tax rate for
qualified agricultural businesses from 39% to 3.9% and provided for a 50% tax
credit for certain "eligible investments" in qualified agricultural business in
Puerto Rico. During 1996, the Company made investments in its Puerto Rico dairy,
fruit, plastics and Garrido operations, all of which were certified as qualified
agricultural businesses in Puerto Rico during 1996.

In connection with these investments, the Company believes that it has met
the eligible investment criteria of this act related to its investment in its
Puerto Rico dairy subsidiary. Accordingly, during the quarter ended September
30, 1996, the Company recognized $15.75 million in tax credits related to this
qualifying investment. Of this amount, the Company (i) sold $4.0 million of tax
credits to third parties, resulting in a cash gain of $3.4 million (net of a
discount and related expenses) and (ii) recognized a deferred tax asset for the
remainder of the tax credit in the amount of $11.75 million. Accordingly, the
Company recorded other income in the amount of $3.4 million from the sale ($2.2
million net of U.S. income taxes) and recorded a credit to tax expense of
approximately $11.75 million during the third quarter.

The Company is currently investigating whether its investment in Garrido or
other recent transactions relating to its Puerto Rico based operations will
qualify for tax credits based on recent rulings by Puerto Rico tax authorities.
If the Company ultimately qualifies for such credits, there can be no assurance
as to the amounts or timing of any benefits that the Company may realize.

12. MINORITY INTEREST
Prior to the Combination, minority interest included common equity interests
of approximately $.4 million representing an interest in the common stock of
certain subsidiaries, along with shares of preferred stock of certain
subsidiaries with cumulative liquidation values aggregating $8.0 million plus
cumulative unpaid dividends of between 5% and 9% annually.

The charges for minority interest in the statements of operations, which are
reflected in other income, were $.6 million and $.1 million for the years ended
December 31, 1994 and 1995, respectively, and represented accrued dividends and
the minority shareholders interest in net income of the respective subsidiary.
In connection with the Combination, the Company acquired the remaining
outstanding shares of certain of its subsidiaries, redeemed outstanding
preferred stock and paid cumulative dividends.

F-20
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

13. STOCKHOLDERS' EQUITY

CAPITAL SHARES. Authorized capital shares of the Company include 10,000
shares (1,000,000 shares as of February 29, 1996) of preferred stock with a par
value of $.01 per share and 200,000 shares (20,000,000 shares as of February 29,
1996) of common stock with a par value of $.01 per share. There have been no
shares of preferred stock issued by the Company. The rights and preferences of
preferred stock are established by the Company's board of directors upon
issuance. In connection with the Combination, the Company issued 1,973,049
shares of common stock in exchange for outstanding equity interests held by
Reddy Ice investors; 3,415,558 shares of common stock in exchange for
outstanding equity interests held by Suiza-Puerto Rico investors; and 924,872
shares of common stock in exchange for outstanding equity interests held by
Velda Farms investors.

The Company also granted the previous owners two demand registration rights
as well as incidental registration rights and additional registration rights,
effective upon the Company becoming eligible for registration on Form S-3, with
respect to their shares of common stock, subject to certain limitations.
Effective upon the closing of the Company's first underwritten public offering,
these registration rights will terminate and the previous owners will receive
three new demand registration rights and incidental registration rights subject
to certain limitations.

In connection with the acquisitions of Suiza-Puerto Rico and Velda Farms,
profits interests were granted to certain individuals, through an affiliate, as
compensation for services in identifying, structuring and negotiating these
acquisitions. Immediately prior to the Combination, the existing owners of
Suiza-Puerto Rico and Velda Farms fixed this profits interest by mutual
agreement and exchanged equity interests among investors and these individuals.
In connection with this exchange, the Company recorded a compensation expense
charge to merger expense of $5.1 million, which approximated the fair value of
these interests, and resulted in a capital contribution in the same amount.
COMMON STOCK SPLIT. On February 28, 1996, the Company's Board of Directors
authorized a 69 for 1 stock split in the form of a common stock dividend payable
to stockholders of record on February 29, 1996. In addition, on the same date,
the Board of Directors authorized the increase in the number of authorized
shares of preferred and common stock to 1,000,000 shares and 20,000,000 shares,
respectively. All references in the consolidated financial statements to number
of common shares outstanding and per share amounts, and all references to common
stock issued, stock options and related prices in the notes to the consolidated
financial statements have been restated to reflect the split.

STOCK OFFERINGS. On April 22, 1996 and August 7, 1996, the Company sold
shares of common stock. See Note 21 "Subsequent Events" for additional
disclosure.
STOCK OPTION AND RESTRICTED STOCK PLANS. In connection with the
Combination, the Company adopted an exchange option and restricted stock plan,
whereby the outstanding stock options granted by the Combined Entities were
converted into options to acquire 586,523 shares of common stock on
substantially the same terms as the prior options. These options are exercisable
at prices ranging from $.03 to $6.79 per share, which approximated the fair
market value of such shares at the date of original grant. At December 31, 1995,
579,760 of such options were outstanding, of which 480,450 were exercisable at
prices ranging from $.03 to $6.79 per share. The options vest ratably in five
annual increments and may be exercised, to the extent vested, over the ten-year
period following the award date.
Concurrently with the Combination, the Company adopted the Option and
Restricted Stock Plan (the "Plan"), which provides for grants of incentive and
nonqualified stock options and awards of restricted

F-21
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

13. STOCKHOLDERS' EQUITY (CONTINUED)
stock to directors and key employees of the Company or its subsidiaries of up to
1,069,500 shares, provided that no more than 379,500 shares may be awarded as
restricted stock. Under the terms of the Plan, the options vest ratably over a
three year period, except for options granted to outside directors, which vest
immediately. The Plan also provides that the exercise price of stock options
will not be less than the fair market value on the date of grant, and in the
case of an incentive stock option granted to an employee owning more than 10% of
the common stock of the Company on the date of grant, not less than 110% of the
fair market value. In connection with the Combination, on March 31, 1995, the
Company's Board of Directors granted 474,375 options pursuant to the Plan at an
exercise price per share of $10.51. In addition, during the remainder of 1995,
the Company granted options for an additional 3,450 shares at the same exercise
price per share. At December 31, 1995, 477,825 options were outstanding at an
exercise price of $10.51 per share, of which 3,450 shares were exercisable.
Effective January 1, 1996 the Board of Directors authorized the grant of options
for 159,253 shares at an exercise price of $12.32 per share.

Effective July 1, 1996, the Board of Directors authorized the grant of
options for 50,000 shares at an exercise price of $16.00 per share. Effective
September 1, 1996, the Board of Directors authorized the grant of options for
123,000 shares at an exercise price of $16.25 per share.

The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans and accordingly no compensation cost has
been recognized since stock options granted under these plans were at exercise
prices which approximated market value at the grant date. Had compensation
expense been determined for current period stock option grants using fair value
methods provided for in SFAS 123, the Company's net income (loss) and net
earnings (loss) per common share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
(UNAUDITED)

<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
Compensation Cost................................................ $ 765 $ 1,119

Net income (loss):
As reported.................................................... $ (10,038) $ 21,658
Pro forma...................................................... (10,543) 20,920
Net earnings (loss) per share:
As reported.................................................... $ (1.64) $ 2.31
Pro forma...................................................... (1.73) 2.23

Stock option share data:
Stock options granted during period............................ 477,825 332,253
Weighted average exercise price................................ $ 10.51 $ 14.33
Average option compensation value (1).......................... 6.41 8.44
</TABLE>

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

(1) Calculated in accordance with the Black-Scholes option pricing model, using
the following assumptions: expected volatility of 30-35%; expected dividend
yield of 0%; expected option term of ten years and risk-free rate of return
as of the date of grant which ranged from 5.64% to 7.15% based on the yield
of ten year U.S. treasury securities.

F-22
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

13. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS. Prior to the Combination, Suiza-Puerto Rico, Velda Farms and
Reddy Ice had entered into various warrant agreements with their subordinated
and junior subordinated noteholders which granted such holders the right to
purchase equity interests in each of the companies. These warrants were
exercisable, in whole or in part, at various dates through December 31, 2005.
Immediately prior to the Combination, all warrant holders exercised their
warrants to acquire equity interests in Suiza-Puerto Rico, Velda Farms and Reddy
Ice in consideration for aggregate proceeds of $4.1 million. As a result, such
warrant holders became equity holders of each of Suiza-Puerto Rico, Velda Farms
and Reddy Ice, and received shares of the Company's common stock in the
Combination.

14. EMPLOYEES SAVINGS AND PROFIT SHARING PLANS

The Company's subsidiaries each sponsor employees savings and profit sharing
plans. Employees who have completed one or more years of service and have met
other requirements pursuant to the plans are eligible to participate in the
plans. The employees participating in the plans can generally make contributions
to the plan of between 6% and 8% of their annual compensation, and each of the
subsidiaries can elect to match such contributions. During the years ended
December 31, 1994 and 1995, the Company expensed contributions to the plans of
approximately $.8 million and $.8 million, respectively. There were no material
contributions during 1993. During the unaudited nine months ended September 30,
1995 and 1996, the Company expensed contributions to the plans of approximately
$.5 million and $.6 million, respectively.

15. MERGER AND OTHER COSTS
MERGER AND OTHER COSTS. During 1994 and 1995, in connection with the
Combination, the Company incurred merger and other costs of $1.7 million and
$10.2 million, respectively, which consisted of the costs associated with the
negotiation of the merger and preparation of related merger documents and
agreements, financial consulting costs and other costs related to the
Combination of $1.4 million and $8.8 million in 1994 and 1995, respectively; and
other non-operating costs of $.3 million and $1.4 million, respectively. During
1995, these other merger costs related to the Combination included a one-time
$.5 million payment to cancel an existing management consulting agreement; a
one-time tax cost of $1.5 million to convert the Company's Puerto Rico operating
subsidiaries to United States corporations; the write-off of $.4 million in
unamortized organization costs; and $5.1 million to recognize compensation
expense related to the issuance of common stock in exchange for the profits
interest in Suiza-Puerto Rico and Velda Farms (Note 13), which resulted in a
capital contribution in the same amount.

Other non-operating costs included $.3 million of bank fees in 1994 related
to the funding of bridge loans to repay certain indebtedness prior to the
Combination, and during 1995, $.7 million of costs associated with several
uncompleted acquisitions and $.7 million of costs associated with an uncompleted
debt offering.

See discussion of 1996 costs in Note 21 "Subsequent Events."

EXTRAORDINARY LOSS. During 1994 and 1995, as a result of the repayment of
outstanding indebtedness, the Company expensed approximately $.2 million and
$8.5 million (net of income tax benefit of $.7 million), respectively, of debt
issuance, legal and other costs associated with extinguishment of prior credit
facilities. These amounts have been classified as an extraordinary loss in
accordance with the provisions of

F-23
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

15. MERGER AND OTHER COSTS (CONTINUED)
Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses
From the Extinguishment of Debt."

16. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>

<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash paid for interest.......................... $ 6,136 $ 16,929 $ 17,226 $ 16,939 $ 14,646
Cash paid for taxes............................. 362 1,432 432 3,698
Noncash transactions:
Issuance of subsidiary preferred stock in
connection with acquisitions................ 5,000 3,000
Issuance of subordinated notes and amounts
payable to the seller in connection with
acquisitions................................ 365 4,495 91
Dividends payable or paid in additional
preferred stock on subsidiary stock......... 10 197
Distribution of investment and related debt in
a bread bag manufacturer to stockholders of
Reddy Ice................................... 1,534 1,534
Acquisition of minority interest common stock
and exercise of warrants.................... 993 993
Compensation expense recorded as a capital
contribution................................ 5,111 5,111
Subordinated notes issued in lieu of
interest.................................... 430 671 671 433
</TABLE>

17. COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries are parties, in the ordinary course of
business, to certain claims and litigation. In management's opinion, the
settlement of such matters is not expected to have a material impact on the
consolidated financial statements.
In connection with the Combination, the Company entered into employment
agreements with certain officers which provided for minimum compensation levels
and incentive bonuses along with provisions for termination of benefits in
certain circumstances. The Company also entered into a consulting and
noncompetition arrangement with a former officer for a period of three years
providing for monthly payments of $12,500 for services to be rendered in the
future.

18. RELATED PARTY TRANSACTIONS
Prior to the Combination, the Company had consulting agreements with certain
stockholders and affiliates requiring the payment of monthly consulting fees,
plus expenses, in consideration for financial advisory and oversight services
provided to it by such stockholders. These consulting agreements, which were
cancelable only at the option of such stockholders over their term, were
canceled in the Combination. During the years ended December 31, 1993, 1994 and
1995, the Company expensed $.6 million, $.9 million and $.2 million,
respectively, plus expenses under the provisions of these agreements, which are
included in

F-24
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

18. RELATED PARTY TRANSACTIONS (CONTINUED)
general and administrative expenses. In addition, the Company paid an affiliate
of one of its stockholders investment banking fees of $2.0 million and $1.1
million, along with related expenses, during the years ended December 31, 1993
and 1994, respectively, for acquisition and financing services, which were
included as part of the costs and expenses of the acquisition.

19. BUSINESS AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

Information about the Company's operations in the Dairy and Ice businesses
and in different geographic areas is as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales to unaffiliated customers:
Dairy:
United States.......................... $ -- $ 102,073 $ 175,553 $ 129,692 $ 163,845
Puerto Rico............................ 6,587 191,334 204,406 154,844 157,677
--------- --------- --------- --------- ---------
6,587 293,407 379,959 284,536 321,522
Ice--United States....................... 45,088 47,701 50,507 40,918 43,089
--------- --------- --------- --------- ---------
Total................................ $ 51,675 $ 341,108 $ 430,466 $ 325,454 $ 364,611
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Operating income:
Dairy:
United States.......................... $ -- $ 4,848 $ 8,772 $ 5,733 $ 6,799
Puerto Rico............................ 92 12,274 13,614 10,808 10,770
--------- --------- --------- --------- ---------
92 17,122 22,386 16,541 17,569
Ice--United States....................... 8,610 8,638 9,218 8,800 10,040
Corporate................................ (1,040) (1,107) (1,205)
--------- --------- --------- --------- ---------
Total................................ $ 8,702 $ 25,760 $ 30,564 $ 24,234 $ 26,404
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Identifiable assets (at end of period):
Dairy:
United States.......................... $ 68,781 $ 68,852 $ 136,516
Puerto Rico............................ 125,207 119,977 154,942
--------- --------- ---------
193,988 188,829 291,458
Ice--United States....................... 44,964 40,519 53,873
Corporate................................ 3,174 4,339
--------- --------- ---------
Total................................ $ 238,952 $ 232,522 $ 349,670
--------- --------- ---------
Capital expenditures:
Dairy.................................... $ 312 $ 3,364 $ 6,676 $ 4,553 $ 7,821
Ice...................................... 895 1,420 3,573 3,067 2,319
Corporate................................ 143 18 46
--------- --------- --------- --------- ---------
Total................................ $ 1,207 $ 4,784 $ 10,392 $ 7,638 $ 10,186
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

F-25
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

19. BUSINESS AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
Depreciation expense:
<S> <C> <C> <C> <C> <C>
Dairy.................................... $ 217 $ 4,943 $ 5,995 $ 4,325 $ 4,762
Ice...................................... 3,259 3,301 3,263 2,509 2,270
--------- --------- --------- --------- ---------
Total................................ $ 3,476 $ 8,244 $ 9,258 $ 6,834 $ 7,032
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

20. FAIR VALUE OF FINANCIAL INSTRUMENTS

Pursuant to SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments", the Company is required to disclose an estimate of the fair value
of the Company's financial instruments as of December 31, 1994 and 1995.
Differences between the historical presentation and estimated fair values can
occur for many reasons, including taxes, commissions, prepayment penalties,
make-whole provisions and other restrictions as well as the inherent limitations
in any estimation technique.

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 the Company's revolving credit and term
loan facilities and certain other debt are variable, their fair values
approximate their carrying values.

Certain of the Company's long-term debt bears fixed interest rates and is
privately placed with unique terms and no active market. The fair value of such
long-term debt was determined by discounting future cash flows at current market
yields. In addition, the Company has entered into various interest rate
agreements to reduce the Company's sensitivity to changes in interest rates on
its variable rate debt. The fair values of these instruments were determined
based on current values for similar instruments with similar terms. The
following is a summary of the asset (liability) values for both the carrying
values and fair values of such instruments:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1994 1995
-------------------- --------------------
HISTORICAL HISTORICAL
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed rate debt...................................... $ (91,929) $ (85,121) $ (52,472) $ (53,621)
Interest rate agreements............................. 333 630 -- (1,220)
</TABLE>

21. SUBSEQUENT EVENTS (UNAUDITED)

On April 22, 1996, the Company sold 3,795,000 shares of common stock, $.01
par value per share, in a public offering at a price to the public of $14.00 per
share. Following this offering, the Company had 10,108,479 shares of common
stock issued and outstanding. The public offering provided net cash proceeds to
the Company of approximately $48.6 million. Of this amount, $31.1 million was
used to repay senior debt, $15.7 million was used to repay the Company's 15%
subordinated notes and $1.8 million was used to pay prepayment penalties related
to the early extinguishment of the 15% subordinated notes. As a result of these
transactions, the Company recorded a $2.2 million extraordinary loss from
extinguishment of debt

F-26
<PAGE>
SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE UNAUDITED NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996

21. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
which included $1.8 million in prepayment penalties and $1.3 million for the
write-off of deferred financing costs related to the repaid debt, net of a tax
benefit of $0.9 million. In addition, on August 7, 1996, the Company sold
625,000 shares of its common stock at a price of $16.00 per share in a private
placement to a single investor. Following the private sale, the Company had
10,739,729 shares of common stock issued and outstanding.

On July 19, 1996, the Company amended its senior credit facilities to borrow
$35.0 million to complete the Garrido acquisition (see discussion of the Garrido
acquisition below). Pursuant to this amendment, the Company's term loans were
combined into a single $130.0 million U.S. based facility. In addition, on
September 9, 1996, the Company further amended its senior credit facilities to
add a new $90.0 million acquisition facility. The Company is required to pay
interest only on amounts drawn under this facility until September 30, 1998, at
which time any outstanding balance will convert into a term facility with
scheduled amortization. In connection with this amendment, the Company expensed
$571,000 of financing costs. Under the amended senior credit facilities,
quarterly amortization payments beginning September 30, 1996 are $2.5 million,
increasing to: $3.75 million on September 30, 1997; and $5.0 million on
September 30, 1998; $5.375 million on September 30, 1999; and $6.0 million on
September 30, 2000, with the remaining unpaid balance due on March 31, 2002.

In July 1996, the Company acquired the common stock of Garrido y Compania
("Garrido") for approximately $35.0 million. In September 1996, the Company
purchased the assets of Swiss Dairy Corporation ("Swiss Dairy") for
approximately $54.0 million. In December 1996, the Company purchased the assets
of Model Dairy, Inc. ("Model Dairy") for approximately $26.0 million.
Approximately $71.0 million of the funds required for the Swiss Dairy and Model
Dairy acquisitions were funded from the Company's new $90.0 million acquisition
facility. Sales for Garrido and Swiss Dairy were approximately $26.2 million and
$108.2 million, respectively, for the twelve month period preceding their
acquisition. Sales for Model Dairy were approximately $56.9 million for its
fiscal year ended October 31, 1996.

F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Suiza Dairy Corporation
Suiza Fruit Corporation
Neva Plastics Manufacturing Corp.

We have audited the accompanying combined balance sheet of Suiza Dairy
Corporation and subsidiary, Borinquen Dairy, Inc., Suiza Fruit Corporation and
Neva Plastics Manufacturing Corp. (collectively referred to as "Pre-acquisition
Suiza-Puerto Rico") as of December 15, 1993, and the related combined statements
of operations, stockholders' equity and cash flows for the period from December
31, 1992 to December 15, 1993. These financial statements are the responsibility
of Pre-acquisition Suiza-Puerto Rico's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of Pre-acquisition Suiza-Puerto Rico
as of December 15, 1993, and the results of their combined operations and cash
flows for the period from December 31, 1992 to December 15, 1993, in conformity
with generally accepted accounting principles.

On December 16, 1993, as discussed in Note 1, the Pre-acquisition
Suiza-Puerto Rico companies were acquired by Suiza Holdings, L.P.

DELOITTE & TOUCHE LLP

Dallas, Texas
April 15, 1994

F-28
<PAGE>
PRE-ACQUISITION SUIZA-PUERTO RICO
COMBINED BALANCE SHEET
DECEMBER 15, 1993

ASSETS

<TABLE>
<S> <C>
CURRENT ASSETS:
Cash......................................................................... $11,303,709
Marketable securities........................................................ 9,788,501
Accounts receivable (Note 2)................................................. 10,017,470
Inventories (Note 3)......................................................... 3,987,522
Prepaid expenses and other current assets.................................... 1,561,185
----------
Total current assets....................................................... 36,658,387
PROPERTY, PLANT AND EQUIPMENT (Note 4)......................................... 31,134,998
INTANGIBLE AND OTHER ASSETS (Note 5)........................................... 564,082
----------
TOTAL.......................................................................... $68,357,467
----------
----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Revolving credit facility advances (Note 7).................................. $17,565,233
Accounts payable and accrued expenses (Note 6)............................... 10,940,482
Income tax payable (Note 9).................................................. 28,029
Current portion of long-term debt (Note 7)................................... 13,074,206
----------
Total current liabilities.................................................. 41,607,950

COMMITMENTS AND CONTINGENCIES (Notes 8 and 12)

COMBINED STOCKHOLDERS' EQUITY:
Preferred stock.............................................................. 6,922,700
Common stock................................................................. 8,998,741
Additional paid-in capital...................................................
Retained earnings............................................................ 10,828,076
----------
Total equity............................................................... 26,749,517
----------
TOTAL.......................................................................... $68,357,467
----------
----------
</TABLE>

See notes to combined financial statements.

F-29
<PAGE>
PRE-ACQUISITION SUIZA-PUERTO RICO
COMBINED STATEMENT OF OPERATIONS
PERIOD FROM DECEMBER 31, 1992 TO DECEMBER 15, 1993

<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 15,
1993
(50 WEEKS)
--------------
<S> <C>
NET SALES......................................................................................... $ 174,770,747
COST OF SALES..................................................................................... 135,020,164
--------------
GROSS PROFIT...................................................................................... 39,750,583
OPERATING EXPENSES:
Selling and distribution........................................................................ 21,664,253
General and administrative...................................................................... 6,263,115
Amortization of intangibles..................................................................... 103,529
--------------
Total operating expenses...................................................................... 28,030,897
--------------
OPERATING INCOME.................................................................................. 11,719,686
OTHER (INCOME) EXPENSE:
Interest expense, including amortization of deferred financing costs............................ 2,407,316
Interest income................................................................................. (1,228,133)
Other........................................................................................... (106,640)
--------------
Total other expense........................................................................... 1,072,543
--------------
INCOME BEFORE INCOME TAXES........................................................................ 10,647,143
INCOME TAX BENEFIT (Note 9)....................................................................... (2,246,209)
--------------
NET INCOME........................................................................................ $ 12,893,352
--------------
--------------
</TABLE>

See notes to combined financial statements.

F-30
<PAGE>
PRE-ACQUISITION SUIZA-PUERTO RICO
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM DECEMBER 31, 1992 TO DECEMBER 15, 1993

<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED PAID-IN RETAINED
STOCK COMMON STOCK CAPITAL EARNINGS TOTAL
------------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992................ $ 6,922,700 $ 8,529,306 $ 439,694 $ 7,279,515 $ 23,171,215
Distribution of net assets of the fruit
business of Suiza Dairy Corporation to
form Suiza Fruit Corporation.......... 469,435 (439,694) (29,741) --
Net income for the period ended December
15, 1993.............................. 12,893,352 12,893,352
Dividends............................... (9,315,050) (9,315,050)
------------ ------------ ----------- ------------- -------------
BALANCE, DECEMBER 15, 1993................ $ 6,922,700 $ 8,998,741 $ -- $ 10,828,076 $ 26,749,517
------------ ------------ ----------- ------------- -------------
------------ ------------ ----------- ------------- -------------
</TABLE>

See notes to combined financial statements.

F-31
<PAGE>
PRE-ACQUISITION SUIZA-PUERTO RICO

COMBINED STATEMENT OF CASH FLOWS

PERIOD FROM DECEMBER 31, 1992 TO DECEMBER 15, 1993

<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 15,
1993
(50 WEEKS)
--------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................................... $ 12,893,352
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................................. 4,874,100
Amortization of intangibles and other assets, including deferred financing costs.............. 103,529
Change in deferred income taxes............................................................... (2,734,497)
Gain on sale of marketable securities......................................................... (679,112)
Changes in operating assets and liabilities:
Accounts receivable......................................................................... 2,590,937
Inventories................................................................................. 99,600
Prepaid expenses and other assets........................................................... (467,560)
Accounts payable and other accrued expenses................................................. (600,638)
Income tax payable.......................................................................... (3,703,506)
--------------
Net cash provided by operating activities................................................. 12,376,205
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities.............................................................. (9,819,875)
Proceeds from sale of marketable securities..................................................... 11,290,693
Capital expenditures............................................................................ (3,758,983)
Collection of note receivable................................................................... 540,000
--------------
Net cash used in investing activities..................................................... (1,748,165)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt.............................................................. 16,702,291
Repayments of debt.............................................................................. (4,315,389)
Cash dividends.................................................................................. (14,994,428)
--------------
Net cash used in financing activities..................................................... (2,607,526)
--------------
INCREASE IN CASH.................................................................................. 8,020,514
CASH AT BEGINNING OF PERIOD....................................................................... 3,283,195
--------------
CASH AT END OF PERIOD............................................................................. $ 11,303,709
--------------
--------------
</TABLE>

See notes to combined financial statements.

F-32
<PAGE>
PRE-ACQUISITION SUIZA-PUERTO RICO

NOTES TO COMBINED FINANCIAL STATEMENTS

PERIOD FROM DECEMBER 31, 1992 TO DECEMBER 15, 1993

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS. Suiza Dairy Corporation and its wholly owned
subsidiary, Borinquen Dairy, Inc., Suiza Fruit Corporation (formed effective
January 1, 1993, through the distribution of the net assets of the fruit
business of Suiza Dairy Corporation) and Neva Plastics Manufacturing Corp.
(collectively, "Pre-Acquisition Suiza-Puerto Rico" or "Suiza-Puerto Rico") were
affiliated companies in Puerto Rico under common control and management.
Accordingly, combined financial statements are presented for the operations of
these affiliated companies. All significant intercompany balances and
transactions were eliminated in combination. Effective December 16, 1993,
Pre-Acquisition Suiza-Puerto Rico was acquired by Suiza Holdings, L.P. (a
limited partnership) which was organized under the laws of the State of Delaware
in December 1993 as a holding company for its Puerto Rico subsidiaries, Suiza
Dairy Corporation (formerly Engles Acquisition D, Inc.), Suiza Fruit Corporation
(formerly Engles Acquisition F, Inc.) and Neva Plastics Manufacturing Corp.
(formerly Engles Acquisition P, Inc.) to effect the acquisition of the combined
companies.

Suiza-Puerto Rico manufactures and distributes fluid milk products and
refrigerated ready-to-serve fruit drinks, and distributes refrigerated and
frozen foods to various customers, including grocery stores, retail outlets and
schools throughout Puerto Rico. Suiza-Puerto Rico provides credit terms to
certain customers generally ranging from 15 to 30 days, performs ongoing credit
evaluations of its customers and maintains allowances for potential credit
losses based on historical experience.

MARKETABLE SECURITIES. Marketable securities consist principally of U.S.
government securities and are stated at the lower of cost or market at the
balance sheet date. Dividends and interest income are accrued as earned. The
cost of marketable securities sold is determined on the specific identification
method for recognizing realized gains or losses on sales of marketable
securities.

INVENTORIES. Pasteurized and raw milk inventories are stated at the lower
of average cost or market. Raw materials, spare parts and supplies, and
merchandise for resale inventories are stated at the lower of cost, using the
first-in, first-out ("FIFO") method, or market. Manufactured finished goods
inventories are stated at the lower of average production cost or market.
Production costs include raw materials, direct labor and indirect production and
overhead costs.

<TABLE>
<CAPTION>
ASSET USEFUL LIFE
- --------------------------------------------------------------- ---------------------
<S> <C>
Buildings and improvements..................................... Ten to 40 years
Machinery and equipment........................................ Five to 20 years
Motor vehicles................................................. Five to 15 years
Furniture and fixtures......................................... Three to ten years
</TABLE>

INTANGIBLES AND OTHER ASSETS. Intangibles and other assets include
primarily goodwill which is amortized over 40 years using the straight-line
method.

F-33
<PAGE>
PRE-ACQUISITION SUIZA-PUERTO RICO

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

PERIOD FROM DECEMBER 31, 1992 TO DECEMBER 15, 1993

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Suiza-Puerto Rico periodically assesses the net realizable value of its
intangible assets, as well as all other assets, by comparing the expected future
net operating cash flows, undiscounted and without interest charges, to the
carrying amount of the underlying assets. Suiza-Puerto Rico would evaluate a
potential impairment if the recorded value of these assets exceeded the
associated future net operating cash flows.

Any potential impairment loss would be measured as the amount by which the
carrying value exceeds the fair value of the asset. Fair value of assets would
be measured by market value, if an active market exists, or by a forecast of
expected future net operating cash flows, discounted at a rate commensurate with
the risk involved.

REVENUE. Revenue is recognized when the product is shipped to the customer.

INCOME TAXES. Suiza Dairy Corporation, Suiza Fruit Corporation and Neva
Plastics Manufacturing Corp. were all organized under the laws of the
Commonwealth of Puerto Rico, and as a result, each is required to file a
separate income tax return in Puerto Rico. Accordingly, Puerto Rico income taxes
are provided for in the combined financial statements based on each company's
separate Puerto Rico tax returns.

Suiza Fruit Corporation and Neva Plastics Manufacturing Corp. have been
granted, with certain qualifications, partial exemptions from Puerto Rico
income, property and municipal taxes. The grants were originally made to extend
for a period of ten years and provide for a 90% exemption from income and
property taxes and a 60% exemption from municipal taxes.

Deferred income taxes are provided for in the combined financial statements
for temporary differences in the financial statement and tax bases of assets and
liabilities using current tax rates in effect in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." There are
no material temporary differences which give rise to deferred income taxes.

CASH EQUIVALENTS. Suiza-Puerto Rico considers all highly liquid investments
purchased with a remaining maturity of three months or less to be cash
equivalents.

2. ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
DECEMBER 15, 1993
-----------------
<S> <C>
Trade customers, including route receivables............................... $ 7,811,936
Milk industry and milk price stabilization fund............................ 750,406
Suppliers.................................................................. 292,058
Customer financing receivables............................................. 683,207
Officers and employees..................................................... 330,578
Other...................................................................... 499,285
-----------------
10,367,470
Less allowance for doubtful accounts....................................... (350,000)
-----------------
$ 10,017,470
-----------------
-----------------
</TABLE>

Trade customers accounts receivable include $1,656,000 of route receivables.

F-34
<PAGE>
PRE-ACQUISITION SUIZA-PUERTO RICO

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

PERIOD FROM DECEMBER 31, 1992 TO DECEMBER 15, 1993

3. INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 15, 1993
-----------------
<S> <C>
Pasteurized and raw milk................................................... $ 771,571
Raw materials.............................................................. 821,606
Spare parts and supplies................................................... 1,573,743
Manufactured finished goods................................................ 306,860
Merchandise purchased for resale........................................... 513,742
-----------------
$ 3,987,522
-----------------
-----------------
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 15, 1993
-----------------
<S> <C>
Land....................................................................... $ 997,112
Buildings and improvements................................................. 12,888,499
Machinery and equipment.................................................... 24,355,356
Motor vehicles............................................................. 9,770,939
Furniture and fixtures..................................................... 3,059,807
-----------------
51,071,713
Less accumulated depreciation and amortization............................. (19,936,715)
-----------------
$ 31,134,998
-----------------
-----------------
</TABLE>

5. INTANGIBLE AND OTHER ASSETS

<TABLE>
<CAPTION>
DECEMBER 15, 1993
-----------------
<S> <C>
Goodwill................................................................... $ 722,187
Deposits and other......................................................... 2,100
-----------------
724,287
Less accumulated amortization.............................................. (160,205)
-----------------
$ 564,082
-----------------
-----------------
</TABLE>

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
DECEMBER 15, 1993
-----------------
<S> <C>
Accounts payable........................................................... $ 8,318,021
Accrued payroll and benefits............................................... 1,638,505
Accrued interest........................................................... 41,672
Other...................................................................... 942,284
-----------------
$ 10,940,482
-----------------
-----------------
</TABLE>

F-35
<PAGE>
PRE-ACQUISITION SUIZA-PUERTO RICO

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

PERIOD FROM DECEMBER 31, 1992 TO DECEMBER 15, 1993

7. DEBT

<TABLE>
<CAPTION>
DECEMBER 15, 1993
-----------------
<S> <C>
Revolving credit facility advances......................................... $ 17,565,233
-----------------
-----------------
Long-term debt:
Debt repaid upon acquisition............................................. $ 12,279,991
Capitalized lease obligations (Note 8)................................... 794,215
-----------------
13,074,206
Less current portion....................................................... (13,074,206)
-----------------
$ --
-----------------
-----------------
</TABLE>

In connection with the acquisition by Suiza Holdings, L.P. described in Note
1, the Pre-acquisition Suiza-Puerto Rico debt, including revolving credit
facility advances, were assumed and repaid on December 16, 1993.

CAPITAL LEASE OBLIGATIONS AND OTHER. Capital lease obligations represent
primarily machinery and equipment financing obligations which are payable in
monthly installments of principal and interest and are collateralized by the
related assets financed.

8. LEASES

Suiza-Puerto Rico leases certain property, plant and equipment used in its
operations under both capital and operating lease agreements. Such leases, which
are primarily for equipment and vehicles, have lease terms ranging from five to
seven years. Certain of the operating lease agreements require the payment of
additional rentals based on units produced. Rent expense, including additional
rent, was $351,000 for the period from December 31, 1992 to December 15, 1993.

9. INCOME TAXES

The following is a reconciliation of income taxes reported in the combined
statements of operations:

<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 15,
1993
(50 WEEKS)
-------------
<S> <C>
Tax expense at statutory rates................................................. $ 4,473,031
Tax benefit from tax-exempt earnings........................................... (4,348,317)
Deferred tax benefit........................................................... (2,734,497)
Other.......................................................................... 363,574
-------------
$ (2,246,209)
-------------
-------------
</TABLE>

During 1993, the Department of Treasury of the Commonwealth of Puerto Rico
completed an examination of Suiza Dairy Corporation's income tax returns through
fiscal year 1992. As the result of this examination, the Department of Treasury
assessed Suiza Dairy Corporation additional taxes to recapture tax deductions
taken for flexible depreciation in prior years. During the period ended December
15, 1993, an agreement was reached with the Department of Treasury of the
Commonwealth of Puerto Rico

F-36
<PAGE>
PRE-ACQUISITION SUIZA-PUERTO RICO

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

PERIOD FROM DECEMBER 31, 1992 TO DECEMBER 15, 1993

9. INCOME TAXES (CONTINUED)
whereby Suiza Dairy Corporation agreed to pay $3,000,000 (including interest
assessed of $604,000) to settle all claims related to flexible depreciation and
to eliminate any temporary differences related to depreciation in the future. As
a result of this settlement of all flexible depreciation claims, excess deferred
tax liabilities of $2,734,497 were recognized as a tax benefit.

10. EMPLOYEES SAVINGS AND PROFIT SHARING PLAN

The companies sponsor an employees savings and profit sharing plan.
Employees who are both 21 years of age and have completed one or more years of
service are eligible to participate in the plan. The employees participating in
the plan can make contributions to the plan of up to 8% of their annual
compensation, and the companies can elect to match such contributions, at the
discretion of the boards of directors. The matching amount during 1993 was set
at a rate of $.75 for each dollar contributed by the employees. In addition, the
companies can make an additional profit sharing contribution at the discretion
of the companies' boards of directors. During the period from December 31, 1992
to December 15, 1993, Suiza-Puerto Rico accrued profit sharing expense of
$828,000.

11. SUPPLEMENTAL CASH FLOW INFORMATION

Cash used to pay interest during the period from December 31, 1992 to
December 15, 1993, amounted to approximately $2,313,000.

Cash used to pay taxes during the period from December 31, 1992 to December
15, 1993, amounted to approximately $1,084,000.

Noncash transactions during the period ended December 15, 1993, included the
distribution of the net assets of the fruit business of Suiza Dairy Corporation
to stockholders and the contribution of such net assets to Suiza Fruit
Corporation in exchange for the issuance of common stock in the amount of
$548,358.

12. COMMITMENTS AND CONTINGENCIES

The companies are a party, in the ordinary course of business, to certain
claims and litigation. In management's opinion, the settlement of such matters
is not expected to have a material impact on the combined financial statements.

F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Velda Farms, Inc.
Dallas, Texas

We have audited the accompanying balance sheets of Velda Farms, Inc. (a
wholly owned subsidiary of The Morningstar Group, Inc. ("Pre-acquisition Velda
Farms")) as of April 9, 1994 and December 31, 1993, and the related statements
of operations, equity (deficit) and cash flows for the period from January 1,
1994 to April 9, 1994, and for the year ended December 31, 1993. These financial
statements are the responsibility of Pre-acquisition Velda Farms' management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Pre-acquisition Velda Farms at April 9, 1994
and December 31, 1993 and the results of its operations and its cash flows for
the period from January 1, 1994 to April 9, 1994 and the year ended December 31,
1993 in conformity with generally accepted accounting principles.

Effective April 10, 1994, as discussed in Note 1, Pre-acquisition Velda
Farms was acquired by Velda Holdings, Inc. and Velda Holdings, L.P.

DELOITTE & TOUCHE LLP

Dallas, Texas
November 4, 1994

F-38
<PAGE>
PRE-ACQUISITION VELDA FARMS

BALANCE SHEETS

DECEMBER 31, 1993 AND APRIL 9, 1994

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, APRIL 9,
1993 1994
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................................. $ 2,219 $ 1,425
Accounts receivable (Note 2)..................................................... 10,066,504 12,072,851
Inventories (Note 3)............................................................. 4,063,307 3,925,354
Prepaid expenses and other current assets........................................ 31,882 228,627
------------- -------------
Total current assets........................................................... 14,163,912 16,228,257
PROPERTY, PLANT AND EQUIPMENT (Note 4)............................................. 13,627,432 13,425,470
INTANGIBLE AND OTHER ASSETS (Note 5)............................................... 10,423,366 10,213,730
------------- -------------
TOTAL.............................................................................. $ 38,214,710 $ 39,867,457
------------- -------------
------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note 6)................................... $ 8,597,223 $ 9,398,931
Intercompany payables to parent.................................................. 899,021 1,010,578
Current portion of long-term debt (Note 7)....................................... 87,021 76,061
------------- -------------
Total current liabilities...................................................... 9,583,265 10,485,570
LONG-TERM DEBT (Note 7)............................................................ 30,497,325 30,517,346

COMMITMENTS AND CONTINGENCIES (Notes 8 and 12)

STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, par value $1.00 per share; 1,000 shares authorized, issued and
outstanding.................................................................... 1,000 1,000
Retained earnings (deficit)...................................................... (1,866,880) (1,136,459)
------------- -------------
Total equity (deficit)......................................................... (1,865,880) (1,135,459)
------------- -------------
TOTAL.............................................................................. $ 38,214,710 $ 39,867,457
------------- -------------
------------- -------------
</TABLE>

See notes to financial statements.

F-39
<PAGE>
PRE-ACQUISITION VELDA FARMS

STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1993
PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994

<TABLE>
<CAPTION>
PERIOD
FROM
JANUARY 1,
1994 TO
APRIL 9,
1993 1994
----------- ----------
NET SALES......................................................... $125,907,847 $38,268,830
<S> <C> <C>
COST OF SALES..................................................... 95,145,659 29,462,819
----------- ----------
Gross profit.................................................... 30,762,188 8,806,011
OPERATING EXPENSES:
Selling and distribution........................................ 20,459,855 5,901,185
General and administrative...................................... 3,789,260 1,009,012
Amortization of intangibles..................................... 797,174 178,449
Parent administrative allocation................................ 1,270,937 257,720
Parent restructuring allocation................................. 1,022,761
----------- ----------
Total operating expenses...................................... 27,339,987 7,346,366
----------- ----------
INCOME FROM OPERATIONS............................................ 3,422,201 1,459,645
OTHER (INCOME) EXPENSE:
Interest expense, including amortization of deferred financing
costs......................................................... 2,546,343 639,058
Other........................................................... (34,260) 90,166
----------- ----------
Total other expense........................................... 2,512,083 729,224
----------- ----------
INCOME BEFORE INCOME TAXES........................................ 910,118 730,421
INCOME TAXES (Note 9).............................................
----------- ----------
NET INCOME........................................................ $ 910,118 $ 730,421
----------- ----------
----------- ----------
</TABLE>

See notes to financial statements.

F-40
<PAGE>
PRE-ACQUISITION VELDA FARMS

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

YEAR ENDED DECEMBER 31, 1993 AND
PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994

<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993..................................... $ 1,000 $ -- $ (2,776,998) $ (2,775,998)
Net income................................................. 910,118 910,118
----------- ----- ------------- -------------
BALANCE, DECEMBER 31, 1993................................... 1,000 -- (1,866,880) (1,865,880)
Net income for the period from January 1, 1994 to April 9,
1994..................................................... 730,421 730,421
----------- ----- ------------- -------------
BALANCE, APRIL 9, 1994....................................... $ 1,000 $ -- $ (1,136,459) $ (1,135,459)
----------- ----- ------------- -------------
----------- ----- ------------- -------------
</TABLE>

See notes to financial statements.

F-41
<PAGE>
PRE-ACQUISITION VELDA FARMS

STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31, 1993 AND
PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1994
TO
1993 APRIL 9, 1994
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 910,118 $ 730,421
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................. 1,308,366 344,728
Amortization of intangible assets, including deferred financing costs......... 913,626 210,034
Changes in operating assets and liabilities:
Accounts receivable......................................................... (848,604) (2,006,347)
Inventories................................................................. 148,046 137,953
Prepaid expenses and other assets........................................... (3,048) (197,143)
Accounts payable and other accrued expenses................................. 975,773 801,708
------------- --------------
Net cash provided by operating activities................................. 3,404,277 21,354
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (336,023) (122,745)
------------- --------------
Net cash used in investing activities..................................... (336,023) (122,745)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt.............................................................. (57,157) (10,960)
Net repayments of intercompany payables......................................... (3,010,703) 111,557
------------- --------------
Net cash provided by (used in) financing activities....................... (3,067,860) 100,597
------------- --------------
INCREASE (DECREASE) IN CASH....................................................... 394 (794)
CASH AT BEGINNING OF PERIOD....................................................... 1,825 2,219
------------- --------------
CASH AT END OF PERIOD............................................................. $ 2,219 $ 1,425
------------- --------------
------------- --------------
</TABLE>

See notes to financial statements.

F-42
<PAGE>
PRE-ACQUISITION VELDA FARMS

NOTES TO FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 1993 AND PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS. Velda Farms, Inc. ("Pre-acquisition Velda Farms"
or "Velda Farms") was a wholly owned subsidiary of The Morningstar Group Inc.
(the "Parent"). Effective April 10, 1994, Velda Holdings, Inc. and Velda
Holdings, L.P. (a limited partnership) acquired Velda Farms, Inc. from the
Parent.

Velda Farms manufactures and distributes fresh milk, ice cream and related
products throughout peninsular Florida under its own brand names and under
brands licensed from third parties to various customers, including food service
accounts, convenience stores, club stores and schools. Velda Farms provides
credit terms to customers generally ranging to up to 30 days, performs ongoing
credit evaluations of its customers and maintains allowances for potential
credit losses based on historical experience.

INVENTORIES. Pasteurized and raw milk inventories are stated at the lower
of average cost or market. Raw material, packaging material and case and
container inventories are stated at the lower of cost, using the first-in,
first-out ("FIFO") method, or market. Manufactured finished goods inventories
are stated at the lower of average production cost or market. Production costs
include raw materials, direct labor and indirect production and overhead costs.

PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. Depreciation and amortization is provided using the straight-line method
over the estimated useful lives of the assets, as follows:

<TABLE>
<CAPTION>
ASSET USEFUL LIFE
- ----------------------------------------------------------------------- ---------------------
<S> <C>
Buildings and improvements............................................. Ten to 40 years
Machinery and equipment................................................ Five to 20 years
Furniture and fixtures................................................. Three to ten years
</TABLE>

INTANGIBLE ASSETS. Intangible assets include the following intangibles
which are amortized over their related useful lives:

<TABLE>
<CAPTION>
INTANGIBLE ASSET USEFUL LIFE
- ----------------------------------------------- ---------------------------------------------
<S> <C>
Goodwill....................................... Straight-line method over 40 years
Customer list.................................. Straight-line method over eight years
Other identifiable intangibles................. Straight-line method over five to 15 years
Deferred financing costs....................... Interest method over the terms of the related
debt
</TABLE>

Velda Farms periodically assesses the net realizable value of its intangible
assets as well as all other assets by comparing the expected future net
operating cash flows, undiscounted and without interest charges, to the carrying
amount of the underlying assets. Velda Farms would evaluate a potential
impairment if the recorded value of these assets exceeded the associated future
net operating cash flows. Any potential impairment loss would be measured as the
amount by which the carrying value exceeds the

F-43
<PAGE>
PRE-ACQUISITION VELDA FARMS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1993 AND PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
fair value of the asset. Fair value of assets would be measured by market value,
if an active market exists, or by a forecast of expected future net operating
cash flows, discounted at a rate commensurate with the risk involved.

REVENUE. Revenue is recognized when the product is shipped to the customer.

INCOME TAXES. Pre-acquisition Velda Farms was included in the consolidated
tax return of the Parent. Current and deferred income tax expense was allocated
to Pre-acquisition Velda Farms by the Parent in accordance with the provisions
of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting
for Income Taxes." Under SFAS 109, deferred income taxes are provided for
temporary differences in the financial statement and tax bases of assets and
liabilities using the current tax rates in effect. Deferred tax assets,
including the benefit for net operating loss carryforwards, are evaluated based
on the guidelines in SFAS 109 for realization and may be reduced by a valuation
allowance. As of December 31, 1993 and April 9, 1994, there were no material
amounts of current or deferred income tax liabilities included in the
Pre-acquisition Velda Farms intercompany payable account.

CORPORATE ALLOCATIONS. The Parent has allocated certain assets and
liabilities, such as goodwill, deferred financing costs, other intangibles and
debt, to Pre-acquisition Velda Farms in accordance with the

F-44
<PAGE>
PRE-ACQUISITION VELDA FARMS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1993 AND PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pre-acquisition Velda Farms' pro rata share of such assets and liabilities. In
addition, the Parent has allocated significant expenses to Pre-acquisition Velda
Farms using the following allocation bases:

<TABLE>
<CAPTION>
EXPENSE ALLOCATION BASE
- ------------------------------------------------ ---------------------------------------------------------------
<S> <C>
Interest expense................................ 8% on the balance of the note payable to Parent
Amortization of intangibles..................... As described in "Intangible Assets" above
Corporate, general and administrative expense... Corporate overhead costs for accounting and finance, executive,
human resources, legal, management information systems and
certain other corporate departments, which consist primarily
of salary costs, were allocated based on the percentage of
sales, property, employees, specific product sales and number
of data processing users of Pre-acquisition Velda Farms to the
Parent's consolidated amounts
Profit sharing expense.......................... Determined by the Parent based on its overall performance and
allocated to Pre-acquisition Velda Farms based on its
employees' participation
Restructuring expense........................... Estimated charges of the Parent for severance pay, a chairman's
contract and the Parent's data processing conversion were
allocated to Pre-acquisition Velda Farms as determined by the
Parent
Income taxes.................................... As described in "Income Taxes" above
Relocation costs................................ At a rate of $7,500 per month for normal personnel relocations
within the operations group
Data processing charges......................... The Parent's outside data processing service bureau charges
were allocated based on Pre-acquisition Velda Farms' usage as
a proportion of the total consolidated usage
Employee benefits expense....................... Costs as estimated by the Parent for employee benefits such as
medical and dental care, term life insurance and long-term
disability coverages under the Parent's plans
Workers' compensation expense................... As estimated by the Parent based on the Parent's overall cost
and the experience of Pre-acquisition Velda Farms
Insurance expense:
General and other liability..................... Based on the percentage of Pre-acquisition Velda Farms' sales
to consolidated sales
Automobile liability............................ Based on historical claims and losses
Property liability.............................. Based on actual property values of Pre-acquisition Velda Farms
</TABLE>

CASH EQUIVALENTS. Velda Farms considers all highly liquid investments
purchased with a remaining maturity of three months or less to be cash
equivalents.

F-45
<PAGE>
PRE-ACQUISITION VELDA FARMS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1993 AND PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994

2. ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
DECEMBER 31, APRIL 9,
1993 1994
------------- -------------
<S> <C> <C>
Trade customers................................................ $ 10,187,723 $ 12,308,914
Other.......................................................... 51,833 74,199
------------- -------------
10,239,556 12,383,113
Less allowance for doubtful accounts........................... (173,052) (310,262)
------------- -------------
$ 10,066,504 $ 12,072,851
------------- -------------
------------- -------------
</TABLE>

3. INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31, APRIL 9,
1993 1994
------------ ------------
<S> <C> <C>
Raw materials.................................................... $ 503,238 $ 450,845
Packaging materials.............................................. 325,882 310,422
Finished goods................................................... 2,500,914 2,440,614
Cases and containers............................................. 733,273 723,473
------------ ------------
$4,063,307 $ 3,925,354
------------ ------------
------------ ------------
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31, APRIL 9,
1993 1994
------------- -------------
<S> <C> <C>
Land........................................................... $ 3,918,876 $ 3,918,876
Buildings and improvements..................................... 6,610,137 6,621,091
Machinery and equipment........................................ 8,082,235 8,269,883
Furniture and fixtures......................................... 2,107,911 2,081,448
------------- -------------
20,719,159 20,891,298
Less accumulated depreciation and amortization................. (7,091,727) (7,465,828)
------------- -------------
$ 13,627,432 $ 13,425,470
------------- -------------
------------- -------------
</TABLE>

F-46
<PAGE>
PRE-ACQUISITION VELDA FARMS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1993 AND PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994

5. INTANGIBLE AND OTHER ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, APRIL 9,
1993 1994
------------- -------------
<S> <C> <C>
Goodwill....................................................... $ 6,405,880 $ 6,405,880
Customer list.................................................. 2,332,067 2,332,067
Other identifiable intangibles................................. 3,093,920 3,093,920
Deferred financing costs....................................... 588,414 588,414
Deposits and other............................................. 197,930 198,328
------------- -------------
12,618,211 12,618,609
Less accumulated amortization.................................. (2,194,845) (2,404,879)
------------- -------------
$ 10,423,366 $ 10,213,730
------------- -------------
------------- -------------
</TABLE>

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
DECEMBER 31, APRIL 9,
1993 1994
------------ ------------
<S> <C> <C>
Accounts payable................................................. $6,740,086 $ 7,675,488
Accrued payroll and benefits..................................... 1,459,441 1,221,303
Other............................................................ 397,696 502,140
------------ ------------
$8,597,223 $ 9,398,931
------------ ------------
------------ ------------
</TABLE>

Trade accounts payable at December 31, 1993, and April 9, 1994, includes
$707,929 and $441,505, respectively, due to Bancroft Dairy, which is a wholly
owned subsidiary of the Parent.

7. DEBT

<TABLE>
<CAPTION>
DECEMBER 31, APRIL 9,
1993 1994
------------- -------------
<S> <C> <C>
Long-term debt:
Note payable to the Parent................................... $ 30,373,652 $ 30,373,652
Capitalized lease obligations (Note 8)....................... 210,694 219,755
------------- -------------
30,584,346 30,593,407
Less current portion........................................... (87,021) (76,061)
------------- -------------
$ 30,497,325 $ 30,517,346
------------- -------------
------------- -------------
</TABLE>

The note payable to the Parent was not assumed in the acquisition described
in Note 1.

Capital lease obligations represent machinery and equipment financing
obligations which are payable in monthly installments of principal and interest
and are collateralized by the related assets financed.

F-47
<PAGE>
PRE-ACQUISITION VELDA FARMS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1993 AND PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994

8. LEASES

Velda Farms leases certain property, plant and equipment used in its
operations under both capital and operating lease agreements. Such leases, which
are primarily for machinery and equipment and vehicles, have lease terms ranging
from two to nine years. Certain of the operating lease agreements require the
payment of additional rentals for maintenance based on miles driven or units
produced. Rent expense, including additional rent, was $4,440,454 and $1,238,823
for the year ended December 31, 1993, and the period from January 1, 1994 to
April 9, 1994, respectively.

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

<TABLE>
<CAPTION>
DECEMBER 31, APRIL 9,
1993 1994
------------- -------------
<S> <C> <C>
Machinery and equipment........................................ $ 382,125 $ 382,125
Less accumulated amortization.................................. (103,622) (113,176)
------------- -------------
$ 278,503 $ 268,949
------------- -------------
------------- -------------
</TABLE>

9. INCOME TAXES

There is no current or deferred income tax expense for the year ended
December 31, 1993, or for the period ended April 9, 1994, as a result of
available net operating loss carryforwards in sufficient amounts to eliminate
any deferred income tax liabilities.

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

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
DECEMBER 31, 1994 TO
1993 APRIL 9, 1994
------------- -------------
<S> <C> <C>
Tax expense at statutory rates................................. $ 350,000 $ 281,000
Net operating loss carryforwards............................... (415,000) (299,000)
Other.......................................................... 65,000 18,000
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
</TABLE>

10. EMPLOYEES SAVINGS AND PROFIT SHARING PLAN

Velda Farms sponsors an employees savings and profit sharing plan. Employees
of Velda Farms who have completed one or more years of service are eligible to
participate in the plan. The employees participating in the plan can make
contributions to the plan of up to 6% of their annual compensation and Velda
Farms can elect, on a discretionary basis, to match such contributions. During
the year ended December 31, 1993, and the period from January 1, 1994 to April
9, 1994, the accrued profit sharing expense was $218,000 and $60,000,
respectively.

11. SUPPLEMENTAL CASH FLOW INFORMATION

Cash used to pay interest, primarily to the Parent, which was cleared
through the intercompany payable account, was approximately $2.4 million for the
year ended December 31, 1993, and for the period

F-48
<PAGE>
PRE-ACQUISITION VELDA FARMS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1993 AND PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994

11. SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
from January 1, 1994 to April 9, 1994, was approximately $607,000. Noncash
transactions of Pre-acquisition Velda Farms during the year ended December 31,
1993, included the acquisition of equipment through capital lease obligations of
$60,305.

12. COMMITMENTS AND CONTINGENCIES

Velda Farms is a party in the ordinary course of business to certain claims
and litigation. In management's opinion, the settlement of such matters is not
expected to have a material impact on the financial statements.

13. MAJOR CUSTOMER

Velda Farms is a party to a supply contract with The Southland Corporation
("Southland") which requires certain of Southland's retail sites to purchase
their product requirements from the Company at formula prices. Sales under this
supply contract, which expires in December 1996, approximated $22.9 million, or
18% of net sales, for the year ended December 31, 1993; and $6.1 million, or 16%
of net sales, for the period from January 1, 1994 to April 9, 1994.

F-49
<PAGE>
PRE-ACQUISITION VELDA FARMS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1993 AND PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994

14. RELATED PARTY TRANSACTIONS

As discussed in Note 1, significant costs and expenses were allocated to
Pre-acquisition Velda Farms by the Parent. The following is a summary of such
corporate allocations and their classification in the statements of operations:

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1,
DECEMBER 31, 1994 TO
1993 APRIL 9, 1994
------------- -------------
<S> <C> <C>
Cost of sales:
Workers' compensation........................................ $ 279,488 $ 62,360
Employee benefits............................................ 576,304 130,956
Insurance.................................................... 303,585 83,489
------------- -------------
1,159,377 276,805
------------- -------------
Selling and distribution:
Workers' compensation........................................ 579,303 134,215
Employee benefits............................................ 1,122,780 281,852
Insurance.................................................... 531,600 146,190
------------- -------------
2,233,683 562,257
------------- -------------
General and administrative:
Workers' compensation........................................ 127,921 26,113
Employee benefits............................................ 245,751 54,838
Relocation................................................... 87,888 22,500
EDP services................................................. 703,403 227,678
------------- -------------
1,164,963 331,129
------------- -------------
Parent administrative costs.................................... 1,270,937 257,720
Restructuring costs............................................ 1,022,761
Amortization of intangibles.................................... 797,174 178,449
Interest expense............................................... 2,546,343 639,058
------------- -------------
Total allocated costs and expenses......................... $ 10,195,238 $ 2,245,418
------------- -------------
------------- -------------
</TABLE>

Management believes that the above allocated costs and expenses were
reasonable costs of the Parent which were allocated to all of the Parent's
subsidiaries. However, management believes that the Parent administrative costs
and the restructuring costs allocated to Velda Farms by the Parent are costs
which Velda Farms would not have incurred on a stand-alone basis. Management
believes the remaining allocated costs are competitive with costs to acquire
similar services.

F-50
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors
Garrido & Compania, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Garrido &
Compania, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of earnings, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

As discussed in note 1 to the consolidated financial statements, effective
July 19, 1996, Garrido & Compania, Inc.'s wholly-owned subsidiaries, Garrido
Alto Grande Corp., Alto Grande Export Corp. and Guest Choice, Inc. merged with
and into Garrido & Compania, Inc. Simultaneously on the same date, Garrido &
Compania, Inc. was acquired by G Acquisition Corp., who changed its name to
Garrido & Compania, Inc. These mergers and acquisition result in a new
accounting entity whose financial statements are not included herewith.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Garrido &
Compania, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1996 in conformity with generally accepted accounting
principles. As discussed in notes 1 and 7 to the consolidated financial
statements, effective July 1, 1993, Garrido & Compania, Inc. and Subsidiaries
changed their method of accounting for income taxes to adopt the provisions of
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME TAXES.

KPMG PEAT MARWICK, LLP

San Juan, Puerto Rico
August 23, 1996

Stamp No. 1353935 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.

F-51
<PAGE>
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995

ASSETS

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents of $8,694,471 in 1996 and $4,830,762 in 1995 (note 1)..... $ 10,736,810 $ 4,969,014
------------ ------------
Accounts receivable:
Trade (note 5)...................................................................... 2,420,152 2,756,225
Other............................................................................... 31,010 106,788
------------ ------------
2,451,162 2,863,013
Less allowance for doubtful accounts................................................ 100,000 --
------------ ------------
Accounts receivable, net.......................................................... 2,351,162 2,863,013
Inventories (notes 3 and 5)......................................................... 1,893,681 2,141,911
Other prepaid expenses.............................................................. 29,149 187,554
------------ ------------
Total current assets.............................................................. 15,010,802 10,161,492
------------ ------------
Investments in government securities.................................................. 11,229 14,062
------------ ------------
Property and equipment, at cost (notes 2, 4 and 5).................................... 4,099,079 5,193,094
Less accumulated depreciation and amortization...................................... 2,570,627 3,341,099
------------ ------------
Property and equipment, net....................................................... 1,528,452 1,851,995
Other assets, including unamortized cost of intangibles of $97,335 in 1996 and
$129,896 in 1995 (note 2)........................................................... 121,245 177,913
------------ ------------
$ 16,671,728 $ 12,205,462
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (notes 1 and 5).............................................. $ 2,115,000 $ 217,616
Current installments of long-term debt (notes 1 and 5).............................. 711,429 711,428
Current portion of notes payable to former stockholders (notes 1 and 5)............. 188,314 143,759
Accounts payable and accrued expenses (note 2)...................................... 1,083,607 736,368
Income taxes payable (note 7)....................................................... 265,088 90,849
------------ ------------
Total current liabilities......................................................... 4,363,438 1,900,020
Long-term debt, excluding current installments (notes 1 and 5)........................ 1,499,523 2,210,952
Notes payable to former stockholders, excluding current portion (notes 1 and 5)....... 469,269 664,853
Deferred income taxes (note 7)........................................................ 34,277 788,598
Other liabilities (note 2)............................................................ -- 85,000
------------ ------------
Total liabilities................................................................. 6,366,507 5,649,423
------------ ------------
Stockholders' equity:
Common stock, $100 par value. Authorized 10,000 shares; 586 shares issued and
outstanding (note 5).............................................................. 58,600 58,600
Retained earnings................................................................... 10,246,621 6,497,439
------------ ------------
Total stockholders' equity........................................................ 10,305,221 6,556,039
Commitments and contingencies (notes 6, 7 and 8)......................................
------------ ------------
$ 16,671,728 $ 12,205,462
------------ ------------
------------ ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-52
<PAGE>
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED JUNE 30, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................................................... $ 26,219,899 $ 25,803,634 $ 24,747,415
Cost of sales....................................................... 17,793,564 18,200,625 17,571,451
------------- ------------- -------------
Gross profit.................................................... 8,426,335 7,603,009 7,175,964
Selling, general and administrative expenses (notes 6 and 8)........ 5,034,182 4,493,311 4,968,225
------------- ------------- -------------
Operating income................................................ 3,392,153 3,109,698 2,207,739
Other income/(expenses):
Interest expense (notes 2 and 5).................................. (299,885) (353,439) (422,965)
Other, net........................................................ 327,450 56,028 12,610
------------- ------------- -------------
Total other income/(expense), net............................... 27,565 (297,411) (410,355)
------------- ------------- -------------
Earnings before income taxes and cumulative effect of change in
accounting principle.......................................... 3,419,718 2,812,287 1,797,384
------------- ------------- -------------
Income taxes (note 7)
Current........................................................... (424,857) (336,077) (254,358)
Deferred.......................................................... 754,321 (134,260) (34,910)
------------- ------------- -------------
329,464 (470,337) (289,268)
------------- ------------- -------------
Earnings before cumulative effect of change in accounting
principle..................................................... 3,749,182 2,341,950 1,508,116
------------- ------------- -------------
Cumulative effect at July 1, 1993 of change in accounting principle
(notes 1 and 7)................................................... -- -- (103,074)
------------- ------------- -------------
Net earnings.................................................... $ 3,749,182 $ 2,341,950 $ 1,405,042
------------- ------------- -------------
------------- ------------- -------------
Earnings per share of common stock (note 1):
Before cumulative effect of change in
accounting principle............................................ $ 6,398 $ 3,997 $ 2,356
Cumulative effect of change in accounting
principle (notes 1 and 7)....................................... -- -- (161)
------------- ------------- -------------
Net earnings per share (note 1)................................. $ 6,398 $ 3,997 $ 2,195
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-53
<PAGE>
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

JUNE 30, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
--------- ------------- -------------
<S> <C> <C> <C>
Balance at June 30, 1993................................................ $ 65,100 $ 3,493,947 $ 3,559,047
Net earnings............................................................ -- 1,405,042 1,405,042
Acquisition and cancellation of 65 shares of common
stock (note 5)........................................................ (6,500) (743,500) (750,000)
--------- ------------- -------------
Balance at June 30, 1994................................................ 58,600 4,155,489 4,214,089
Net earnings............................................................ -- 2,341,950 2,341,950
--------- ------------- -------------
Balance at June 30, 1995................................................ 58,600 6,497,439 6,556,039
Net earnings -- 3,749,182 3,749,182
--------- ------------- -------------
Balance at June 30, 1996................................................ $ 58,600 $ 10,246,621 $ 10,305,221
--------- ------------- -------------
--------- ------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-54
<PAGE>
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED JUNE 30, 1996, 1995 AND 1994

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings....................................................... $ 3,749,182 $ 2,341,950 $ 1,405,042
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization.................................... 543,277 633,298 656,814
Deferred income taxes............................................ (754,321) 134,260 137,984
Net gain/(loss) in disposition of property and equipment......... 8,144 -- (1,800)
Amortization on discount on notes payable to former
stockholders................................................... 10,092 10,396 10,613
Change in assets and liabilities:
Decrease/(increase) in accounts receivable, net................ 511,851 (427,983) (252,874)
Decrease/(increase) in inventories............................. 248,230 4,371,240 (1,954,132)
Decrease in prepaid income tax................................. -- 23,357
Decrease/(increase) in other prepaid expenses.................. 158,405 111,003 (70,319)
Decrease/(increase) in other assets............................ 48,144 (37,071) 4,668
Increase/(decrease) in accounts payable and accrued expenses... 347,239 (49,710) 205,368
Decrease in obligation under capital lease..................... -- (19,266) (19,202)
Increase/(decrease) in other liabilities....................... (85,000) (85,000) (149,876)
Increase in income tax payable................................. 174,239 1,373 89,476
------------- ------------- -------------
Total adjustments............................................ 1,210,300 4,642,540 (1,319,923)
------------- ------------- -------------
Net cash provided by operating activities.................... 4,959,482 6,984,490 85,119
------------- ------------- -------------
Cash flows from investing activities:
Principal returns on investment in government securities........... 2,833 3,343 2,765
Proceeds on sale of property and equipment......................... 1,000 8,600 3,100
Capital expenditures for additions to property and equipment....... (220,354) (312,544) (261,299)
------------- ------------- -------------
Net cash used in investing activities........................ (216,521) (300,601) (255,434)
------------- ------------- -------------
Cash flows from financing activities:
Net borrowings under various lines of credit agreements and demand
notes payable.................................................... 8,048,242 1,700,000 962,269
Payments of long-term debt and note payable to bank................ (6,862,287) (3,215,049) (565,476)
Payments on principal of notes payable to former stockholders...... (161,120) (351,370) (46,886)
Acquisition and cancellation of common stock....................... -- -- (269,123)
------------- ------------- -------------
Net cash provided by/(used in) financing activities.......... 1,024,835 (1,866,419) 80,784
------------- ------------- -------------
Net increase/(decrease) in cash (note 9)............................. 5,767,796 4,817,470 (89,531)
Cash and cash equivalents at beginning of year....................... 4,969,014 151,544 241,075
------------- ------------- -------------
Cash and cash equivalents at end of year............................. $ 10,736,810 $ 4,969,014 $ 151,544
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-55
<PAGE>
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1996 AND 1995

(1) NATURE OF BUSINESS, AFFILIATION, SUBSEQUENT EVENTS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Garrido & Compania, Inc. and its subsidiaries (the Company) are mainly
engaged in the processing and roasting of raw coffee for sale and distribution
under the tradenames of Cafe Crema, Cafe Adjuntas, Cafe Pilon, Cafe Expreso,
Cafe Alto Grande and under Executive and Aroma Coffee Break Services. In
addition, the Company exports certain products to be sold outside the United
States' territories, such as Japan, Sweden, and other European countries, which
currently represents less than 10% of sales.

AFFILIATION
The Company is 100% owner of the outstanding common stock of Garrido Alto
Grande Corp. (GAGC), Alto Grande Export Corp. (AGEC) and Guest Choice, Inc.
(GC).

Guest Choice, Inc. was incorporated under the laws of Puerto Rico on
February 8, 1996, and will be engaged in providing and servicing coffee to
hotels and other businesses in Puerto Rico, the United States and the Caribbean.
Guest Choice, Inc. main offices are located in the state of Arizona. Guest
Choice, Inc. did not have any sales during 1996, and total assets related to
these operations amounted to approximately $1,122,000 as of June 30, 1996.

SUBSEQUENT EVENTS

Effective July 19, 1996, Garrido & Compania, Inc. and subsidiaries were
acquired by G Acquisition Corp., a wholly-owned subsidiary of Suiza Foods
Corporation through the purchase of all of its outstanding common stock.
Simultaneously, Garrido & Compania, Inc. merged with and into its wholly-owned
subsidiaries. Subsequent to the mergers and acquisition, G Acquisition Corp.
changed its name to Garrido & Compania, Inc.

The abovementioned mergers and acquisition result in a new accounting entity
after June 30, 1996 whose financial statements are not included herewith. The
accompanying consolidated financial statements relate to the Company and its
subsidiaries as of June 30, 1996, which is prior to the effectiveness of the
mergers and acquisition of July 19, 1996.

As a part of the aforementioned transactions, on or about July 19, 1996 all
the outstanding long-term debt, including certain term loans, revolving and
temporary lines of credit, notes payable to former stockholders and other notes
payable included as part of other liabilities in the consolidated balance sheets
at June 30, 1996, were assumed and paid in full by the stockholders of the
Company.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) BASIS OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in the preparation
of the consolidated financial statements.

(b) INVENTORIES. Inventories are stated at the lower of cost (average
cost) or market (net realizable value). For finished goods inventories, the cost
is comprised of the cost of coffee, the cost of packaging material and the cost
of labor and overhead.

F-56
<PAGE>
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

(1) NATURE OF BUSINESS, AFFILIATION, SUBSEQUENT EVENTS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Major renewals and betterments are charged to property accounts. Replacements,
maintenance and repairs which do not improve or extend the life of the
respective assets are charged to expense.

(d) DEPRECIATION AND AMORTIZATION. Depreciation and amortization are
provided over the estimated useful life of the respective assets under the
straight-line method. Useful lives of the depreciable assets fluctuate from 3 to
20 years. Leasehold improvements are amortized over the shorter of the lease
term or estimated useful life of the asset.

(e) INTANGIBLES. Intangibles consist primarily of customer lists, benefits
from covenants not to compete, trademarks, confidential formulas, right of use
of water wells and others. The cost of these intangible assets are being
amortized over their estimated useful lives under the straight-line method.

(f) INCOME TAXES. Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, and
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1994 consolidated statement of earnings.

Statement No. 109 requires a change from the deferred method of accounting
for income taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of Statement
No. 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement No. 109,
the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

(g) CASH EQUIVALENTS. For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents. Cash equivalents for 1996 and 1995
consist of U.S. Treasury bills amounting to $8,694,471 and $4,830,762,
respectively, with market value of $8,752,487 and $4,860,338, respectively.
Management has the ability and intent to hold these cash equivalents until
maturity.

(h) NET EARNINGS PER COMMON SHARE. Net Earnings per common share is based
upon the weighted average number shares of common stock outstanding during the
year, which equals 586 shares for 1996 and 1995 and 640 shares for 1994.

(i) FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial
instruments include cash and cash equivalents, trade and other receivables,
investments, trade accounts payable, other accrued liabilities, notes payable to
banks and others and long-term debt. At June 30, 1996 the carrying value of all
financial instruments approximated their fair value, due to their nature.

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainty and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.

F-57
<PAGE>
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

(1) NATURE OF BUSINESS, AFFILIATION, SUBSEQUENT EVENTS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) USE OF ESTIMATES. Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.

(k) RECLASSIFICATION. Certain reclassifications have been made to the 1995
figures in order to conform them with the 1996 consolidated financial
statements.

(2) ASSET ACQUISITIONS

During 1991, the Company acquired certain assets from an unrelated party. Of
the total purchase price, $510,000 is payable in annual installments of $85,000,
plus interest, through 1996. Interest rate fluctuates between 9% or prime rate,
whichever is lower. As of June 30, 1996 and 1995, the unpaid principal balance
amounted to $85,000 and $170,000 respectively, of which $85,000 is included in
accounts payable and accrued expenses and the remaining balance in 1995 is
included in other liabilities. The liability is secured by the assets acquired.
As stated in note 1, amounts outstanding at June 30, 1996 were subsequently paid
on or about July 19, 1996.

During 1990, the Company also acquired certain assets from an unrelated
party. Of the total purchase price, $154,463 remained unpaid at June 30, 1995
and is included in accounts payable. Such amount was paid in full during 1996.

(3) INVENTORIES

Inventories at June 30, 1996 and 1995 consist of the following:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Raw coffee........................................................ $ 925,176 $ 1,381,553
Finished goods.................................................... 623,063 514,133
Bags, labels and supplies......................................... 345,442 246,225
------------ ------------
$ 1,893,681 $ 2,141,911
------------ ------------
------------ ------------
</TABLE>

F-58
<PAGE>
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

(4) PROPERTY AND EQUIPMENT

Property and equipment at June 30, 1996 and 1995 consist of the following:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land.............................................................. $ 157,464 $ 157,464
Building.......................................................... 723,488 727,109
Machinery and equipment........................................... 2,379,515 2,914,072
Motor vehicles.................................................... 294,544 575,244
Data processing equipment......................................... 115,181 114,677
Furniture and fixtures............................................ 110,584 318,968
Leasehold improvements............................................ 318,303 385,560
------------ ------------
Total......................................................... $ 4,099,079 $ 5,193,094
------------ ------------
------------ ------------
</TABLE>

(5) INDEBTEDNESS

Long-term debt at June 30, 1996 and 1995 consists of the following:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Term loan payable to bank in monthly installments of $5,952, plus
interest, through 1998. Interest rate fluctuates based on the
prime interest rate, which at June 30, 1996 was 8.25%. Term loan
payable is partially secured by land and property of the
Company......................................................... $ 130,952 $ 202,380
Term loan payable to bank in quarterly installments of $160,000
through 2000 secured by trade receivables and inventories.
Interest rate fluctuates based on prime rate plus 1/2%,
floating........................................................ 2,080,000 2,720,000
------------ ------------
2,210,952 2,922,380
Less current installments......................................... 711,429 711,428
------------ ------------
Long-term debt, excluding current installments.................... $ 1,499,523 $ 2,210,952
------------ ------------
------------ ------------
</TABLE>

Notes payable to banks represent advances under revolving and temporary
lines of credit with a commercial bank amounting to $5,500,000. Withdrawals,
under these credit facilities can be made under a Master Promissory Note and
will be available for letters of credit and guarantee letters. These facilities
will be available to cover working capital needs and for buying coffee directly
from suppliers. Advances from such lines of credit amounting to $2,115,000 in
1996 and $217,616 in 1995 are secured by the personal guarantee of the Company's
stockholders. These obligations bear interest at 6.66%.

Notes payable to former stockholders consist of a 6% subordinated note
payable in monthly installments of $7,750, including interest, through June 1,
2007. Aggregate unpaid principal balance of these notes was $640,316 and
$693,164 as of June 30, 1996 and 1995, respectively. The notes are presented net
of unamortized discounts amounting to $53,743 in 1996 and $63,836 in 1995 which
were originally computed based on the prime interest rates at the time of their
issuance. During 1994, the Company acquired and canceled 65 shares of common
stock from a former stockholder for $750,000. At the date of

F-59
<PAGE>
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

(5) INDEBTEDNESS (CONTINUED)
the purchase $269,123 were paid and the rest was financed through a $480,877
noninterest bearing note payable in monthly installments of $8,333 through April
1997. Unpaid balances as of June 30, 1996 and 1995 are $71,010 and $179,284,
respectively.

As stated in note 1, on or about July 19, 1996 all the aforementioned
outstanding long-term debt, notes payable to banks and notes payable to former
stockholders amounting to $4,983,535 at June 30, 1996 were assumed and paid in
full by the Company's stockholders.

(6) RELATED PARTY TRANSACTIONS

The Company leases certain of its production and office facilities in
premises owned by a related party under a ten (10) year operating lease
agreement expiring in April 2005. The annual minimum lease expense is
approximately $62,000.

(7) INCOME TAX AND TAX EXEMPTIONS

Pursuant to the 1987 Puerto Rico Tax Incentives Act, Garrido Alto Grande
Corp. (GAGC) has been granted partial tax exemption from the Commonwealth of
Puerto Rico income, property and municipal taxes with respect to a portion of
its operations up to year 2011.

During 1996, the Company and Garrido Alto Grande Corp. have been granted
partial tax exemption under Law No. 225, AGRICULTURAL TAX INCENTIVES ACT OF
1995, of the Commonwealth of Puerto Rico. Under subject law, the companies are
100% exempt from property and municipal taxes, effective for part of the year
ended June 30, 1996. Furthermore, effective for taxable year ending June 30,
1997, the companies will be entitled to a 90% exemption on income taxes related
to their agricultural business income.

The dollar effect of the income tax saving related to the partial tax
exemption for the years ended June 30, 1996, 1995 and 1994 are $1,067,580,
$552,781 and $341,453, respectively. Per share amounts of such income tax
savings are $1,822 in 1996, $943 in 1995 and $534 in 1994.

As discussed in note 1, the Company adopted Statement No. 109 as of July 1,
1993. The cumulative effect of this change in accounting for income taxes
amounting to $103,074 was determined as of July 1, 1993 and is reported
separately in the consolidated statement of earnings for the year ended June 30,
1994.

Income tax benefit/(expense) for the years ended June 30, 1996, 1995 and
1994 consists of:

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current................................................ $ (424,857) $ (336,077) $ (254,358)
Deferred............................................... 754,321 (134,260) (34,910)
----------- ----------- -----------
$ 329,464 $ (470,337) $ (289,268)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

Deferred income tax expense for 1995 and 1994 is mainly related to the use
of flexible depreciation for income tax purposes and straight-line depreciation
for consolidated financial statement purposes, and the tax effect for
consolidated financial statements of current undistributed earnings of
subsidiaries as required by Statement No. 109. The 1996 deferred tax benefit
arises from a reduction in the Company's effective tax rate after considering
the future tax effect of the 90% income tax exemption under Law No. 225 referred

F-60
<PAGE>
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

(7) INCOME TAX AND TAX EXEMPTIONS (CONTINUED)
to above and the reversal of prior years deferred tax liability related to
undistributed earnings, which will not be paid due to the transactions described
in note 1.

Income tax expense for the years ended June 30, 1996, 1995 and 1994 differs
from the amounts computed by applying the Company's Puerto Rico effective income
tax rate to pretax accounting income from operations as a result of the
following:

<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Provision computed on pretax accounting income, net of
the GAGC tax exemption............................... $ 236,686 $ 236,942 $ 116,469
Add/(deduct) tax effect on the following items:
Nondeductible expenses............................... 44,064 17,140 14,475
Excess of depreciation per financial statements over
depreciation for tax purposes...................... 179,406 77,696 121,472
Tax-exempt interest income and others................ (35,299) 4,299 1,942
----------- ---------- -----------
Puerto Rico income tax current..................... $ 424,857 $ 336,077 $ 254,358
----------- ---------- -----------
----------- ---------- -----------
Deferred income tax expense/(benefit) is composed as
follows:
Reversal of temporary difference related to flexible
depreciation and the effect of income tax exemption
under Law No. 225.................................. $ (336,170) $ (77,696) $ (121,472)
Unamortized discounts and others..................... (21,855) (23,406) (4,552)
Undistributed earnings of wholly-owned subsidiary.... (396,296) 235,362 160,934
----------- ---------- -----------
Puerto Rico deferred income tax expense/
(benefit)........................................ $ (754,321) $ 134,260 $ 34,910
----------- ---------- -----------
----------- ---------- -----------
</TABLE>

The tax effect of temporary differences that give rise to significant
portions of deferred income tax liabilities at June 30, 1996 and 1995 are
presented below:

<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Flexible depreciation for tax purposes................................. $ 32,181 $ 368,351
Unamortized discount on notes payable to stockholders.................. 2,096 23,951
Undistributed earnings of wholly-owned subsidiary...................... -- 396,296
--------- ----------
$ 34,277 $ 788,598
--------- ----------
--------- ----------
</TABLE>

As of June 30, 1996, the Company is being audited by the Treasury Department
of the Commonwealth of Puerto Rico for the year 1993. Management believes that
no significant deficiencies will result from this audit. However, as per the
terms of the purchase agreement related to the acquisition as stated in note 1,
any deficiencies will be assumed and paid by the Company's stockholders.

As of June 30, 1996, the Company has a net operating loss (NOL) of $94,019
related to the 1996 operations of Guest Choice, Inc., available to offset future
taxable income, if any, related to the Guest

F-61
<PAGE>
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

(7) INCOME TAX AND TAX EXEMPTIONS (CONTINUED)
Choice operations. No deferred tax asset is recognized due to the fact that the
realization of the NOL is uncertain.

(8) COMMITMENTS AND CONTINGENCIES

The Company leases certain building facilities for the operations of coffee
break services under a noncancellable operating lease, expiring in April 1998.
Rent expense under such lease agreement for the year ended June 30, 1996 was
approximately $43,000 and for 1995 and 1994 was approximately $41,000. The
future minimum lease payments under this noncancellable operating lease amounted
to approximately $78,833.

The Company is involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.

(9) SUPPLEMENTAL INFORMATION ON CASH FLOWS

During the years ended June 30, 1996, 1995 and 1994, the Company made the
following cash payments and noncash transactions:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest payments........................................ $ 316,712 $ 329,919 $ 417,190
---------- ---------- ----------
---------- ---------- ----------
Income tax payments...................................... $ 264,881 $ 334,704 $ 125,194
---------- ---------- ----------
---------- ---------- ----------
Acquisition and cancellation of 65 shares of common stock
financed through the issuance of a notes payable (note
5)..................................................... $ -- $ -- $ 480,877
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

F-62
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Swiss Dairy, a Corporation
Riverside, California

We have audited the accompanying balance sheets of Swiss Dairy, a
Corporation (the Company) as of December 30, 1995 and December 31, 1994, and the
related statements of earnings and retained earnings and cash flows for each of
the three years in the period ended December 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Swiss Dairy, a Corporation at December 30,
1995 and December 31, 1994, and the results of its operations and cash flows for
each of the three years in the period ended December 30, 1995 in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Costa Mesa, California
August 28, 1996

F-63
<PAGE>
SWISS DAIRY, A CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER DECEMBER 7,
31, 1994 30, 1995 1996
----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents............................... $ 2,414 $ 449 $ 3,394
Accounts receivable..................................... 8,296 7,146 6,749
Note receivable from related party...................... 600
Inventories............................................. 591 785 508
Prepaid expenses and other.............................. 305 309 292
----------- ----------- -----------
Total current assets.................................. 12,206 8,689 10,943
PROPERTY, PLANT AND EQUIPMENT, net...................... 6,331 8,426 8,179
----------- ----------- -----------
$ 18,537 $ 17,115 $ 19,122
----------- ----------- -----------
----------- ----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable........................................ $ 7,541 $ 6,352 $ 6,822
Accrued expenses........................................ 435 488 606
----------- ----------- -----------
Total current liabilities............................. 7,976 6,840 7,428

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock, par value $10; 20,000 shares authorized;
6,500 shares issued and outstanding................... 65 65 65
Additional paid-in capital.............................. 6 6 6
Retained earnings....................................... 10,490 10,204 11,623
----------- ----------- -----------
Total stockholders' equity............................ 10,561 10,275 11,694
----------- ----------- -----------
$ 18,537 $ 17,115 $ 19,122
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See notes to financial statements.

F-64
<PAGE>
SWISS DAIRY, A CORPORATION

STATEMENTS OF EARNINGS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED THIRTY-SIX WEEKS ENDED
------------------------------------- ------------------------
SEPTEMBER SEPTEMBER
DECEMBER DECEMBER DECEMBER 9, 7,
23, 1993 31, 1994 30, 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
NET SALES.............................. $ 142,107 $ 149,153 $ 126,647 $ 94,085 $ 75,615
COST OF SALES.......................... 125,961 132,443 111,798 83,193 65,462
----------- ----------- ----------- ----------- -----------
GROSS PROFIT........................... 16,146 16,710 14,849 10,892 10,153
OPERATING COSTS AND EXPENSES:
Selling and distribution............... 8,266 8,168 7,852 5,643 5,153
General and administrative............. 2,423 2,892 2,483 1,760 1,458
----------- ----------- ----------- ----------- -----------
Total operating costs and expenses... 10,689 11,060 10,335 7,403 6,611
----------- ----------- ----------- ----------- -----------
INCOME FROM OPERATIONS................. 5,457 5,650 4,514 3,489 3,542
OTHER INCOME (EXPENSE):
Interest, net.......................... (25) (10) 128 51
Other income, net...................... 612 511 270 357 318
----------- ----------- ----------- ----------- -----------
Total other income................... 587 501 270 485 369
----------- ----------- ----------- ----------- -----------
INCOME BEFORE FRANCHISE TAXES.......... 6,044 6,151 4,784 3,974 3,911
FRANCHISE TAXES........................ 127 99 65 59 57
----------- ----------- ----------- ----------- -----------
NET EARNINGS........................... 5,917 6,052 4,719 3,915 3,854
RETAINED EARNINGS, beginning of
period............................... 8,431 10,443 10,490 10,490 10,204
DIVIDENDS.............................. (3,905) (6,005) (5,005) (4,603) (2,435)
----------- ----------- ----------- ----------- -----------
RETAINED EARNINGS, end of period....... $ 10,443 $ 10,490 $ 10,204 $ 9,802 $ 11,623
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
NET EARNINGS PER SHARE................. $ 910.31 $ 931.07 $ 726.00 $ 602.31 $ 592.92
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

See notes to financial statements.

F-65
<PAGE>
SWISS DAIRY, A CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED THIRTY-SIX WEEKS ENDED
------------------------------------- ------------------------
DECEMBER DECEMBER DECEMBER
23, 31, 30,
1993 1994 1995
----------- ----------- -----------
SEPTEMBER SEPTEMBER
9, 1995 7, 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings........................... $ 5,917 $ 6,052 $ 4,719 $ 3,915 $ 3,854
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization........ 1,954 1,816 1,752 1,787 1,319
(Gain) loss on the sale of assets.... 7 (12) 186 (119) 20
Changes in operating assets and
liabilities:
Accounts receivable................ 720 (1,757) 1,150 2,029 397
Inventories........................ 140 66 (194) 111 277
Prepaid expenses and other......... 18 35 (4) (25) 17
Accounts payable................... (760) (3,675) (1,189) (351) 470
Accrued expenses................... (252) 324 53 430 118
----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities..................... 7,744 2,849 6,473 7,777 6,472
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections (advances) from note
receivable........................... 151 (316) 600 400
Additions to property, plant and
equipment............................ (2,237) (1,023) (4,215) (2,592) (1,225)
Proceeds from sale of property, plant
and equipment........................ 256 156 182 156 133
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities........................... (1,830) (1,183) (3,433) (2,036) (1,092)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends......................... (3,905) (6,005) (5,005) (4,603) (2,435)
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.......................... 2,009 (4,339) (1,965) 1,138 2,945
CASH AND CASH EQUIVALENTS,
beginning of period.................. 4,744 6,753 2,414 2,414 449
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of period........................ $ 6,753 $ 2,414 $ 449 $ 3,552 $ 3,394
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Cash paid for interest................. $ 25 $ 10 $ -- $ -- $ 16
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

See notes to financial statements.

F-66
<PAGE>
SWISS DAIRY, A CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS. Swiss Dairy, a Corporation (the Company), is a California
corporation which processes and distributes fluid milk products, refrigerated
ready-to-serve fruit drinks and bottled water throughout Southern California
under its own brand names and private labels. The Company provides credit terms
to customers, the majority of which are major grocery chains, generally ranging
to up to 30 days, performs ongoing credit evaluations of their customers and
maintains allowances for potential credit losses based on historical experience.
The preparation of financial statements requires the use of significant
estimates and assumptions by management; actual results could differ from these
estimates.

INVENTORIES. Pasteurized and raw milk inventories are stated at the lower
of average cost or market. Raw materials and merchandise for resale inventories
are stated at the lower of cost, using the first-in, first-out (FIFO) method, or
market. Manufactured finished goods inventories are stated at the lower of
average production cost or market. Production costs include raw materials,
direct labor, and indirect production and overhead costs.

<TABLE>
<CAPTION>
ASSET USEFUL LIFE
- --------------------------------------------------------------- ---------------
<S> <C>
Buildings and improvements..................................... 7 to 40 years
Machinery and equipment........................................ 3 to 20 years
Milk cases and carts........................................... 3 to 7 years
Sales and delivery equipment................................... 3 to 7 years
Furniture and fixtures......................................... 3 to 7 years
</TABLE>

Expenditures for repairs and maintenance which do not improve or extend the
life of the assets are expensed as incurred.

IMPAIRMENT OF LONG-LIVED ASSETS. Effective January 1, 1996, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF, which requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Impairment is evaluated by comparing future cash flows
(undiscounted and without interest charges) expected to result from the use of
the asset and its eventual disposition to the carrying amount of the asset. The
Company does not anticipate a material impact on the financial statements of the
Company as a result of its adoption of this new accounting principle.

REVENUE. Revenue is recognized when the product is shipped to the customer.

INCOME TAXES. The Company is qualified as a small business corporation
under Section 1372 of Subchapter S of the Internal Revenue Code, which results
in the income of the Company being taxable to the individual stockholders
instead of at the corporate level. The Company pays a franchise tax to the State
of California at a rate of 1.5% of taxable income. As a result, the financial
statements of the Company do not contain either a provision for federal income
taxes or the related current and deferred income tax liabilities, since such
amounts are the responsibility of the individual stockholders. Had the Company
been subject to state and federal income taxes at the corporate level, the
estimated income tax expense would

F-67
<PAGE>
SWISS DAIRY, A CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
have been approximately $2.4 million, $2.4 million and $1.9 million for 1993,
1994 and 1995, respectively, and $1.6 million for each of the unaudited
thirty-six weeks ended September 9, 1995 and September 7, 1996 based on a
combined federal and state income tax rate of 40%.

CASH EQUIVALENTS. The Company considers all highly-liquid investments
purchased with a remaining maturity of three months or less to be cash
equivalents.

EARNINGS PER SHARE. The Company computes earnings per share based on the
weighted average number of common shares outstanding during the period.

FINANCIAL INSTRUMENTS. Pursuant to SFAS No. 107, DISCLOSURE ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, the Company is required to disclose an estimate
of the fair value of the Company's financial instruments; however, due to their
near-term maturities, the carrying amounts of the Company's financial
instruments, which consist of accounts receivable and accounts payable, are
considered equivalent to fair value.

UNAUDITED INTERIM FINANCIAL STATEMENTS. The Company's balance sheet as of
September 7, 1996 and the statements of earnings and retained earnings and cash
flows for the thirty-six weeks ended September 9, 1995 and September 7, 1996,
have been prepared by the Company without audit. In the opinion of management,
all adjustments (which include only normal, recurring adjustments) necessary to
present fairly the balance sheet of the Company at September 7, 1996, and the
results of operations and cash flows of the Company for the thirty-six weeks
ended September 9, 1995 and September 7, 1996, have been made. The results of
operations for the interim periods are not necessarily indicative of the results
to be expected for the full year.

2. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following as of:

<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 30,
1994 1995
----------- -----------
SEPTEMBER
7,
1996
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Trade customers......................... $ 7,852 $ 6,844 $ 6,205
Rebates and other....................... 444 302 544
----------- ----------- -----------
Accounts receivable..................... $ 8,296 $ 7,146 $ 6,749
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

F-68
<PAGE>
SWISS DAIRY, A CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. INVENTORIES

Inventories consist of the following as of:

<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 30,
1994 1995
----------- -----------
SEPTEMBER
7,
1996
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Pasteurized and raw milk and raw
materials............................. $ 208 $ 228 $ 322
Finished goods.......................... 238 305 151
Merchandise purchased for resale........ 145 252 35
----------- ----------- -----------
$ 591 $ 785 $ 508
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following as of:

<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 30,
1994 1995
----------- -----------
SEPTEMBER
7,
1996
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Land.................................... $ 47 $ 120 $ 120
Buildings and improvements.............. 2,768 4,005 3,885
Machinery and equipment................. 3,885 4,163 5,048
Milk cases and carts.................... 1,202 1,210 1,210
Sales and delivery equipment............ 4,893 6,076 5,821
Furniture and fixtures.................. 189 169 166
Construction in progress................ 581 289
----------- ----------- -----------
12,984 16,324 16,539
Less accumulated depreciation and
amortization.......................... (6,653) (7,898) (8,360)
----------- ----------- -----------
$ 6,331 $ 8,426 $ 8,179
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

5. ACCRUED EXPENSES

Accrued expenses consist of the following as of:

<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 30,
1994 1995
----------- -----------
SEPTEMBER
7,
1996
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued payroll and benefits............ $ 390 $ 455 $ 526
Other................................... 45 33 80
----------- ----------- -----------
$ 435 $ 488 $ 606
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

6. LINE OF CREDIT

The Company has a credit facility with a bank of $1,500,000 with interest
due monthly at the bank's reference rate. This facility may be utilized as a
revolving line of credit or for the purchase of equipment.

F-69
<PAGE>
SWISS DAIRY, A CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. LINE OF CREDIT (CONTINUED)
The interest rate is the bank's reference rate. At December 30, 1995, there
was no outstanding balance on this loan.

The credit facility is secured by the assets of the Company.

7. EMPLOYEES 401(K) PLAN

The Company sponsors a 401(k) plan for eligible employees who have completed
one or more years of service and have met other requirements pursuant to the
plan. The employees participating in the plan can generally make contributions
to the plan of up to 15% of their annual compensation, and the Company can elect
to match such contributions. During the unaudited period ended September 7,
1996, the Company expensed contributions to the plan of approximately $74,000.
No contributions were made by the Company during 1993, 1994 and 1995 or during
the unaudited period ended September 9, 1995.

8. COMMITMENTS AND CONTINGENCIES

The Company is a party in the ordinary course of business to certain claims
and litigation. In management's opinion, the outcome of such matters is not
expected to have a material impact on the financial statements.

The Company has a practice which provides for bonuses and benefits upon
termination in certain circumstances, subject to the sole discretion of
management. No such expenses were incurred by the Company during 1993, 1994 and
1995 or during the unaudited period ended September 9, 1995, for these
discretionary benefits. However, during the unaudited period ended September 7,
1996, the Company expensed $160,000 for severance benefits for certain employees
who were terminated prior to the transfer of ownership interests.

9. RELATED PARTY TRANSACTIONS

In 1993, the Company had a note receivable from a stockholder. This note has
been fully reimbursed in 1995.

10. MAJOR CUSTOMERS

During 1993, 1994 and 1995, sales to four customers in the aggregate
represented approximately 95%, 96% and 96% of sales, respectively. A decision by
a significant customer to decrease the amount purchased from the Company or to
cease carrying the Company's products could have a material adverse effect on
the Company's financial condition and results of operations.

11. TRANSFER OF OWNERSHIP INTERESTS

Subsequent to December 30, 1995, the Company transferred all of its assets
and liabilities pursuant to an agreement for the transfer of ownership
interests.

F-70
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
and Stockholders of
Model Dairy, Inc.
Reno, Nevada

We have audited the accompanying balance sheets of Model Dairy, Inc. (an S
corporation) as of October 31, 1995 and 1994, and the related statements of
earnings and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Model Dairy, Inc. as of
October 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.

BARNARD, VOGLER & CO.
Reno, Nevada
December 14, 1995

F-71
<PAGE>
MODEL DAIRY, INC.
BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------- SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 1,242,695 $ 1,456,140 $ 1,109,631
Receivables....................................................... 4,793,522 5,012,989 5,661,557
Inventories....................................................... 1,723,956 1,855,773 2,052,344
Prepaid expenses and other current assets......................... 97,737 127,625 164,147
------------- ------------- -------------
Total current assets............................................ 7,857,910 8,452,527 8,987,679
PROPERTY, PLANT AND EQUIPMENT....................................... 3,191,896 4,268,844 4,873,348
INTANGIBLE AND OTHER ASSETS......................................... 473,958 549,839 626,693
------------- ------------- -------------
TOTAL............................................................... $ 11,523,764 $ 13,271,210 $ 14,487,720
------------- ------------- -------------
------------- ------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Acccounts payable and accrued expenses............................ $ 3,586,135 $ 4,389,494 $ 4,357,859
Current portion of long term debt................................. 250,698 423,916 663,000
------------- ------------- -------------
Total current liabilities....................................... 3,836,833 4,813,410 5,020,859
LONG-TERM DEBT...................................................... 942,202 1,386,304 2,393,769
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; 2,400 shares authorized, 700 shares
issued and outstanding.......................................... 67,000 67,000 67,000
Retained earnings................................................. 6,677,729 7,004,496 7,006,092
------------- ------------- -------------
Total stockholders' equity........................................ 6,744,729 7,071,496 7,073,092
------------- ------------- -------------
TOTAL............................................................... $ 11,523,764 $ 13,271,210 $ 14,487,720
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See accompany notes

F-72
<PAGE>
MODEL DAIRY, INC.

STATEMENTS OF EARNINGS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
ELEVEN MONTHS
YEARS ENDED OCTOBER 31, ENDED
---------------------------- SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
NET SALES........................................................... $ 49,434,727 $ 50,846,894 $ 51,608,455
COST OF SALES....................................................... 39,770,987 41,309,141 42,374,695
------------- ------------- -------------
Gross profit...................................................... 9,663,740 9,537,753 9,233,760
OPERATING COSTS AND EXPENSES:
Distribution...................................................... 4,166,032 3,920,048 4,051,604
General and administrative........................................ 3,662,429 3,723,719 3,620,238
Amortization of intangibles....................................... 58,178 20,273 9,895
------------- ------------- -------------
Total operating costs and expenses.............................. 7,886,639 7,664,040 7,681,737
------------- ------------- -------------
INCOME FROM OPERATIONS.............................................. 1,777,101 1,873,713 1,552,023
OTHER (INCOME) EXPENSE:
Interest, net..................................................... (1,311) 65,975 61,755
Other income, net................................................. (51,619) (115,627) 23,602
------------- ------------- -------------
Total other (income) expense...................................... (52,930) (49,652) 85,357
------------- ------------- -------------
EARNINGS BEFORE INCOME TAX.......................................... 1,830,031 1,923,365 1,466,666
INCOME TAXES........................................................ 1,948 4,789 --
------------- ------------- -------------
NET EARNINGS........................................................ 1,828,083 1,918,576 1,466,666
RETAINED EARNINGS, beginning of year................................ 6,129,136 6,677,729 7,004,496
CASH DIVIDENDS...................................................... (1,279,490) (1,591,809) (1,465,070)
------------- ------------- -------------
RETAINED EARNINGS, end of year...................................... $ 6,677,729 $ 7,004,496 $ 7,006,902
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See accompanying notes

F-73
<PAGE>
MODEL DAIRY, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
ELEVEN MONTHS
YEARS ENDED OCTOBER 31, ENDED
---------------------------- SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings....................................................... $ 1,828,083 $ 1,918,576 $ 1,466,666
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation..................................................... 693,056 794,862 783,465
Amortization of intangibles...................................... 58,178 20,273 9,895
Gain on sale of assets........................................... (9,396) (28,750) (9,200)
Changes in operating assets and liabilities:
Receivables.................................................... (181,457) (174,282) (739,207)
Inventories.................................................... (113,595) (131,817) (196,571)
Prepaid expenses and other current assets...................... 28,869 (29,888) (36,522)
Other assets................................................... 11,747 (14,312) 11,112
Accounts payable and accrued expenses.......................... (488,409) 803,359 (31,635)
------------- ------------- -------------
Net cash provided by operating activities........................ 1,827,076 3,158,021 1,258,003

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment................ 27,911 28,750 9,200
Additions to property, plant and equipment......................... (1,379,200) (1,871,810) (1,387,969)
Payments for other assets.......................................... (31,374) (127,027) (7,222)
------------- ------------- -------------
Net cash used in investing activities............................ (1,382,663) (1,970,087) (1,385,991)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit....................................... $ 650,000 $ 850,000 $ 1,477,862
Payments on long-term debt......................................... (260,020) (232,680) (231,313)
Dividends paid..................................................... (1,279,490) (1,591,809) (1,465,070)
------------- ------------- -------------
Net cash used in financing activities............................ (889,510) (974,489) (218,521)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. (445,097) 213,445 (346,509)
CASH AND CASH EQUIVALENTS, beginning of year......................... 1,687,792 1,242,695 1,456,140
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year............................... $ 1,242,695 $ 1,456,140 $ 1,109,631
------------- ------------- -------------
------------- ------------- -------------

SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for
Interest......................................................... $ 54,290 $ 131,878 $ 121,384
Income taxes..................................................... 32,974 31,396 6,888

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Conversion of accounts receivable into notes receivable............ $ 160,202 $ -- $ 142,784
</TABLE>

See accompanying notes

F-74
<PAGE>
MODEL DAIRY, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS--Model Dairy, Inc. (the "Company") is a Nevada
corporation incorporated on November 17, 1965. The Company operates as a
creamery, processing raw milk into various milk, ice cream and frozen yogurt
products. The Company distributes its manufactured dairy products, as well as
other purchased dairy products, to retail and wholesale distributors, grocery
stores, restaurants and various institutions, located in northern Nevada and
California. The Company provides credit terms to customers generally ranging up
to 30 days and performs ongoing credit evaluations of their customers. The
preparation of financial statements requires the use of significant estimates
and assumptions by management; actual results could differ from these estimates.

INVENTORIES--Cost of purchased inventories is determined on the first-in,
first-out method. Cost of manufactured inventories is based upon standard costs
which approximate average costs. All inventories are stated at the lower of cost
or market.

PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Depreciation is computed using the straight-line method for financial
reporting purposes. The estimated useful lives of the assets are:

<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Leasehold improvements...................................................... 10-39
Automobiles and trucks...................................................... 3-7
Machinery and equipment..................................................... 7-10
Office equipment............................................................ 3-10
</TABLE>

Capital lease assets are amortized over the shorter of their lease term or
their estimated useful lives. Maintenance, repairs and renewals that neither
materially add to the value of the property nor appreciably prolong its life are
charged to expense as incurred. Gains and losses on dispositions of property and
equipment are included in income.

INTANGIBLE ASSETS--Intangible assets are stated at cost. Amortization is
computed using the straight-line method. The estimated useful lives of assets
are:

<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Covenant not to compete..................................................... 2-5
Trademarks.................................................................. 20-40
Customer lists and routes................................................... 5-10
Goodwill.................................................................... 40
</TABLE>

F-75
<PAGE>
MODEL DAIRY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
by a forecast of expected future net operating cash flows, discounted at a rate
commensurate with the risk involved.

REVENUE--Revenue is recognized when the product is shipped to the customer.

ADVERTISING--The Company expenses advertising costs as incurred. During the
years ended October 31, 1994 and 1995, advertising expense approximated $236,000
and $262,000, respectively.

INCOME TAXES--The Company, with the consent of its shareholders, elected to
be taxed under the provisions of Subchapter S of the Internal Revenue Code for
the fiscal year beginning November 1, 1988. Under those provisions, the Company
does not pay federal corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual federal income taxes on their respective
shares of the Company's taxable income.

Had the Company been subject to state and federal income taxes at the
corporate level, the estimated income tax expense would have been approximately
$623,000, and $657,000 for the years ended October 31, 1994 and 1995,
respectively and $501,000 for the unaudited eleven months in 1996.

The Company is liable for federal corporate built-in gain taxes attributable
to built-in gain realized on the disposition of ordinary income property and
short-term capital gain property owned at the time the Subchapter S election was
made.

CASH AND CASH EQUIVALENTS--For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--Statement of Financial Accounting
Standards (SFAS) No. 107 requires the disclosure of an estimate of the fair
value of the Company's financial instruments, which consist primarily of
accounts and notes receivable, accounts payable and debt. Due to the near-term
maturities of accounts receivable and accounts payable, the Company believes
that the carrying amounts of these instruments are equivalent to fair value. In
the case of notes receivable and debt, the Company believes that the fixed
interest rates on notes receivable and the variable interest rate on primarily
all debt represent market rates which results in the carrying value of such
instruments approximating fair value.

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is evaluated by comparing future cash flows
(undiscounted and without interest charges) expected to result from the use of
the asset and its eventual disposition to the carrying amount of the asset.

These new accounting principles are effective for the Company's fiscal year
ending October 31, 1996. The Company believes that these new accounting
principles will not have a material impact on its financial position.

RECLASSIFICATIONS--Certain amounts in 1994 have been reclassified to conform
with the 1995 presentation.

F-76
<PAGE>
MODEL DAIRY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED INTERIM FINANCIAL STATEMENTS--The Company's balance sheet as of
September 30, 1996 and the statements of earnings and retained earnings and cash
flows for the eleven months ended September 30, 1996, have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal, recurring adjustments) necessary to present fairly the
balance sheet of the Company at September 30, 1996, and the results of
operations and cash flows of the Company for the eleven months ended September
30, 1996 have been made. The results of operations for the interim period are
not necessarily indicative of the results to be expected for the full year.

2. RECEIVABLES

Receivables consist of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1994 1995
------------ ------------ SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts receivable.................................... $ 4,598,462 $ 4,869,483 $ 5,413,030
Current portion of notes receivable.......................... 108,570 68,592 106,571
Other........................................................ 86,490 74,914 141,956
------------ ------------ -------------
$ 4,793,522 $ 5,012,989 $ 5,661,557
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

Included in trade accounts receivable and the current portion of notes
receivable are amounts due from certain distributors who are affiliates of the
Company's shareholders. These affiliates had the following outstanding balances:

<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
1994 1995
---------- ---------- SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts receivable....................................... $ 388,862 $ 539,496 $ 827,561
Current portion of notes receivable............................. 59,113 34,846 38,262
---------- ---------- -------------
$ 447,975 $ 574,342 $ 865,823
---------- ---------- -------------
---------- ---------- -------------
</TABLE>

Accounts and notes receivable are considered fully collectible by
management. Therefore, no allowance for doubtful accounts is included in the
financial statements.

F-77
<PAGE>
MODEL DAIRY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1994 1995
------------ ------------ SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................................... $ 681,773 $ 838,075 $ 861,239
Finished goods.............................................. 1,042,183 1,017,698 1,191,105
------------ ------------ -------------
$ 1,723,956 $ 1,855,773 $ 2,052,344
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, together with accumulated depreciation,
consist of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1994 1995
------------ ------------ SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Automobiles and trucks....................................... $ 3,013,498 $ 3,141,602 $ 3,470,695
Machinery and equipment...................................... 4,474,022 5,092,967 5,585,461
Leasehold improvements....................................... 693,451 1,782,953 1,785,333
Office equipment............................................. 611,801 655,742 692,148
Construction in progress..................................... 573,716 393,702 894,753
------------ ------------ -------------
9,366,488 11,066,966 12,428,390
Less accumulated depreciation................................ (6,174,592) (6,798,122) (7,555,042)
------------ ------------ -------------
$ 3,191,896 $ 4,268,844 $ 4,873,348
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

Depreciation expense was $693,056 and $794,862 in 1994 and 1995,
respectively, and $783,465 for the unaudited eleven months in 1996.

The Company follows the policy of capitalizing interest as a component of
the cost of property, plant, and equipment constructed for its own use. For the
year ended October 31, 1994, total interest incurred was $70,526, of which
$13,593 was capitalized and $56,933 was charged to operations. For the year
ended October 31, 1995, total interest incurred was $163,778 of which $23,297
was capitalized and $140,481 was charged to operations. For the unaudited eleven
months ended September 30, 1996, total interest incurred was $158,384, of which
$37,000 was capitalized and $121,384 was charged to operations.

F-78
<PAGE>
MODEL DAIRY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996

5. INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
1994 1995
---------- ---------- SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Intangible assets............................................... $ 123,399 $ 103,126 $ 93,231
Long term portion of notes receivable........................... 132,546 87,361 178,000
Investments, deposits and other................................. 218,013 359,352 355,462
---------- ---------- -------------
$ 473,958 $ 549,839 $ 626,693
---------- ---------- -------------
---------- ---------- -------------
</TABLE>

The above intangible assets, together with accumulated amortization, consist
of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
------------------------
1994 1995
----------- ----------- SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Covenants not to compete...................................... $ 601,950 $ 601,950 $ --
Trademarks.................................................... 48,488 48,488 48,488
Customer lists and routes..................................... 163,821 163,821 113,821
Goodwill...................................................... 29,346 29,346 29,346
Loan fees..................................................... 9,000 9,000 9,000
----------- ----------- -------------
852,605 852,605 200,655
Less accumulated amortization................................. (729,206) (749,479) (107,424)
----------- ----------- -------------
$ 123,399 $ 103,126 $ 93,231
----------- ----------- -------------
----------- ----------- -------------
</TABLE>

Amortization expense consisted of $58,178 and $20,273 in 1994 and 1995,
respectively, and $9,895 for the unaudited eleven months in 1996.

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1994 1995
------------ ------------ SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts payable....................................... $ 2,746,057 $ 3,593,510 $ 3,736,328
Accrued payroll and benefits................................. 649,322 679,847 500,671
Other........................................................ 190,756 116,137 120,860
------------ ------------ -------------
$ 3,586,135 $ 4,389,494 $ 4,357,859
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

F-79
<PAGE>
MODEL DAIRY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996

7. LONG TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1994 1995
------------ ------------ SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Credit agreement:
Line of credit........................................ $ 650,000 $ 1,418,865 $ 1,169,642
Term loans............................................ 1,625,540
Note payable to Creamland Dairy......................... 383,586 309,823 236,840
Capital lease obligations............................... 136,635 81,532 24,747
Other................................................... 22,679
------------ ------------ -------------
1,192,900 1,810,220 3,056,769
Less current portion.................................... (250,698) (423,916) (663,000)
------------ ------------ -------------
$ 942,202 $ 1,386,304 $ 2,393,769
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

LINE OF CREDIT--On March 30, 1994, the Company entered into a business loan
agreement with Bank of America for a line of credit and a letter of credit. The
line of credit totals $1,500,000. This is a non-revolving line of credit
available to be drawn against for the period between the date of the agreement
and June 5, 1995. After June 5, 1995, the Company is required to begin repayment
under a term repayment option. The proceeds from this line were used for adding
a new cooler facility to the existing creamery plant. The interest rate is the
bank's reference rate plus one-half of one percentage point. Monthly interest
payments begin on May 1, 1994, and continue until the principal is paid in full.
Principal payments are to be paid in sixty successive equal monthly installments
of $31,900 starting July 5, 1995. On June 5, 2000, the remaining principal
balance plus any interest is due in full. At October 31, 1994 and 1995 and the
unaudited September 30, 1996, $650,000, $1,418,865 and $1,169,642 was
outstanding on the line of credit with an interest rate of 8.25%, 9.25% and
7.5%, respectively.

Under this same agreement, the Bank has provided a letter of credit to the
State of Nevada Department of Commerce for workmen's compensation for the
Company.

Under the terms of the business loan agreement, the Company is required to
maintain minimum working capital of $1,500,000, maintain tangible net worth
equal to at least $4,000,000, maintain a ratio of total liabilities to tangible
net worth not greater than 1.50 to 1.00, and maintain a debt service coverage
ratio of at least 1.25 to 1.00. At October 31, 1994 and 1995, the Company was in
compliance with all terms of the business loan agreement.

The line of credit and the letter of credit are collateralized by the
personal guarantees of the shareholders of the Company.

TERM LOANS--During the unaudited eleven months in 1996, the Company entered
into a $1.5 million term loan agreement with Bank of America to fund the
expansion of the Company's ice cream freezer and an equipment loan with Bank of
America to acquire related equipment. The freezer expansion term loan was fully
funded by the bank, requires monthly installment payments of $30,200 and bears
the same interest rate as the line of credit.

F-80
<PAGE>
MODEL DAIRY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996

7. LONG TERM DEBT (CONTINUED)
In connection with these new loans with Bank of America, the existing loan
covenants were revised to require the Company to maintain minimum working
capital of $2,000,000, maintain tangible net worth equal to at least $5,000,000,
maintain a ratio of total liabilities to tangible net worth not greater than
1.50 to 1.00 and maintain a debt service coverage ratio of at least 1.50 to
1.00. At September 30, 1996, the Company was in compliance with all terms of
revised bank covenants.

OTHER NOTES--The note payable to Creamland Dairy was issued in the original
face amount of $600,000, is secured by an irrevocable, unsecured letter of
credit with Pioneer Citizens Bank and is payable in monthly installments of
$8,482 including interest at 8% through May 1, 1999.

CAPITAL LEASE OBLIGATIONS--In 1991, the Company entered into a lease
obligation for machinery which has been classified as a capital lease. The
machinery is included in machinery and equipment at a cost of $269,307, with
accumulated depreciation in the amount of $87,525, $114,456 and $139,143 at
October 31, 1994 and 1995 and unaudited September 30, 1996, respectively.

Minimum future lease payments under the capital lease as of October 31,
1995, for the remaining term of the lease and in the aggregate are:

<TABLE>
<S> <C>
Total minimum lease payments for 1996.................................. $ 88,122
Less amount representing interest...................................... (6,590)
---------
Present value of net minimum lease payments............................ 81,532
Less current portion................................................... (81,532)
---------
$ --
---------
---------
</TABLE>

The interest rate on the capitalized lease of 12.3% is imputed based on the
Company's incremental borrowing rate at the inception of the lease.

DEBT MATURITIES--Maturities of current and long-term debt, excluding the
capital lease obligations, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31, AMOUNT
- ------------------------------------------------------------------------------------- ------------
<S> <C>
1996............................................................................... $ 342,384
1997............................................................................... 374,352
1998............................................................................... 409,316
1999............................................................................... 395,809
2000............................................................................... 206,827
------------
$ 1,728,688
------------
------------
</TABLE>

8. EMPLOYEE BENEFIT PLANS

PROFIT SHARING PLAN--The Company maintains a profit sharing plan for all
qualified officers and employees except those covered by a collective bargaining
agreement. The amount of the contribution is determined annually by the board of
directors. Allocation of the contribution among officers and employees is based
on the amount of salary or wages earned. The contribution expense was $202,164
and

F-81
<PAGE>
MODEL DAIRY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996

8. EMPLOYEE BENEFIT PLANS (CONTINUED)
$200,000 in 1994 and 1995, respectively. No profit sharing contribution expense
has been recognized or is anticipated during the unaudited eleven months in
1996.

PENSION PLANS--Under the terms of a collective bargaining agreement
("Agreement"), the Company is required to contribute for each employee covered
by the Agreement a stipulated amount into the Teamsters Pension Trust Fund.
Contributions to the fund are based on the total straight-time hours worked
during each month, including amounts paid for vacation, holiday, and sick leave.
For the years ended October 31, 1994 and 1995, the Agreement stipulated a
contribution rate of $.77 per hour. For 1994, 1995 and the unaudited eleven
months in 1996, the amount of pension expense was $163,336, $172,376 and
$180,485, respectively.

In addition, the Company sponsors a supplementary defined contribution
pension plan for all employees covered by the Agreement. Contributions to the
plan are based on the total straight-time hours worked during each month, but
are limited to 173 hours per employee per month. For the years ended October 31,
1994 and 1995, the Agreement stipulated a contribution rate of $.85 per hour.
For 1994, 1995 and the unaudited eleven months in 1996, the amount of
supplementary pension expense was $163,553, $177,980 and $162,925, respectively.

9. OPERATING LEASES

The Company leases its main plant under two fifteen year operating leases
expiring April 30, 2003 and December 31, 2004. Additional warehouse space is
occupied under five operating leases. One lease, expiring August 31, 2000,
provided for a rental increase on September 1, 1995, to give effect to changes
in the cost of living index. In addition, the lease contains an option to renew
for three successive five-year periods. The remaining four leases are on a
month-to-month basis. Under all leases the Company is responsible for insurance,
taxes and normal maintenance of the facilities.

The following is a schedule of future minimum rental payments (net of
sublease income) required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year:

<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31, AMOUNT
- -------------------------------------------------- --------------
<S> <C>
1996.............................................. $ 509,181
1997.............................................. 509,181
1998.............................................. 509,181
1999.............................................. 509,181
2000.............................................. 502,813
Thereafter........................................ 1,463,440
--------------
$ 4,002,977
--------------
--------------
</TABLE>

Minimum lease payments in this schedule exclude rentals under renewal
options.

Total rental expense for all operating leases, net of sublease rentals, was
$708,070, $733,585 and $697,129 for 1994 and 1995 and for the interim period in
1996, respectively.

F-82
<PAGE>
MODEL DAIRY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996

10. MAJOR CUSTOMERS, SUPPLIERS AND CONCENTRATION OF CREDIT RISK

The Company had sales to a major customer comprising approximately 24%, 23%
and 25% of net sales in 1994 and 1995 and the unaudited eleven months in 1996,
respectively. At October 31, 1994 and 1995 and the unaudited September 30, 1996,
amounts due from that customer included in trade accounts receivable were
$1,028,894, $716,150 and $894,090, respectively. Credit is granted to customers,
substantially all of whom are located in northern Nevada and northern
California.

During 1994 and 1995, the Company purchased all of its fluid raw milk from
one supplier. At October 31, 1994 and 1995 and the unaudited eleven months in
1996, amounts due to that supplier included in accounts payable were $1,080,937,
$1,609,818 and $1,978,733, respectively.

The Company maintains the majority of its cash accounts in two banking
institutions located in Reno, Nevada. Accounts at each institution are insured
up to $100,000. A summary of the total insured and uninsured amounts held at the
institutions at October 31, 1995, follows:

<TABLE>
<S> <C>
Total cash held................................................. $1,664,463
Portion insured................................................. 109,954
---------
Uninsured cash balance.......................................... $1,554,509
---------
---------
</TABLE>

11. RELATED PARTY TRANSACTIONS

The principal owners of the Company are also principal owners of several
affiliated companies. The Company made sales of approximately $3,260,325,
$3,531,888 and $3,680,784 in 1994 and 1995 and the unaudited eleven months in
1996, respectively, to the affiliated companies. Accounts receivable from
affiliated companies were $388,351, $539,496 and $827,561 at October 31, 1994
and 1995 and unaudited September 30, 1996, respectively.

The Company also rented real property from related parties who are principal
stockholders. Total rental payments to these individuals were $582,576, $592,176
and $544,000 in 1994 and 1995 and unaudited September 30, 1996, respectively.

Notes receivable from related parties consist of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
------------------------------
1994 1995
-------------- -------------- SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
6% note from affiliated company................... $ 76,089 $ 23,702 $ 23,702
8% note from affiliated company................... -- 15,741 14,560
-------------- -------------- -------------
76,089 39,443 38,262
Less current portion.............................. (59,113) (34,846) (38,262)
-------------- -------------- -------------
$ 16,976 $ 4,597 $ --
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>

F-83
<PAGE>
MODEL DAIRY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996

12. COMMITMENTS AND CONTINGENCIES

WORKERS' COMPENSATION--Effective May 1, 1990, the Company adopted a
partially self-insured workers' compensation plan. Under the plan, the Company
pays up to $350,000 per occurrence; claims above $350,000 are covered up to
statutory limits by an insurance policy. In addition, the Company maintains a
cash flow protection endorsement limiting the annual liability to $90,000 per
occurrence. The Company estimates its liabilities for unpaid claims based on the
data supplied to them by their insurance administrators. The amount of estimated
unpaid claims in the accompanying financial statements is $127,024, $24,846 and
$42,500 at October 31, 1994 and 1995 and unaudited September 30, 1996,
respectively.

A self-insured employer is required to deposit with the commissioner of the
State of Nevada Department of Commerce an amount reasonably sufficient to ensure
payment of compensation, but in no event may it be less than 105 percent of the
employer's expected annual incurred cost of claims, or less than $100,000. At
October 31, 1994 and 1995 and unaudited September 30, 1996, the Company has
provided as security an unsecured letter of credit from Bank of America for
$116,000, $132,000 and $110,000, respectively.

PURCHASE AGREEMENTS--In conjunction with an equipment acquisition, the
Company has agreed to purchase at least 90% of its sweetener requirement from
Liquid Sugars, Inc. for the period of time covered by their contract payable
ending October 1, 1995.

In November of 1993, the Company entered into a commitment agreement with
Purity to purchase packaging inventory for a certain product. Purity has
provided the Company with equipment for use in packaging this finished product.
Under the terms of the agreement, once the Company has fulfilled the purchase
commitment, the equipment becomes the property of the Company. The inventory
purchased includes an additional charge for this equipment. Based on current
market prices at October 31, 1994 and 1995, the total remaining committed
purchases approximate $1,180,000 and $634,000, respectively. The costs incurred
to purchase this packaging inventory approximated $522,000 and $570,000 during
the years ended October 31, 1994 and 1995, respectively. The commitment
agreement is anticipated to be fulfilled by February of 1997.

CONSTRUCTION CONTRACT--In May of 1994, the Company entered into a contract
with Zero Temp, Inc. to construct a new cold storage facility to their existing
creamery plant. The terms of the payments were based on percentage of completion
determined by the contractor. Total costs incurred of $382,710 were included in
construction in progress at October 31, 1994. At October 31, 1994, the Company
was committed to an additional $255,140 of construction costs under this
contract. Construction was completed during the year ended October 31, 1995 and
no further commitment existed.

In May of 1996, the Company entered into a similar contract with Tri-Com
Refrigeration, Inc., to construct a new freezer facility. Total costs incurred
of $164,675 were included in construction in progress at September 30, 1996. At
September 30, 1996, the Company was commited to an additional $512,054 of
construction costs under this contract.

F-84
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED BY THE COMPANY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
THE SELLING STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO CIRCUMSTANCES SHALL THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER CREATE ANY IMPLICATION
THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME
SUBSEQUENT THE DATE OF THIS PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 11
Price Range of Common Stock.................... 11
Dividend Policy................................ 11
Capitalization................................. 12
Unaudited Pro Forma Consolidated Financial
Data......................................... 13
Selected Consolidated Financial Data........... 20
Selected Pre-Acquisition Historical Financial
Data......................................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 23
Business....................................... 32
Management..................................... 40
Certain Relationships and Related
Transactions................................. 48
Principal and Selling Stockholders............. 54
Description of Capital Stock................... 55
Shares Eligible for Future Sale................ 58
Underwriting................................... 61
Legal Matters.................................. 62
Experts........................................ 62
Available Information.......................... 62
Index to Financial Statements.................. F-1
</TABLE>

2,900,000 SHARES

[LOGO]

COMMON STOCK
---------------------

PROSPECTUS

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

BEAR, STEARNS & CO. INC.

A.G. EDWARDS & SONS, INC.

, 1997

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table indicates the estimated expenses to be incurred in
connection with the Offering described in this Registration Statement, all of
which will be paid by the Company.

<TABLE>
<S> <C>
Registration fee.................................................. $ 20,500
NASD fee.......................................................... 7,000
Nasdaq National Market listing fee................................ 17,500
Accounting fees and expenses...................................... 100,000
Legal fees and expenses........................................... 100,000
Printing and engraving............................................ 125,000
Blue Sky fees and expenses (including counsel fees)............... 5,000
Miscellaneous other expenses...................................... 125,000
---------
Total........................................................... $ 500,000
---------
---------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or any of its stockholders for
monetary damages arising from the director's breach of fiduciary duty as a
director, with certain limited exceptions. See "Management-- Limitation of
Liability and Indemnification" in the Prospectus.

Pursuant to the provisions of Section 145 of the Delaware General
Corporation Law, every Delaware corporation has the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise, against any and all
expenses, judgments, fines and amounts paid in settlement and reasonably
incurred in connection with such action, suit or proceeding. The power to
indemnify applies only if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests, or not opposed to the
best interests, of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.

The power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense and settlement expenses
and not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct unless the
court, in its discretion, believes that in light of all the circumstances
indemnification should apply.

The Company's Certificate of Incorporation contains provisions requiring it
to indemnify its officers and directors to the fullest extent permitted by the
Delaware General Corporation Law. See "Management--Limitation of Liability and
Indemnification" in the Prospectus.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On August 7, 1996, the Company completed a private placement of 625,000
shares of Common Stock to T. Rowe Price Small-Cap Value Fund, Inc., a Maryland
corporation. The sale of Common Stock in this private placement was exempt from
registration pursuant to Section 4(2) of the Securities Act. No underwriter
participated in this transaction.
In March 1995, the Company completed a private placement of shares of its
Common Stock and options to acquire shares of its Common Stock in connection
with the Combination described in the

II-1
<PAGE>
Prospectus under the caption "Certain Relationships and Related Transactions".
The offerees in such private placement were the Predecessor Owners of the
Combined Entities in the Combination. These Predecessor Owners received Common
Stock and options to acquire Common Stock in exchange for their equity interests
in the Combined Entities, as shown in the table below (which reflects record
ownership). The Company's sale of its securities in this private placement was
exempt from registration pursuant to Rule 506 of Regulation D under Section 4(2)
of the Securities Act. The Company's sale of its securities in this private
placement to certain of its employees and employees of its subsidiaries also
qualified for an exemption from registration pursuant to Rule 701 under the
Securities Act. No underwriters participated in these transactions.

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF AVERAGE
NUMBER OF COMMON STOCK EXERCISE TOTAL
SHARES OF SUBJECT TO PRICE PER SHARES
COMMON STOCK OPTIONS OPTION SHARE AND OPTIONS
-------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Gregg L. Engles...................................... 1,352,169 -- -- 1,352,169
Cletes O. Beshears................................... 50,489 8,831 6.79 59,320
Gayle O. Beshears.................................... 16,370 281,645 0.03 298,015
Hector M. Nevares.................................... 248,503 -- -- 248,503
Neva Holdings, Inc. ................................. 69,264 -- -- 69,264
Robert L. Kaminski................................... 865,367 -- -- 865,367
John Hancock Mutual Life Insurance Company........... 1,515,977 -- -- 1,515,977
John Hancock Life Insurance Company of America....... 26,441 -- -- 26,441
Pacific Mutual Life Insurance Company................ 879,941 -- -- 879,941
PM Group Life Insurance Company...................... 88,804 -- -- 88,804
Canaan Capital Limited Partnership................... 90,520 -- -- 90,520
Canaan Capital Offshore Limited
Partnership C.V. .................................. 756,859 -- -- 756,859
John W. Madden....................................... 51,495 -- -- 51,495
Graham D. Davis...................................... 16,370 88,438 0.06 104,808
Rick C. Smith........................................ -- 88,438 0.06 88,438
BP Puerto Rico, Inc. ................................ 137,699 -- -- 137,699
William A. McCormack................................. 41,795 -- -- 41,795
James Silcock Jr. 1994 Trust......................... 2,648 -- -- 2,648
Hunt E. Silcock 1994 Trust........................... 2,648 -- -- 2,648
William L. Farrell................................... 5,296 -- -- 5,296
Todd Follmer......................................... 46,687 -- -- 46,687
Suiza Profit Sharing Plan............................ 34,156 -- -- 34,156
Other Suiza-Puerto Rico Employees.................... -- 104,823 4.44 104,823
James Green.......................................... 5,887 3,679 6.79 9,566
Other Velda Farms Employees.......................... 8,094 10,669 6.79 18,763
-------------- -------------- ------------ -----------
Totals:.............................................. 6,313,479 586,523 6,900,002
-------------- -------------- -----------
-------------- -------------- -----------
</TABLE>

ITEM 16. EXHIBITS.

(a) EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------------------------
<C> <S> <C>
1.1 * -- Form of Underwriting Agreement

2.1 -- Amended and Restated Reorganization Agreement (filed as Exhibit 2.1 to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and
incorporated herein by this reference)
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------------------------
<C> <S> <C>
3.1 -- Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and
incorporated herein by this reference)

3.2 -- Certificate of Amendment of Certificate of Incorporation of the Company (filed as
Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 (Registration No.
333-1858) and incorporated herein by this reference)

3.3 -- Certificate of Correction of Certificate of Amendment of Certificate of
Incorporation (filed as Exhibit 3.3 to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-1858) and incorporated herein by this reference)

3.4 -- Certificate of Amendment of Certificate of Incorporation of the Company (filed as
Exhibit 3.4 to the Registrant's Registration Statement on Form S-1 (Registration No.
333-1858) and incorporated herein by this reference)

3.5 -- Bylaws of the Company (filed as Exhibit 3.5 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this
reference)
4.1 -- Specimen of Common Stock Certificate (filed as Exhibit 4.1 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated
herein by this reference)

4.2 -- Registration Rights (Exhibit G-2 to Amended and Restated Reorganization Agreement)
(filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-1858) and incorporated herein by this reference)

5.1* -- Opinion of Hughes & Luce, L.L.P. regarding legality of securities being registered

10.1 -- Suiza Foods Corporation Exchange Stock Option and Restricted Stock Option Plan
(filed as Exhibit 10.1 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-1858) and incorporated herein by this reference)

10.2 -- Exchange Stock Option and Restricted Stock Agreement between the Company and Cletes
O. Beshears (filed as Exhibit 10.2 to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-1858) and incorporated herein by this reference)

10.3 -- Exchange Stock Option Agreement between the Company and Gayle O. Beshears (filed as
Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 (Registration
No. 333-1858) and incorporated herein by this reference)

10.4 -- Exchange Stock Option Agreement between the Company and Gayle O. Beshears (filed as
Exhibit 10.4 to the Registrant's Registration Statement on Form S-1 (Registration
No. 333-1858) and incorporated herein by this reference)

10.5 -- Suiza Foods Corporation 1995 Stock Option and Restricted Stock Plan

10.6 -- Employment Agreement between Suiza Management Corporation and Gregg L. Engles (filed
as Exhibit 10.8 to the Registrant's Registration Statement on Form S-1 (Registration
No. 333-1858) and incorporated herein by this reference)
</TABLE>

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------------------------
<C> <S> <C>
10.7 -- Amendment No. 1 to Employment Agreement between Suiza Management Corporation and
Gregg L. Engles (filed as Exhibit 10.9 to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-1858) and incorporated herein by this reference)

10.8 -- Employment Agreement between Suiza Management Corporation and Cletes O. Beshears
(filed as Exhibit 10.10 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-1858) and incorporated herein by this reference)

10.9 -- Amendment No. 1 to Employment Agreement between Suiza Management Corporation and
Cletes O. Beshears (filed as Exhibit 10.11 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this
reference)

10.10 -- Employment Agreement between Suiza Dairy Corporation, Suiza Fruit Corporation, Neva
Plastics Manufacturing Corp. and Hector M. Nevares (filed as Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and
incorporated herein by this reference)

10.11 -- Amendment No. 1 to Hector M. Nevares' Employment Agreement (filed as Exhibit 10.13
to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858)
and incorporated herein by this reference)

10.12 -- Amendment No. 2 to Hector M. Nevares' Employment Agreement (filed as Exhibit 10.14
to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858)
and incorporated herein by this reference)

10.13 -- Amended and Restated Credit Agreement with Chase Manhattan Bank, N.A. (filed as
Exhibit 10.13 to the Registrant's Registration Statement on Form S-1 (Registration
No. 333-13119) and incorporated herein by this reference)

10.14 -- Amendment and Waiver to Amended and Restated Credit Agreement with Chase Manhattan
Bank, N.A. (filed as Exhibit 10.14 to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-13119) and incorporated herein by this reference)

10.15 -- Amendment No. 2 to Amended and Restated Credit Agreement with First Union National
Bank of North Carolina (filed as Exhibit 10.15 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-13119) and incorporated herein by this
reference)

10.16 -- Supplemental Credit Agreement with First Union National Bank of North Carolina
(filed as Exhibit 10.16 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-13119) and incorporated herein by this reference)

10.17 -- Note Purchase Agreement with John Hancock and Pacific Mutual (filed as Exhibit 10.18
to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858)
and incorporated herein by this reference)

10.18 -- Agreement among Suiza Holdings, L.P., Engles Acquisition D, Inc., Engles Acquisition
F, Inc. and Engles Acquisition P, Inc. and Hector M. Nevares La Costa, Carmen M. La
Costa Bolivar, and certain other shareholders and Suiza Dairy Corporation, Borinquen
Dairy, Inc., Suiza Fruit Corporation and Neva Plastics Manufacturing Corp. (filed as
Exhibit 10.19 to the Registrant's Registration Statement on Form S-1 (Registration
No. 333-1858) and incorporated herein by this reference)
</TABLE>

II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------------------------
<C> <S> <C>
10.19 -- Amended and Restated Agreement and Plan of Merger among Engles Dairy Acquisition,
L.P., Velda Farms, Inc. and the Morningstar Group Inc. (filed as Exhibit 10.20 to
the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and
incorporated herein by this reference)

10.20 -- Noncompetition Agreement by and between Velda Farms, L.P. and The Morningstar Group
Inc. (filed as Exhibit 10.21 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-1858) and incorporated herein by this reference)

10.21 -- Form of Underwriting Agreement (filed as Exhibit 1.1 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated
herein by this reference)

10.22 -- Stock Purchase Agreement among G Acquisition Corp. and Jose M. Rodriguez Garrido and
Jorge Rodriguez Garrido (filed as Exhibit 2.1 to the Registrant's Current Report on
Form 8-K/A filed with the Commission on September 25, 1996 and incorporated herein
by this reference)

10.23 -- Asset Purchase Agreement by and among Suiza Foods Corporation, Swiss Dairy
Corporation a Delaware corporation, Swiss Dairy, a Corporation, a California
corporation and the principal stockholders of Swiss Dairy, a Corporation identified
therein (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed
with the Commission on September 24, 1996 and incorporated herein by this reference)

10.24 -- Stock Purchase Agreement by and between T. Rowe Price Small-Corp. Value Fund, Inc.
and Suiza Foods Corporation (filed as Exhibit 10.24 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-13119) and incorporated herein by this
reference)

10.25* -- Asset Purchase Agreement by and among Suiza Foods Corporation, Model Dairy, Inc., J
& T Enterprises, Bahan & Bahan, the Estate of Thomas E. Bahan, the Thomas E. Bahan
Trust and James N. Bahan.

11.1 -- Statement re computation of per share earnings

21.1 -- List of Subsidiary Corporations

23.1* -- Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1)

23.2 -- Consent of Deloitte & Touche LLP

23.3 -- Consent of KPMG Peat Marwick LLP

23.4 -- Consent of Barnard, Vogler & Co.

24.1 -- Powers of Attorney (included on page II-7)
</TABLE>

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

* To be filed by amendment

(b) FINANCIAL STATEMENT SCHEDULES:

No financial statement schedules are required as all material required
information is disclosed in the notes to the consolidated financial statements.

II-5
<PAGE>
ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing certificates in such denominations and registered in such names
as required by the Underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the underwriting agreement, the Company's Certificate of
Incorporation or Bylaws, Delaware law or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For the purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(l) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on December 17, 1996.

SUIZA FOODS CORPORATION

By: /s/ GREGG L. ENGLES
-----------------------------------------
Gregg L. Engles
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

We, the undersigned officers and directors of Suiza Foods Corporation,
hereby severally constitute and appoint Gregg L. Engles and Tracy L. Noll, and
each of them, our true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for each of us in our name, place and stead,
in any and all capacities, to sign Suiza Food Corporation's Registration
Statement on Form S-1, and any other Registration Statement relating to the same
offering, and any and all amendments thereto (including post-effective
amendments), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and hereby grant to such attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as each of us might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or his or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.

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

/s/ GREGG L. ENGLES
- ------------------------------ Chairman of the Board and December 17, 1996
Gregg L. Engles Chief Executive Officer

/s/ CLETES O. BESHEARS
- ------------------------------ President and Director December 17, 1996
Cletes O. Beshears

/s/ HECTOR M. NEVARES
- ------------------------------ Vice Chairman of the Board December 17, 1996
Hector M. Nevares

/s/ GAYLE O. BESHEARS
- ------------------------------ Executive Vice President December 17, 1996
Gayle O. Beshears and Director

/s/ TRACY L. NOLL Vice President, Chief
- ------------------------------ Financial Officer and December 17, 1996
Tracy L. Noll Secretary

II-7
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>

/s/ ROBERT BARTHOLOMEW
- ------------------------------ Director December 17, 1996
Robert Bartholomew

/s/ STEPHEN GREEN
- ------------------------------ Director December 17, 1996
Stephen Green

/s/ ROBERT L. KAMINSKI
- ------------------------------ Director December 17, 1996
Robert L. Kaminski

/s/ P. EUGENE PENDER
- ------------------------------ Director December 17, 1996
P. Eugene Pender

/s/ ROBERT PICCININI
- ------------------------------ Director December 17, 1996
Robert Piccinini
</TABLE>

II-8

<PAGE>

SUIZA FOODS CORPORATION
1995 STOCK OPTION
AND RESTRICTED STOCK PLAN

1. PURPOSE OF THE PLAN. This Plan shall be known as the Suiza Foods
Corporation 1995 Stock Option and Restricted Stock Plan. The purpose of the
Plan is to attract and retain the best available personnel for positions of
substantial responsibility and to provide incentives to such personnel to
promote the success of the business of Suiza Foods Corporation and its
subsidiaries.

Certain options granted under this Plan are intended to qualify as
"incentive stock options" pursuant to Section 422 of the Internal Revenue
Code of 1986, as amended from time to time, while certain other options
granted under the Plan will constitute nonqualified options.

2. DEFINITIONS. As used herein, the following definitions shall apply:

(a) "Board" shall mean the Board of Directors of the Corporation.

(b) "Common Stock" shall mean the Common Stock, $.01 par value per
share, of the Corporation. Except as otherwise provided herein, all Common
Stock issued pursuant to the Plan shall have the same rights as all other
issued and outstanding shares of Common Stock, including but not limited to
voting rights, the right to dividends, if declared and paid, and the right to
pro rata distributions of the Corporation's assets in the event of
liquidation.

(d) "Committee" shall mean the committee described in Section 19 that
administers the Plan.

(e) "Corporation" shall mean Suiza Foods Corporation, a Delaware
corporation.

(f) "Date of Grant" shall mean the date on which an Option is granted
or Restricted Stock is awarded pursuant to this Plan or, if the Committee so
determines, the date specified by the Committee as the date the award is to
be effective.

(g) "Disinterested Director" shall mean a director who is not, during
the one year prior to service as an administrator of the Plan, or during such
service, granted or awarded an Option or Restricted Stock pursuant to the Plan
or any other plan of the Corporation or any of its affiliates (except as
provided in Sections 19(c) or 19(d) of this Plan and as may be permitted by
Rule 16b-3 promulgated under the Exchange Act).

<PAGE>

(h) "Employee" shall mean any officer or other key employee of the
Corporation or one of its Subsidiaries (including any director who is also an
officer or key employee of the Corporation or one of its Subsidiaries).

(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

(j) "Fair Market Value" shall mean the closing sale price (or average
of the quoted closing bid and asked prices if there is no closing sale price
reported) of the Common Stock on the date specified as reported by NASDAQ or
by the principal national stock exchange on which the Common Stock is then
listed. If there is no reported price information for the Common Stock, the
Fair Market Value will be determined by the Committee, in its sole
discretion. In making such determination, the Committee may, but shall not be
obligated to, commission and rely upon an independent appraisal of the Common
Stock.

(k) "Nonqualified Option" shall mean any Option that is not a Qualified
Option.

(l) "Option" shall mean a stock option granted pursuant to Section 6 of
this Plan.

(m) "Optionee" shall mean any Employee or director who receives an
Option.

(n) "Participant" shall mean an Employee or director who receives an
Option or Restricted Stock pursuant to his Plan.

(o) "Plan" shall mean the Suiza Foods Corporation 1995 Stock Option and
Restricted Stock Plan, as amended from time to time.

(p) "Qualified Option" shall mean any Option that is intended to
qualify as an "incentive stock option" within the meaning of Section 422
of the Code.

(q) "Restricted Stock" shall mean Common Stock awarded to an Employee
or director pursuant to Section 7 of this Plan.

(r) "Rule 16b-3" shall mean Rule 16b-3 of the rules and regulations
under the Exchange Act as Rule 16b-3 may be amended from time to time and any
successor provisions to Rule 16b-3 under the Exchange Act.

(s) "Subsidiary" shall mean any now existing or hereinafter organized
or acquired company of which more than fifty percent (50%) of the issued and
outstanding voting stock is owned or controlled directly or indirectly by the
Corporation or through one or more Subsidiaries of the Corporation.

<PAGE>

3. TERM OF PLAN. The Plan has been adopted by the Board and shall
become effective on the date it is approved by the shareholders of the
Corporation by the affirmative votes of the holders of a majority of the
shares of Common Stock then issued and outstanding, and shall continue in
effect until terminated pursuant to Section 19(a).

4. SHARES SUBJECT TO THE PLAN. Except as otherwise provided in Section
18 hereof, the aggregate number of shares of Common Stock issuable upon the
exercise of Options or upon the grant of Restricted Stock pursuant to this
Plan shall be 15,500.00 shares; provided, however, that no more than 5,500.00
shares of Common Stock shall be granted as Restricted Stock. Such shares may
either be authorized but unissued shares or treasury shares. The Corporation
shall, during the term of this Plan, reserve and keep available a number of
shares of Common Stock sufficient to satisfy the requirements of the Plan.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, or Restricted Stock should fail to vest and be
forfeited in whole or in part for any reason, then the shares that were
subject thereto shall, unless the Plan shall have terminated, be available
for the grant of additional Options or Restricted Stock under this Plan,
subject to the limitations set forth above.

5. ELIGIBILITY. Qualified Options may be granted under Section 6 of
the Plan to such Employees of the Corporation or its Subsidiaries as shall be
determined by the Committee. Nonqualified Options may be granted under
Section 6 of the Plan to such Employees and directors of the Corporation or
its Subsidiaries as shall be determined by the Committee. Restricted Stock
may be granted under Section 7 of the Plan to such Employees and directors of
the Corporation or its Subsidiaries as shall be determined by the Committee.
Subject to the limitations and qualifications set forth in this Plan, the
Committee shall also determine the number of Options or shares of Restricted
Stock to be granted, the number of shares subject to each Option or
Restricted Stock grant, the exercise price or prices of each Option, the
vesting and exercise period of each Option and the vesting and/or forfeiture
provisions relating to Restricted Stock, whether an Option may be exercised
as to less than all of the Common Stock subject thereto, and such other terms
and conditions of each Option or grant of Restricted Stock, if any, as are
consistent with the provisions of this Plan. In connection with the granting
of Qualified Options, the aggregate Fair Market Value (determined at the Date
of Grant of a Qualified Option) of the shares with respect to which Qualified
Options are exercisable for the first time by an Optionee during any calendar
year (under all such plans of the Optionee's employer corporation and its
parent and subsidiary corporations as defined in Section 424(e) and (f) of
the Code, or a corporation or a parent or subsidiary corporation of such
corporation issuing or assuming an Option in a transaction to which Section
424(a) of the Code applies (collectively, such corporations described in this
sentence are hereinafter referred to as "Related Corporations")) shall not
exceed $100,000 or such other amount as from time to time provided in Section
422(d) of the Code or any successor provision.

6. GRANT OF OPTIONS. Except as provided in Section 19(c), the
Committee shall determine the number of shares of Common Stock to be offered
from time to time pursuant to Options granted hereunder and shall grant
Options under the Plan. The grant of Options shall be evidenced by Option
agreements containing such terms and provisions as are approved by the
Committee and executed on behalf of the Corporation by an appropriate
officer. In connection

<PAGE>

with the granting of any Options under the Plan, the aggregate number of
shares of Common Stock issuable to any single Participant shall not exceed
the number of shares subject to the Plan referred to in Section 4.

7. RESTRICTED STOCK. Except as provided in Section 19(d), the
Committee shall determine the number of shares of Common Stock to be granted
as Restricted Stock from time to time under the Plan. The grant of
Restricted Stock shall be evidenced by Restricted Stock agreements containing
such terms and provisions as are approved by the Committee and executed on
behalf of the Corporation by an appropriate officer.

8. TIME OF GRANT OF OPTIONS. The date of grant of an Option or
Restricted Stock under the Plan shall be the date on which the Committee
awards the Option or Restricted Stock or, if the Committee so determines, the
date specified by the Committee as the date the award is to be effective.
Notice of the grant shall be given to each Participant to whom an Option or
Restricted Stock is granted promptly after the date of such grant.

9. PRICE. The Option price for each share of Common Stock subject to
an Option (the "Exercise Price") granted pursuant to Section 6 of the Plan
shall be determined by the Committee at the Date of Grant; provided, however,
that (a) the Exercise Price for any Option shall not be less than 100% of the
Fair Market Value of the Common Stock at the Date of Grant, and (b) if the
Optionee owns on the Date of Grant more than 10 percent of the total combined
voting power of all classes of stock of the Corporation or its parent or any
of its subsidiaries, as more full described in Section 422(b)(6) of the Code
or any successor provision (such shareholder is referred to herein as a
"10-Percent Stockholder"), the Exercise Price for any Qualified Option
granted to such Optionee shall not be less than 110% of the Fair Market Value
of the Common Stock at the Date of Grant. The Committee in its discretion
may award shares of Restricted Stock under Section 7 of the Plan to
Participants without requiring the payment of cash consideration for such
shares.

10. VESTING. Subject to Section 12 of this Plan, each Option and
Restricted Stock award under the Plan shall vest in accordance with the
vesting provisions set forth in the applicable Option agreement or Restricted
Stock agreement. The Committee may, but shall not be required to, permit
acceleration of vesting upon any sale of the Corporation or similar
transaction. A Participant's Option or Restricted Stock agreement may
contain such additional provisions with respect to vesting as the Committee
shall specify.

11. EXERCISE. A Participant may pay the Exercise Price of the shares of
Common Stock as to which an Option is being exercised by the delivery of
cash, check or, at the Corporation's option, by the delivery of shares of
Common Stock having a Fair Market Value on the date immediately preceding the
exercise date equal to the Exercise Price.

If the shares to be purchased are covered by an effective registration
statement under the Securities Act of 1933, as amended, any Option granted
under the Plan may be exercised by a broker-dealer acting on behalf of an
Optionee if (a) the broker-dealer has received from the Optionee or the
Corporation a fully- and duly-endorsed agreement evidencing such Option,

<PAGE>

together with instructions signed by the Optionee requesting the Corporation
to deliver the shares of Common Stock subject to such Option to the
broker-dealer on behalf of the Optionee and specifying the account into
which such shares should be deposited, (b) adequate provision has been made
with respect to the payment of any withholding taxes due upon such exercise,
and (c) the broker-dealer and the Optionee have otherwise complied with
Section 220.3(e)(4) of Regulation T, 12 CFR Part 220, or any successor
provision.

12. WHEN QUALIFIED OPTIONS MAY BE EXERCISED. No Qualified Option shall
be exercisable at any time after the expiration of ten (10) years from the
Date of Grant; PROVIDED, HOWEVER, that if the Optionee with respect to a
Qualified Option is a 10-Percent Stockholder on the Date of Grant of such
Qualified Option, then such Option shall not be exercisable after the
expiration of five (5) years from its Date of Grant. In addition, if an
Optionee of a Qualified Option ceases to be an employee of the Corporation or
any Related Corporation for any reason, such Optionee's vested Qualified
Options shall not be exercisable after (a) 90 days following the date such
Optionee ceases to be an employee of the Corporation or any Related
Corporation, if such cessation of service is not due to the death or
permanent and total disability (within the meaning of Section 22(e)(3) of the
Code) of the Optionee, or (b) twelve months following the date such Optionee
ceases to be an employee of the Corporation or any Related Corporation, if
such cessation of service is due to the death or permanent and total
disability (as defined above) of the Optionee. Upon the death of an Optionee,
any vested Qualified Option exercisable on the date of death may be exercised
by the Optionee's estate or by a person who acquires the right to exercise
such Qualified Option by bequest or inheritance or by reason of the death of
the Optionee, provided that such exercise occurs within both the remaining
option term of the Qualified Option and twelve months after the date of the
Optionee's death. This Section 12 only provides the outer limits of
allowable exercise dates with respect to Qualified Options; the Committee may
determine that the exercise period for a Qualified Option shall have a
shorter duration than as specified above.

13. OPTION FINANCING. Upon the exercise of any Option granted under the
Plan, the Corporation may, but shall not be required to, make financing
available to the Participant for the purchase of shares of Common Stock
pursuant to such Option on such terms as the Committee shall specify.

14. WITHHOLDING OF TAXES. The Committee shall make such provisions and
take such steps as it may deem necessary or appropriate for the withholding
of any taxes that the Corporation is required by any law or regulation of any
governmental authority to withhold in connection with any Option or
Restricted Stock including, but not limited to, withholding the issuance of
all or any portion of the shares of Common Stock subject to such Option or
Restricted Stock until the Participant reimburses the Corporation for the
amount it is required to withhold with respect to such taxes, cancelling any
portion of such issuance in an amount sufficient to reimburse the Corporation
for the amount it is required to withhold or taking any other action
reasonably required to satisfy the Corporation's withholding obligation.

15. CONDITIONS UPON ISSUANCE OF SHARES. The Corporation shall not be
obligated to sell or issue any shares upon the exercise of any Option granted
under the Plan or to deliver

5
<PAGE>

Restricted Stock unless the issuance and delivery of shares shall comply with
all provisions of applicable federal and state securities laws and the
requirements of any stock exchange upon which shares of the Common Stock may
then be listed.

As a condition to the exercise of an Option or the grant of
Restricted Stock, the Corporation may require the person exercising the
Option or receiving the grant of Restricted Stock to make such
representations and warranties as may be necessary to assure the availability
of an exemption from the registration requirements of applicable federal and
state securities laws.

The Corporation shall not be liable for refusing to sell or issue
any shares covered by any Option or for refusing to issue Restricted Stock if
the Corporation cannot obtain authority from the appropriate regulatory
bodies deemed by the Corporation to be necessary to lawfully sell or issue
such shares. In addition, the Corporation shall have no obligation to any
Participant, express or implied, to list, register or otherwise qualify the
shares of Common Stock covered by any Option or Restricted Stock.

No Participant will be, or will be deemed to be, a holder of any
Common Stock subject to an Option unless and until such Participant has
exercised his or her Option and paid the purchase price for the subject
shares of Common Stock. Each Option under this Plan shall be transferable
only by will or the laws of descent and distribution and shall be exercisable
during the Participant's lifetime only by such Participant.

Any Common Stock issued pursuant to the exercise of an Option or
pursuant to the grant of Restricted Stock to a person who would be deemed an
officer or director of the Corporation under Rule 16b-3 shall not be
transferred until at least six months have elapsed from the Date of Grant to
the date of disposition of the Common Stock, unless, at the time of transfer,
the Corporation is not subject to the provisions of Section 16 of the
Exchange Act.

16. RESTRICTIONS ON SHARES. Shares of Common Stock issued pursuant to
the Plan shall be subject to restrictions on transfer under applicable
federal and state securities laws. The Board may impose such additional
restrictions on the ownership and transfer of shares of Common Stock issued
pursuant to the Plan as it deems desirable; any such restrictions shall be
set forth in any Option agreement entered into hereunder.

17. MODIFICATION OF OPTIONS. Except as provided in Section 19(c) of this
Plan, at any time and from time to time, the Committee may execute an
instrument providing for modification, extension or renewal of any
outstanding Option, provided that no such modification, extension or renewal
shall impair the Option without the consent of the holder of the Option or
conflict with the provisions of Rule 16b-3. Notwithstanding the foregoing, in
the event of such a modification, substitution, extension or renewal of a
Qualified Option, the Committee may increase the exercise price of such
Option if necessary to retain the qualified status of such Option.

18. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN. In the event that
each of the outstanding shares of Common Stock (other than shares held by
dissenting stockholders) shall be

<PAGE>

changed into or exchanged for a different number or kind of shares of stock of
the Corporation or of another corporation (whether by reason of merger,
consolidation, recapitalization, reclassification, split-up, combination of
shares or otherwise), or in the event a stock split or stock dividend shall
have occurred, then there shall be substituted for each share of Common Stock
then subject to Options or Restricted Stock awards or available for Options
or Restricted Stock awards the number and kind of shares of stock into which
each outstanding share of Common Stock (other than shares held by dissenting
stockholders) shall be so changed or exchanged, or the number of shares of
Common Stock as is equitably required in the event of a stock split or stock
dividend, together with an appropriate adjustment of the Exercise Price. The
Board may, but shall not be required to, provide additional anti-dilution
protection to a Participant under the terms of the Participant's Option or
Restricted Stock agreement.

19. ADMINISTRATION.

(a) Notwithstanding anything to the contrary herein, to comply
with the requirements of Rule 16b-3, the Plan shall be administered by the
Board, if each member is a Disinterested Director, or by a committee of two
or more Disinterested Directors appointed by the Board, (the group responsible
for administering the Plan is referred to herein as the "Committee");
provided that the Committee may include directors who are not Disinterested
Directors if the Corporation is not, at such time, subject to the provisions
of Section 16 of the Exchange Act. Options and Restricted Stock may be
granted under Sections 6 and 7, respectively, only by majority agreement of
the members of the Committee. Option agreements and Restricted Stock
agreements, in the forms as approved by the Committee, and containing such
terms and conditions consistent with the provisions of this Plan as shall have
been determined by the Committee, may be executed on behalf of the
Corporation by the Chairman of the Board, the President or any Vice President
of the Corporation. Except with respect to Sections 19(b), (c) and (d) of
this Plan, the Committee shall have complete authority to construe, interpret
and administer the provisions of this Plan and the provisions of the Option
agreements and Restricted Stock agreements granted hereunder; to prescribe,
amend and rescind rules and regulations pertaining to this Plan; to suspend
or discontinue this Plan (subject to Section 19(f)); and to make all other
determinations necessary or deemed advisable in the administration of the
Plan. The determinations, interpretations and constructions made by the
Committee shall be final and conclusive. No member of the Committee shall be
liable for any action taken, or failed to be taken, made in good faith
relating to the Plan or any award thereunder, and the members of the
Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage or expense (including
attorneys' fees) arising therefrom to the fullest extent permitted by law.

(b) Members of the Committee shall be specified by the Board, and,
except as otherwise provided in Section 19(a), shall consist solely of
Disinterested Directors. Disinterested Directors shall not be eligible to
receive options to purchase Common Stock pursuant to Section 6 of the Plan or
grants of Restricted Stock pursuant to Section 7 of the Plan, except as
specifically provided under Sections 19(c) and 19(d).

<PAGE>

(c) Each director (including any Disinterested Director who so
qualifies) who is (i) not an employee or officer of the Corporation or any
Subsidiary, and (ii) not a stockholder, or an employee or affiliate of a
stockholder, who beneficially owns, directly or indirectly, 5,000 or more
shares of the issued and outstanding Common Stock (an "Outside Director"), on
the date that such director joins the Board and on June 30 of each year
thereafter (commencing with June 30, 1996) that the director serves on the
Board, shall automatically by granted Nonqualified Options to purchase 50
shares of Common Stock. The purchase price or prices for Common Stock
subject to an option granted under this Section 19(c) shall be 100% of the
Fair Market Value of the Common Stock on the Date of Grant. Such Options
shall be exercisable on and after the Date of Grant until the earlier of (i)
ten years after the Date of Grant, or (ii) the date such director is no longer
a director of the Corporation or an officer or employee of the Corporation or
a Related Corporation. This Section 19(c) shall not be amended more than once
every six months, other than to comport with changes in the Code or in the
Employee Retirement Income Security Act of 1974, as amended, or changes in
the rules promulgated thereunder, or other applicable law, unless, at the
time of amendment, the Corporation is not subject to the provisions of
Section 16 of the Exchange Act.

(d) Notwithstanding Sections 19(a) and (c), at any time that the
Corporation is subject to the provisions of Section 16 of the Exchange Act,
no amendment may be made without the approval of the shareholders of the
Corporation by the affirmative votes of the holders of a majority of the
shares of Common Stock then issued and outstanding, which amendment would
materially (i) increase the benefits accruing to Participants, (ii) increase
the number of securities which may be issued under the Plan, other than in
accordance with Section 18 hereof, or (iii) modify the requirements as to
eligibility for participation in the Plan.

(e) Although the Committee may suspend or discontinue the Plan at
any time, all Qualified Options must be granted within ten (10) years from
the effective date of the Plan or the date of the Plan is approved by the
shareholders of the Corporation, whichever is earlier.

20. CONTINUED EMPLOYMENT NOT PRESUMED. Nothing in this Plan or any
document describing it nor the grant of any Option or Restricted Stock shall
give any Participant the right to continue in the employment of the
Corporation or affect the right of the Corporation to terminate the
employment of any such person with or without cause.

21. LIABILITY OF THE CORPORATION. Neither the Corporation, its
directors, officers or employees or the Committee, nor any Subsidiary which is
in existence or hereafter comes into existence, shall be liable to any
Participant or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Qualified Option
granted hereunder does not qualify for tax treatment as an incentive stock
option under Section 422 of the Code.

22. GOVERNING LAW. THE PLAN SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF STATE OF DELAWARE AND THE UNITED STATES, AS
APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS THEREOF.

<PAGE>

23. SEVERABILITY OF PROVISIONS. If any provision of this Plan is
determined to be invalid, illegal or unenforceable, such invalidity, illegality
or unenforceability shall not affect the remaining provisions of the Plan,
but such invalid, illegal or unenforceable provision shall be fully severable,
and the Plan shall be construed and enforced as if such provision had never
been inserted herein.

<PAGE>
EXHIBIT 11.1

Statement re: Computation of Per Share Earnings

<TABLE>

Nine Months Ended
Year Ended December 31, September 30,
------------------------------------- -------------------------
1993 1994 1995 1995 1994
---------- ---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
(Amounts in thousands, except share
and per share amounts)
<S> <C> <C> <C> <C> <C>
Income (loss) before extraordinary items $ 1,420 $ 4,245 $ (1,576) $ (2,846) $ 23,873
Extraordinary loss 197 8,462 8,462 2,215
---------- ---------- ---------- --------- ---------
Net income (loss) $ 1,420 $ 4,048 $ (10,038) $ (11,308) $ 21,658
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------

CALCULATION OF PRIMARY EARNINGS (LOSS) PER SHARE:

Weighted average shares outstanding 1,891,014 5,273,256 6,109,398 6,041,000 8,661,112
Common stock equivalents (options and warrants) 596,160 883,131 * * 699,427
---------- ---------- ---------- --------- ---------
Total weighted average shares outstanding 2,487,174 6,156,387 6,109,398 6,041,000 9,360,539
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------

Income (loss) before extraordinary items $ 0.57 $ 0.69 $ (0.26) $ (0.47) $ 2.55
Extraordinary loss (0.03) (1.38) (1.40) (0.24)
---------- ---------- ---------- --------- ---------
Net income (loss) $ 0.57 $ 0.66 $ (1.64) $ (1.87) $ 2.31
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------

CALCULATION OF FULLY DILUTED EARNINGS (LOSS) PER SHARE:

Weighted average shares outstanding 1,891,014 5,273,256 6,109,398 6,041,000 8,661,112

Common stock equivalents (options and warrants) 596,160 935,778 * * 790,508
---------- ---------- ---------- --------- ---------
Total weighted average shares outstanding 2,487,174 6,209,034 6,109,398 6,041,000 9,451,620
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------

Income (loss) before extraordinary items $ 0.57 $ 0.68 $ (0.26) $ (0.47) $ 2.52
Extraordinary loss (0.03) (1.39) (1.40) (0.23)
---------- ---------- ---------- --------- ---------
Net income (loss) $ 0.57 $ 0.65 $ (1.64) $ (1.87) $ 2.29
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
</TABLE>

* Excluded as such amounts are anti-dilutive.

<PAGE>

EXHIBIT 21.1

Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
Suiza Dairy Corporation Delaware
Suiza Fruit Corporation Delaware
Neva Plastics Manufacturing Corp. Delaware
Velda Farms, Inc. Delaware
Reddy Ice Corporation Delaware
Suiza Management Corporation Delaware
Garrido y Compania, Inc. Puerto Rico
Guest Choice, Inc. Delaware
Swiss Dairy Corporation Delaware
Model Dairy, Inc. Delaware

<PAGE>
EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Suiza Foods
Corporation on Form S-1 of our reports on the consolidated financial statements
of Suiza Foods Corporation dated February 18, 1996 (February 29, 1996 as to Note
13); the combined financial statements of Pre-Acquisition Suiza-Puerto Rico
dated April 15, 1994; the financial statements of Pre-Acquisition Velda Farms
dated November 4, 1994; and the financial statements of Swiss Dairy, a
Corporation, dated August 28, 1996, appearing in the Prospectus, which is part
of this Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.

DELOITTE & TOUCHE LLP

Dallas, Texas

December 18, 1996

<PAGE>
EXHIBIT 23.3

INDEPENDENT AUDITORS' CONSENT

We consent to the use in the registration statement on Form S-1 of Suiza
Foods Corporation and the related prospectus of our report dated August 23,
1996, with respect to the consolidated balance sheets of Garrido & Compania,
Inc. and Subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of earnings, changes in stockholders' equity, and cash flows for each
of the years in the three-year period ended June 30, 1996, and to the reference
to us under the heading "Experts" in such prospectus.

KPMG PEAT MARWICK LLP

San Juan, Puerto Rico

December 17, 1996

<PAGE>
EXHIBIT 23.4

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Suiza Foods
Corporation on Form S-1 of our report dated December 14, 1995, with respect to
the balance sheets of Model Dairy, Inc. as of October 31, 1995 and 1994, and the
related statements of earnings and retained earnings, and cash flows for the
years then ended, appearing in the Prospectus, which is part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.

BARNARD, VOGLER & CO.

Reno, Nevada
December 17, 1996