Amendment No. 2 to Form 20-F

Accrued postretirement benefit costs

20-F/A 1 d20fa.htm AMENDMENT NO. 2 TO FORM 20-F Amendment No. 2 to Form 20-F

As filed with the Securities and Exchange Commission on February 16, 2007

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F/A

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)

OF THE SECURITIES EXCHANGE ACT OF 1934

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-14734

GROUPE DANONE

(Exact name of registrant as specified in its charter)

Not Applicable

(Translation of registrant’s

name into English)

17, Boulevard Haussman

75009 Paris

France

(Address of principal

executive offices)

France

(Jurisdiction of incorporation

or organization)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of each class:		Name of each exchange on which registered:
American Depositary Shares, or ADSs, each representing one-fifth of one Ordinary Share, nominal value €0.50 per share		New York Stock Exchange

Ordinary Shares, nominal value €0.50 per share		New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

264,235,190 ordinary shares, nominal value € 0.50 per share at December 31, 2005

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x No ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-acccelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer x		Accelerated filer ¨		Non-accelerated filer ¨

Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 ¨ Item 18 x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT TO APPLICATION OR REPORT

FILED PURSUANT TO SECTION 12, 13 or 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

GROUPE DANONE

AMENDMENT NO. 2 TO FORM 20-F

The undersigned registrant hereby amends the Annual Report on Form 20-F for the fiscal year ended December 31, 2005 filed by Groupe Danone, on April 20, 2006, as amended by Amendment No. 1 filed on June 20, 2006 (the “Form 20-F”).

This Amendment No. 2 has been made to refile the consolidated financial statements of DS Waters, LP as of and for the periods ended November 14, 2005 and December 31, 2004 to correct three typographical errors on page F-100 and also to refile corrected independent auditors’ reports for DS Waters, LP with additional auditor information.

Other than the foregoing item, this Amendment No. 2 does not amend, update or restate any other sections of the Form 20-F. This Amendment No. 2 does not reflect events occurring after the filing of the Form 20-F on April 20, 2006. The filing of this Amendment No. 2 should not be understood to mean that any other statements contained therein are true or complete as of any date subsequent to April 20, 2006. Investors should not rely upon this amendment as a reaffirmation or reiteration of forward-looking statements that were made in the original filing and are reprinted in this amendment.

Item 19. Exhibits



10.1		Consent of PricewaterhouseCoopers LLP.

10.2		Consent of PricewaterhouseCoopers LLP.

12.1		Certification of Franck Riboud, Chairman and Chief Executive Officer of Groupe Danone, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

12.2		Certification of Antoine Giscard d’Estaing, Executive Vice-President—Finance, Strategy and Information Systems of Group Danone, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

13.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

The registrant certifies that it meets all of the requirements for filing on Form 20-F/A and has duly caused and authorized the undersigned to sign this annual report on its behalf.

Date: February 16, 2007


	GROUPE DANONE

By:	/s/ ANTOINE GISCARD D’ESTAING
	Name:
	Title:	Executive Vice-President—Finance, Strategy and Information Systems

GROUPE DANONE

INDEX TO THE FINANCIAL STATEMENTS


Group Danone Financial Statements
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Statements of Income for the Years Ended December 31, 2004 and 2005		F-3
Consolidated Balance Sheets as of December 31, 2004 and 2005		F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004 and 2005		F-5
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2004 and 2005		F-6
Notes to the Consolidated Financial Statements		F-7

DS Waters, LP Financial Statements
Report of Independent Registered Public Accounting Firm		F-73
Consolidated Balance Sheets as of December 31, 2003 and 2004		F-74
Consolidated Statements of Operations for the Year Ended December 31, 2004 and the Period from November 7, 2003 to December 31, 2003		F-75
Consolidated Statements of Changes in Mandatorily Redeemable Preferred Units, Mandatorily Redeemable Common Units and Partners’ Capital (Deficit) for the Year Ended December 31, 2004 and the Period from November 7, 2003 to December 31, 2003		F-76
Consolidated Statements of Cash Flows for the Year Ended December 31, 2004 and the Period from November 7, 2003 to December 31, 2003		F-77
Notes to the Consolidated Financial Statements		F-78

Report of Independent Auditors		F-98
Consolidated Balance Sheets as of November 14, 2005 and December 31, 2004		F-99
Consolidated Statements of Operations for the Period Ended November 14, 2005 and the Year Ended December 31, 2004		F-100
Consolidated Statements of Changes in Mandatorily Redeemable Preferred Units, Mandatorily Redeemable Common Units and Partners’ Capital (Deficit) for the Period Ended November 14, 2005 and the Year Ended December 31, 2004		F-101
Consolidated Statements of Cash Flows for the Period Ended November 14, 2005 and the Year Ended December 31, 2004		F-102
Notes to the Consolidated Financial Statements		F-103

F-1

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of DS WATERS, LP

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in mandatorily redeemable preferred units, mandatorily redeemable common units and partners’ capital (deficit) and cash flows present fairly, in all material respects, the financial position of DS Waters, LP and its subsidiaries at December 31, 2004 and 2003 and the results of their operations and their cash flows for the year ended December 31, 2004 and for the period from November 7, 2003 to December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. 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 audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

See Note 2 for a discussion regarding the Company’s liquidity including compliance with restrictive financial covenants under the Company’s credit agreement.

PRICEWATERHOUSECOOPERS LLP

Atlanta, Georgia

April 12, 2005

F-73

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

December 31, 2004 and 2003


	2004			2003
	(in thousands of dollars)
Assets
Current assets
Cash and cash equivalents	$	3,289		$	41,061
Trade accounts receivable, net of allowance for doubtful accounts of $8,191 and $5,292		76,730			74,895
Accounts receivable from related party		3,050			1,920
Inventories		14,441			11,992
Prepaids and other current assets		11,233			14,085

Total current assets		108,743			143,953
Property, plant and equipment, net		378,707			419,132
Intangibles, net		308,577			854,902
Notes receivable and other assets		6,041			6,319
Deferred financing costs		12,837			12,871

	$	814,905		$	1,437,177

Liabilities, Mandatorily Redeemable Preferred and Common Units, and Partners’ Capital (Deficit)
Current liabilities
Checks written in excess of bank balances	$	11,855		$	10,362
Current portion of long-term debt		20,442			12,494
Accounts payable		24,859			21,857
Accounts payable to related parties		14,787			32,754
Accrued expenses and other current liabilities		71,007			58,657
Customer deposits		27,677			32,871

Total current liabilities		170,627			168,995
Long-term debt, less current portion		388,926			394,801
Other long-term liabilities		11,261			11,241

Total liabilities		570,814			575,037

Mandatorily redeemable preferred units		325,000			325,000
Mandatorily redeemable common units, net of note receivable of $371 and $250		749			500

Total redeemable units		325,749			325,500

Partners’ capital (deficit)		(81,658	)		536,640

	$	814,905		$	1,437,177

The accompanying notes are an integral part of these consolidated financial statements.

F-74

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31, 2004 and the Period

From November 7, 2003 To December 31, 2003


	2004			2003
	(in thousands of dollars)
Net product sales	$	668,662		$	83,034
Rental revenue		121,392			16,666

Net sales		790,054			99,700
Cost of sales		282,571			30,064

Gross profit		507,483			69,636
Selling, distribution and administrative expenses		543,715			73,485
Impairment of intangible assets		524,500			—
Amortization expense		23,182			3,660

Loss from operations		(583,914	)		(7,509	)
Other expenses
Interest expense, net		24,011			2,986
Other (income) expense		(1,868	)		68

Net loss	$	(606,057	)	$	(10,563	)

The accompanying notes are an integral part of these consolidated financial statements.

F-75

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CHANGES IN

MANDATORILY REDEEMABLE PREFERRED UNITS,

MANDATORILY REDEEMABLE COMMON UNITS, AND PARTNERS’ CAPITAL (DEFICIT)

Year Ended December 31, 2004 and the period

from November 7, 2003 to December 31, 2003


								Partners' Capital (Deficit)
	Mandatorily Redeemable Preferred Units				Mandatorily Redeemable Common Units			Common Units				Accumulated Deficit			Other Comprehensive Income/(Loss)			Total Partners’ Capital (Deficit)
	Units		Capital		Units	Capital		Units	Capital			Accumulated Deficit			Other Comprehensive Income/(Loss)			Total Partners’ Capital (Deficit)
	(in thousands of dollars, except unit data)
Balances at November 7, 2003	$	325	$	325,000	0.8	$	500	1,060.0	$	549,229		$	—		$	(2,131	)	$	547,098
Comprehensive loss																			—
Net loss													(10,563	)					(10,563	)
Other comprehensive income—
Reduction of minimum pension liability																105			105

Comprehensive loss																			(10,458	)

Balances at December 31, 2003	$	325		325,000	0.8		500	1,060.0		549,229			(10,563	)		(2,026	)		536,640
Comprehensive loss
Contributions from partners										2,972									2,972
Distributions to partners										(14,879	)								(14,879	)
Net loss													(606,057	)					(606,057	)
Issuance of common units					0.4		249
Other comprehensive income—
Increase of minimum pension liability																(334	)		(334	)

Comprehensive loss																			(606,391	)

Balances at December 31, 2004	$	325.0	$	325,000	1.2	$	749	1,060.0	$	537,322		$	(616,620	)	$	(2,360	)	$	(81,658	)

The accompanying notes are an integral part of these consolidated financial statements.

F-76

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31, 2004 and the

period from November 7, 2003 To December 31, 2003


	2004			2003
	(in thousands of dollars)
Cash flows from operations
Net loss	$	(606,057	)	$	(10,563	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization of property, plant and equipment		83,638			11,518
Amortization of intangibles		23,182			3,660
Impairment of goodwill and tradename intangibles		524,500			—
Amortization of deferred financing costs		2,305			271
Loss (gain) on disposal of assets		922			(75	)
Provision for bad debts		15,508			621
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(17,104	)		11,829
Accounts receivable from related party		(1,130	)		4,606
Inventories		(2,438	)		(47	)
Prepaids and other current assets		2,852			(4,306	)
Other assets		(329	)		153
Accounts payable		2,884			(2,855	)
Accounts payable to related parties		(17,968	)		(566	)
Accrued expenses and other current liabilities		12,690			1,052
Customer deposits		(5,093	)		(139	)
Other liabilities		(633	)		(288	)

Net cash provided by operating activities		17,729			14,871

Cash flows from investing activities
Acquisitions, net of cash acquired		(998	)		—
Proceeds from sales of property, plant and equipment		9,238			172
Purchases of property, plant and equipment		(53,375	)		(7,426	)

Net cash used in investing activities		(45,135	)		(7,254	)

Cash flows from financing activities
Checks written in excess of bank balances		1,494			820
Costs of issuance of long-term debt		(2,276	)		(496	)
Repayments of long-term debt		(16,183	)		(13	)
Repayments of capital leases		(543	)		(97	)
Net borrowings on revolver		18,800			—
Proceeds from issuance of common units		249			—
Contributions from partners		2,972			—
Distributions to partners		(14,879	)		—

Net cash (used in) provided by financing activities		(10,366	)		214

Net (decrease) increase in cash and cash equivalents		(37,772	)		7,831
Cash and cash equivalents at beginning of year		41,061			33,230

Cash and cash equivalents at end of year	$	3,289		$	41,061

Supplemental disclosure of cash flow information (Note 17)

The accompanying notes are an integral part of these consolidated financial statements.

F-77

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

Business Organization and Basis of Presentation

DS Waters, LP (the “Company”), through its indirect wholly-owned subsidiary, DS Waters of America, LP (“DSWA”), bottles, sells and distributes water and related products to the Home and Office Delivery (“HOD”) and Retail markets under the Alhambra, Belmont Springs, Crystal Springs, Hinckley Springs, Kentwood Springs, Sierra Springs, and Sparkletts tradenames. DSWA also distributes coffee to commercial consumers along with the related brewing equipment and supplies, and rents dispensing and filtration equipment such as coolers and brewing machines under cancelable operating leases. DSWA, headquartered in Atlanta, Georgia, sells and distributes its products throughout the United States of America.

Formation of DS Waters, LP

On November 7, 2003 (the “Transaction Date”), GROUPE DANONE, a French company traded on the Paris stock exchange, (“Danone”) and Suntory Limited, a private Japanese company, (“Suntory”) created, through indirect wholly owned subsidiaries, the Company, a joint venture comprising Danone’s U.S. HOD business and Suntory’s U.S. HOD and Retail business. Danone and Suntory are limited partners of the Company. DS Waters of America General Partner, LLC (“GenPar”), a Delaware limited liability company, is the general partner of the Company and is indirectly owned 50 percent by Danone and 50 percent by Suntory. Pursuant to the Amended and Restated Partnership Agreement of DS Waters, LP dated as of November 7, 2003, by and among Danone, Suntory, GenPar and the Company’s Chief Executive Officer (collectively, the “Partners”), the Company was formed and was caused to organize two subsidiaries: DS Waters Enterprises General Partner, LLC (“Enterprises GenPar”), a wholly owned subsidiary, and DS Waters Enterprises, LP (“Enterprises”), a subsidiary owned by both the Company, as the sole limited partner and Enterprises GenPar, as the sole general partner. Enterprises was then caused to form two wholly owned limited liability companies: Water Group of North America General Partner, LLC (“WGNA GenPar”) and Sparkletts Waters of North America General Partner, LLC (“SWNA GenPar”). Prior to the Transaction Date, Danone Waters of North America, Inc., an indirect wholly-owned operating subsidiary of Danone, was converted to a limited partnership, Sparkletts Waters of North America, LP (“SWNA”), and Suntory Water Group, Inc., an indirect wholly-owned operating subsidiary of Suntory, was converted to a limited partnership, Water Group of North America LP (“WGNA”). On the Transaction Date, Danone and Suntory contributed all of the equity of SWNA and WGNA, respectively, to Enterprises and SWNA GenPar and WGNA GenPar, respectively, in exchange for partnership interests in the Company totaling approximately 49.97 percent each. GenPar’s partnership interest equals approximately 0.0001 percent of the total common partnership units with a value of $1. The Company’s Chief Executive Officer (the “CEO”), contributed $500 in cash and a $250 note receivable (the “CEO Note”) held by the Company, in exchange for a partnership interest of approximately 0.07 percent. The CEO Note is due and payable on November 7, 2008, with interest payable annually at a rate of 3.32 percent. On March 31, 2004, SWNA merged with and into WGNA to form DSWA.

Put Option Agreement

Under the terms of the Put Option Agreement between Danone and Suntory dated September 4, 2003 (the “Put Option Agreement”), Suntory has the right to sell 60 percent of its equity interest in the Company to Danone in the three months after November 7, 2006, subject to a floor of $175,000 and a ceiling of $400,000, and the

F-78

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

remaining 40 percent of its equity interest in the three months after November 7, 2008, subject to a floor of $135,000 and a ceiling of $300,000. If Suntory chooses to exercise its rights under the Put Option Agreement, the value of the puts will be determined by an independent fair market valuation of the Company, subject to the limits noted above.

Basis of Presentation and Initial Accounting for DS Waters LP

The formation of DS Waters, LP has been accounted for as a joint venture; therefore, the Company’s assets and liabilities were contributed to the Company at the carrying values recorded by SWNA and WGNA at the Transaction Date and adjusted to reflect certain transactions that occurred on the Transaction Date, including:

•

Borrowings of $400,000 under the Credit Agreement (Note 9)

•

Payments of $12,201 of deferred financing costs (Note 3)

•

Repayment of $300,000 note payable to Suntory

•

Distribution of $65,000 to Danone

•

Receipt from the CEO of $500 in cash and the CEO Note

These consolidated financial statements include the results of operations and cash flows of the Company for the period from November 7, 2003, after the effect of the above transactions, to December 31, 2003 and the year ended December 31, 2004.

Liquidity

The water cooler rental market is highly competitive and demand for the Company’s rental coolers has been negatively impacted by low cost substitutes available at many national discount retailers located throughout the United States of America. Due to the competitive pressures, the Company has experienced a decline in cooler rental revenues which in turn has negatively impacted the Company’s operating profits and cash flows. The decline in sales and margins contributed to the $133,000 impairment charge of certain tradenames as of September 30, 2004.

As a result of these competitive pressures, the Company renegotiated the terms of its $500,000 credit agreement to revise certain financial covenants to avoid noncompliance in the third quarter of 2004 and future periods.

The decline in cooler rental revenue continued throughout the fourth quarter of 2004 and the Company’s management revised its projected operating results and cash flows downward for 2005. The downward adjustment, and other facts and circumstances, triggered an interim goodwill assessment that led to a $391,500 impairment charge recorded in December 2004.

The downward adjustment also raised concern with the Company’s ability to comply with the amended financial covenants contained in the credit agreement for the quarter ended March 31, 2005. In response, the Company’s management further renegotiated the amended financial covenants to eliminate the restrictive ratio

F-79

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

covenants through the quarter ended September 30, 2005 and replaced those covenants with a single minimum trailing twelve month earnings before interest taxes depreciation and amortization covenant. Financial covenants subsequent to September 30, 2005 were not modified. Management believes there is some risk the Company will not comply with the quarterly financial ratio covenants, as amended, for the quarter ended December 31, 2005.

Throughout 2004, management has focused on driving price increases within its customer base, eliminating overlapping operations, and reducing overhead. As a result of these efforts, the Company has experienced upward trends in monthly pricing statistics and expects the cost reduction efforts to take hold throughout 2005. Management believes the combination of these efforts will have a positive impact on future operations and cash flows. While the Company believes these efforts can result in operating results and cash levels that mitigate the potential covenant violation at the end of the fourth quarter of 2005, there can be no assurance that such results will be achieved. Failure to comply with the financial covenants at December 31, 2005 would require management to obtain a waiver or renegotiate the terms of the credit agreement to avoid a default event under the credit agreement. There is no assurance that the Company’s management will be successful in those efforts should they be required.

Failure to obtain a waiver or renegotiate the terms of the agreement would result in a default event accelerating the amounts due under the credit facility as well as other remedies. If the Company were unable to find an alternative source of repayment for the credit facility, the Company’s business and financial condition would be materially and adversely affected.

Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, Enterprises and DSWA. All significant inter-company accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company routinely has deposits at its financial institutions that substantially exceed federal depository insurance coverage. Management believes that maintaining the deposits at large, reputable regional or national banks mitigates any risks associated with these excess deposits.

F-80

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

Concentrations of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and temporary investments with high quality financial institutions. The Company serves customers located throughout the United States with no significant concentration in any one region. No one customer accounted for more than 10 percent of revenue. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable risk is limited.

Trade Accounts Receivable

The Company records trade accounts receivable at face amount less an allowance for doubtful accounts. The allowance for doubtful accounts is determined through an analysis of the accounts receivable aging and an assessment of collectibility based on historical trends. Recoveries of receivables previously charged off are recorded when received and included in current operations.

Inventories

Inventories consist principally of raw materials, water products and coffee products for resale and are stated at the lower of cost (determined using standard costs, which approximate the first-in first-out method) or market.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets (Note 5). Leasehold improvements are amortized over the lesser of the lease term or the useful lives of the assets. The cost of maintenance and repairs are charged to operations as incurred and major renewals and betterments are capitalized. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are relieved from the accounts and any resulting gain or loss is reflected in operations during the period of disposition.

Derivative Instruments

The Company accounts for its interest rate cap under Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities. Under SFAS No. 133, the Company has recorded its interest rate cap on the consolidated balance sheet at its fair value. Changes in fair value are recorded in interest expense in the consolidated statement of operations.

Software Development Costs

F-81

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

payroll costs for employees who are directly associated with the internal-use computer software project. These costs are included as capital assets in progress in property, plant and equipment in the consolidated balance sheet until the assets are ready for their intended use and placed in service. Capital assets in progress included $68 and $105 of software development costs as of December 31, 2004 and 2003, respectively. The Company had capitalized as a component of property, plant and equipment software development costs of $728 and $700 placed in service during the year ended December 31, 2004 and for the period from November 7, 2003 to December 31, 2003, respectively. Amortization of software development costs was $1,707 and $267 for year ended December 31, 2004, and the period from November 7, 2003 to December 31, 2003, respectively.

Intangible Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142 Goodwill and Other Intangible Assets (“SFAS 142”), the Company has discontinued the amortization of goodwill and intangible assets with indefinite useful lives. SFAS 142 requires that goodwill and intangible assets deemed to have indefinite lives be reviewed for impairment upon adoption of SFAS 142 and assessed annually thereafter. The Company will perform its annual impairment review as of September 30 each year and whenever events or changes in circumstances indicate that such assets might be impaired. Other intangible assets with finite lives will continue to be amortized over their estimated useful lives.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets, other than goodwill and indefinite lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized to the extent the carrying amount of the asset exceeds its fair value. Assets to be disposed of are classified as held for sale and are reported at the lower of the carrying amount or the fair value less costs to sell. There were no impairment charges recorded during the year ended December 31, 2004 or during the period from November 7, 2003 to December 31, 2003.

Customer Deposits

In many of its HOD markets, the Company collects deposits on bottles used by its customers. Such deposits are refunded only after customers return bottles in satisfactory condition. When circumstances are warranted by credit risk, the Company collects deposits prior to renting coolers and brewing equipment to certain customers.

Insurance Accruals

It is the Company’s policy to retain a portion of expected losses related to workers’ compensation, general, product, casualty, property and vehicle liability through retentions or deductibles under its insurance programs. Provisions for losses expected under these programs are recorded based on estimates of the undiscounted aggregate liabilities for claims incurred as well as estimated liability for claims incurred but not reported. Insurance accruals are recorded in accrued expenses and other current liabilities as well as accounts payable to related parties. The Company has three groups of provisions for insurance claim losses, as follows:

•

SWNA claims incurred prior to the Transaction Date;

F-82

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

•

WGNA claims incurred prior to the Transaction Date; and,

•

Company claims incurred subsequent to November 7, 2003.

Deferred Financing Costs

Deferred financing costs are amortized on a straight-line basis which approximates the effective interest method over the term of the related debt. Amortization of deferred financing costs is included in interest expense and was $2,305 and $271 for the year ended December 31, 2004, and the period from November 7, 2003 to December 31, 2003, respectively.

Fair Value of Financial Instruments

The carrying amounts of short-term borrowings and long-term debt approximate fair value because of their variable interest rates.

Revenue Recognition

The Company recognizes revenue when goods are delivered to customers. Sales terms do not allow a right of return unless product freshness dating has expired. The Company recognizes rental revenues on filtration and dispensing equipment at customer locations based on the terms of the related operating leases, which are generally on a monthly basis. Amounts billed to customers for future periods are deferred and included in accrued expenses and other current liabilities. Most sales are made on credit without collateral.

Rebates

The Company accounts for discounts, rebates, bill-backs and similar arrangements with its Retail customers as components of net sales in accordance with the Financial Accounting Standards Board’s Emerging Issues Task Force Issue 01-09, Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendor’s Products. Rebates of $12,600 and $833 were included in net product sales for the year ended December 31, 2004, and the period from November 7, 2003 to December 31, 2003, respectively.

Handling and Distribution Costs

Handling costs are recognized as a component of cost of sales, and are those costs incurred to store, prepare and move products from production facilities to branch locations prior to delivery to end-user customers and distributors. Handling costs were approximately $20,898 and $2,645 for the year ended December 31, 2004, and the period from November 7, 2003 to December 31, 2003, respectively. Distribution costs are recognized as a component of operating expenses and consist of those costs incurred to deliver products from branch locations to end-user customers. Distribution expenses were approximately $284,145 and $20,237 for the year ended December 31, 2004, and the period from November 7, 2003 to December 31, 2003, respectively.

F-83

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

Advertising

The Company expenses advertising costs as incurred, except for direct-response advertising which is capitalized and amortized over its expected period of future benefits.

Direct-response advertising consists primarily of local phone book advertisements. The capitalized costs of the advertising are amortized over the subscription period, usually a one year period following the publication of the local phone book in which it appears.

At December 31, 2004 and 2003, $1,754 and $1,113 of advertising was reported as assets, respectively. Advertising expense was $31,337 and $5,061 for the year ended 2004 and the period from November 3, 2003 to December 31, 2003, respectively.

Comprehensive Loss

Comprehensive loss equals net loss plus other comprehensive income (loss) (“OCI”). OCI refers to revenues, expenses, gains and losses that are reflected in partners’ capital but excluded from net income. OCI for the period from November 7, 2003 to December 31, 2003 and the year ended December 31, 2004 is composed of changes in the minimum pension liability, as detailed in the accompanying Consolidated Statement of Changes in Mandatorily Redeemable Preferred Units, Mandatorily Redeemable Common Units and Partners’ Capital (Deficit).

Management Profits Interest Units

The Partnership Agreement includes an arrangement whereby the Company’s senior management (“Management”) may participate in increases in the fair market value of the Company’s net assets. Under this arrangement, at certain future dates, the fair value of the enterprise will be determined by a third party using an agreed upon methodology and there will be a determination of the increase in the value of the Company’s net assets above the previously agreed upon contributed value of the net assets at the Transaction Date. Management may be entitled to participate in any such increase.

Federal Income Taxes

No provision for federal income taxes is necessary in the Company’s consolidated financial statements because, as a partnership, the Company is not subject to Federal income tax and the tax effect of its activities accrues to the Partners.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation.

F-84

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

Inventories

Inventories consisted of the following:


	2004		2003
Raw materials	$	4,569	$	3,015
Finished goods	$	5,323	$	3,668
Resale items	$	4,549	$	5,309

	$	14,441	$	11,992

Property, Plant and Equipment

Property, plant and equipment consisted of the following:


	Estimated Useful Life in Years		2004			2003
Land	$	—	$	54,306		$	60,456
Buildings and leasehold improvements		5-30	$	115,111			111,029
Machinery and equipment		3-10	$	219,515			207,393
Vehicles, office furniture and other		5-15	$	138,342			138,033
Returnable bottles		4	$	95,936			80,608
Rental equipment, primarily water coolers		5-10	$	215,355			219,504
Capital assets in progress			$	3,695			2,120

			$	842,260			819,143
Accumulated depreciation and amortization			$	(463,553	)		(400,011	)

			$	378,707		$	419,132

Approximately $3,368 and $3,479 of property, plant and equipment relate to assets under capital leases as of December 31, 2004 and 2003, respectively. Accumulated amortization of assets under capital lease was $2,946 and $2,732 at December 31, 2004 and 2003, respectively.

In connection with the formation of the Company, certain returnable bottles contributed by WGNA, which were previously recognized as inventory, were recorded as property, plant and equipment to conform the Company’s accounting policies. These bottles are being depreciated over their remaining estimated useful lives of two years.

F-85

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

Intangibles

Intangible assets consisted of the following:


	2004			2003
Intangible assets not subject to amortization
Goodwill	$	167,791		$	559,274
Tradenames	$	84,826		$	217,826
Intangible assets subject to amortization
Customer lists	$	234,458		$	233,117
Covenants not to compete	$	2,102		$	2,102
Accumulated amortization	$	(180,600	)	$	(157,417	)

Total intangibles, net	$	308,577		$	854,902

The Company amortizes customer lists over 5 to 7 years and covenants not to compete over 5 to 15 years. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the succeeding five years is as follows:


2005	$	22,279
2006	$	22,054
2007	$	5,917
2008	$	2,484
2009	$	2,484

Due to competitive pressure in the cooler rental business, the Company performed, with the assistance of independent valuation experts, an impairment test of the carrying value of certain of its tradenames. The Company calculated the estimated fair value of tradenames using the royalty savings approach. The underlying premise of this approach is that a tradename has a fair value equal to the present value of the royalty savings attributable to it. The royalty savings attributable to tradenames represents the hypothetical cost savings that are derived from owning the tradenames instead of paying royalties to license the tradenames from another owner. Accordingly, the Company estimated a fair royalty that a licensee would pay, on a percentage of revenue basis, to obtain a license to utilize the tradenames. The estimated fair value of the tradenames was less than their carrying value and an impairment write-down was required. The impairment was calculated by deducting the estimated fair value from the carrying value, which resulted in an impairment write down of $133,000, which is included in the accompanying Statement of Operations.

Subsequent to the 2004 annual impairment assessment date, certain facts and circumstances arose that triggered the need for an interim impairment assessment as of December 31, 2004. Due to competitive pressure

F-86

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

in the cooler rental business, operating profits and cash flows were lower than expected in the fourth quarter of 2004 and the first quarter of 2005. Based on that trend, the earnings forecast for the next five years was revised. In December 2004, an interim impairment analysis was performed and a goodwill impairment loss of $391,500 was recognized in the HOD reporting unit. The fair value of that reporting unit was estimated using the expected present value of future discounted cash flows with the assistance of independent valuation experts.

The changes in the carrying amount of goodwill for the year ended December 31 are as follows:


	2004			2003
Balance as of November 7, 2003	$	—		$	559,274
Balance as of January 1, 2004	$	559,274		$	—
Impairment loss	$	(391,500	)	$	—
Other	$	17		$	—

Balance as of December 31, 2004	$	167,791		$	559,274

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following at December 31:


	2004		2003
Insurance accruals	$	30,152	$	18,207
Payroll and employee benefits	$	17,963	$	19,940
Deferred equipment rental revenue	$	4,747	$	4,950
Sales, property and other taxes	$	2,530	$	2,892
Other	$	15,615	$	12,668

	$	71,007	$	58,657

Insurance accruals relate to expected losses under the Company’s workers’ compensation, general liability and other insurance programs and are recorded based on estimates of the undiscounted aggregate liabilities for claims incurred as well as estimated liability for claims incurred but not reported.

The consolidation program resulted in costs incurred primarily for workforce reduction of approximately 715 employees across certain business functions and abandoned or excess facilities relating to lease terminations and non-cancelable lease costs. To determine the lease loss, which is the Company’s loss after its cost recovery efforts from subleasing a building, certain estimates were made related to the time period over which the relevant building would remain vacant, sublease terms and sublease rates, including common area charges. If market rates decrease in these markets or if it takes longer than expected to sublease these facilities, the actual loss could exceed the estimate.

F-87

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

A summary of the consolidation costs and other costs recognized for the year ended December 31, 2004 is as follows:


	Workforce Reduction		Excess Facilities		Total
Total expected to be incurred	$	20,809	$	2,381	$	23,190

Amount incurred in 2004	$	18,751	$	1,949	$	20,700

At December 31, 2004, the accrued liability associated with the consolidation and other related charges consists of the following:


	Workforce Reduction			Excess Facilities			Total
Charges	$	18,751		$	1,949		$	20,700
Payments	$	(15,354	)	$	(390	)		(15,744	)

Accrued liability at December 31, 2004	$	3,397		$	1,559		$	4,956

The accrued consolidation liability is expected to be paid through April 2007 as follows:


	Workforce Reduction		Excess Facilities		Total
2005	$	2,275	$	1,037	$	3,312
2006	$	1,122	$	318		1,440
2007	$	—	$	204		204

	$	3,397	$	1,559	$	4,956

The consolidation charges are included in selling, distribution and administrative expenses on the statement of operations.

Related Party Transactions

CCDA Waters LLC (“CCDA”) is a joint venture between The Coca-Cola Company and Danone that sells bottled water principally to U.S. retailers. The Company and CCDA have mutual co-packing agreements whereby the Company sells 2.5 gallon and 1 gallon bottled water packages to CCDA and CCDA sells half-liter bottled water packages to the Company. Sales are at cost. For the year ended December 31, 2004, and the period from November 7, 2003 to December 31, 2003, sales to CCDA were approximately $14,681 and $1,940, respectively, and purchases from CCDA were approximately $6,826 and $1,214, respectively. Accounts receivable from CCDA are recorded in accounts receivable from related party and as of December 31, 2004 and 2003 were approximately $3,050 and $1,920, respectively. Accounts payable to CCDA are recorded in accounts payable to related parties and as of December 31, 2004 and 2003 were approximately $251 and $706, respectively.

F-88

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

Prior to the formation of the Company, WGNA participated in an insurance program among Suntory’s North American subsidiaries. Claims incurred by WGNA prior to the Transaction Date will continue to be administered by Suntory. Accrued expenses under this program, which were included in accounts payable to related parties, were $14,536 and $32,048 as of December 31, 2004 and 2003, respectively.

In connection with the formation of the Company, Danone and Suntory agreed that each would contribute $50 of cash on the Transaction Date. The actual amount of cash on hand for SWNA and WGNA on the Transaction Date was $769 and $4,703, respectively. On November 21, 2003, the Company repaid to Danone and Suntory the excess cash of $719 and $4,653, respectively.

Long-Term Debt

The Company’s long-term debt and capital lease obligations consisted of the following:


	2004			2003
Term loan	$	384,000		$	400,000
Revolving line of credit	$	18,800		$	—
Notes payable	$	6,034		$	6,218
Capital lease obligations	$	534		$	1,077

	$	409,368		$	407,295
Less: Current portion	$	(20,442	)	$	(12,494	)

	$	388,926		$	394,801

Required principal repayments of long-term debt and capital lease obligations for the next five years are as follows:


2005	$	20,442
2006	$	40,126
2007	$	60,000
2008	$	98,800
2009	$	184,000
Thereafter	$	6,000

In addition, if in any fiscal year there is determined to be excess cash flow, as defined in the Credit Agreement, then the Company would be required to make prepayments on the Term Loan equal to 75 percent of such excess.

On the Transaction Date, the Company, Enterprises (as borrower), JPMorgan Chase Bank, Citigroup Global Capital Markets, Inc. and other lenders entered into the $550,000 Senior Secured Credit Facility (the “Credit Agreement”) comprised of a $400,000 term loan with a maturity date of November 7, 2009 (the “Term Loan”) and a $150,000 revolving credit line (the “Revolver”) with a maturity date of November 7, 2008. The agreement was amended on September 30, 2004 and the Revolver commitment was reduced to $100,000.

F-89

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

The Credit Agreement, as amended, specifies an interest rate on the Term Loan equal to the Eurodollar or London inter-bank offer rate (“LIBOR”) plus 450 basis points, the JPMorgan Chase Bank prime rate (“Prime”) plus 350 basis points, or the federal funds rate plus 400 basis points. The Term Loan requires quarterly principal payments over the term of the loan ranging from $3,000 to $47,000 with any remaining amount outstanding due on the maturity date. Interest rates on the Term Loans ranged from 6.67% to 7.27% at December 31, 2004.

Interest rates on the Revolver, as amended, are predicated on the Company’s consolidated leverage ratio, which is a measure of the amount of total debt relative to the Company’s operating income, excluding certain non-cash and non-recurring expenses. Borrowings under the Revolver accrue interest at rates ranging from LIBOR plus 300 basis points to LIBOR plus 400 basis points or from Prime plus 200 basis points to Prime plus 300 basis points. The Company also pays an annual commitment fee on the average unused borrowing availability under the Revolver ranging from 37.5 basis points to 50 basis points. Interest rates on borrowings under the Revolver ranged from 6.41% to 8.25% at December 31, 2004.

Interest payments are due on the Term Loans and Revolver quarterly. The Revolver, as amended, includes an $80,000 letter of credit facility and a $10,000 swing-line facility. The total loans outstanding under the Revolver, the letter of credit facility and the swing-line facility may not exceed $100,000. At December 31, 2004, the Company had undrawn letters of credit outstanding, primarily to collateralize certain insurance deductibles, of approximately $30,361. Funds available under the Company’s revolving credit facility at December 31, 2004 totalled $50,839.

The Credit Agreement provides for certain financial covenants including a leverage ratio and interest coverage ratio. The Company was in compliance with its debt covenants as of December 31, 2004 and 2003. The Company has pledged all of its assets as collateral for the Credit Facility.

In conjunction with the amendment to the Credit Agreement on September 30, 2004, the Company, Danone and the lenders entered into a support agreement, whereby Danone agreed to make a support payment of up to $100,000 if the Company is not able to meet the consolidated leverage ratio for the four quarters ending September 30, 2006, or a bankruptcy event occurs, as defined in the agreement.

On March 31, 2005, the Credit Agreement was further amended to eliminate the consolidated leverage and interest coverage ratio covenants for the first three quarters of 2005 and replace those covenants with a single trailing twelve months earnings before interest taxes depreciation and amortization (“EBITDA”) covenant, measured quarterly. In addition, the support agreement was amended to increase the maximum support payment to $150,000.

The Credit Agreement also requires that the Company maintain an interest rate protection agreement. Effective April 13, 2004, the Company entered into an interest rate cap transaction covering $191,500 million of its debt, with a cap based on 30-day LIBOR rates of 6.0% for $795. The agreement, which has quarterly settlement dates, is in effect through March 31, 2007. The fair value of the interest rate cap at December 31, 2004 of approximately $62 is included in the asset section of the consolidated balance sheet.

F-90

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

Demand Industrial Bond issued November 1, 1996 by Waller County Industrial Corporation in the amount of $6,000, due October 30, 2026. The note bears interest at a variable interest rate, not to exceed 15 percent, that is based primarily on commercial paper rates and is reset quarterly. The interest rate was 2.65 and 2.25 percent at December 31, 2004 and 2003, respectively.

10.

Mandatorily Redeemable Preferred Units

In connection with the Transaction, Danone received 325,000 PIK Preferred Units (the “PIK Preferred”) with an initial liquidation preference of $1,000 per unit. The Company shall redeem all issued and outstanding PIK Preferred on November 7, 2011, at a redemption price equal to 100 percent of the balance in the holder’s capital account in respect of the PIK Preferred (the “PIK Capital Account”), as defined in the Partnership Agreement. However, the date of mandatory redemption will be six months after the maturity date of the securities issued in a High Yield Offering, as defined in the Partnership Agreement. After the fifth anniversary of the Transaction Date, the Company may, at its option, redeem the PIK Preferred, in whole or in part, for cash at a redemption price equal to the holder’s PIK Capital Account and the applicable percentage included in the Partnership Agreement. Upon completion of an initial public offering or change in control (as defined in the Partnership Agreement), the holder may require the Company to purchase all or a portion of its PIK Preferred at a purchase price equal to 101 percent of its PIK Capital Account. The holder will have no voting rights except as provided by law and as provided in the covenants section of the Partnership Agreement as it relates to the PIK Preferred. The PIK Preferred will rank senior to all Common Units and to all other equity interests of the Company, but will rank junior to all the current and future debt obligations of the Company.

Under the terms of the Partnership Agreement, the Preferred Units will earn additional PIK Preferred Units at a 12 percent annual rate, compounding semi-annually. The liquidation value of the PIK Preferred is determined by the value of the PIK Capital Account, which cannot exceed the cumulative total PIK Preferred units earned multiplied by $1,000 per unit. The PIK Capital Account was initially set as of November 7, 2003 at $325,000 and will increase, or decrease, as a result of the allocation of net profits and losses among the Company’s capital accounts. Net profits and losses, for purposes of allocation among capital accounts, are determined as specified in the Partnership Agreement. In general, net profits are allocated to the PIK Capital Account first and net losses would be allocated to the PIK Capital Account only after the balances in partner common unit capital accounts are reduced to zero.

11.

Defined Benefit Pension Plan

Effective January 1, 1998, DSWA merged its two frozen defined benefit pension plans into one plan, which is also frozen.

Pension expense is computed using the projected unit credit actuarial cost method. The Company’s policy is to fund pension liabilities in accordance with minimum and maximum limits imposed by the Employee Retirement Income Security Act of 1974 and federal income tax laws, respectively. Plan assets are invested in a diversified portfolio consisting primarily of domestic and international mutual funds, and bond funds.

The measurement date used to determine pension benefits is December 31.

F-91

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

The Company’s defined benefit pension plan weighted-average asset allocations consist of the following at December 31, 2004 and 2003:


	2004		2003
Asset category

Equity fund—domestic	46	%	45	%
Equity fund—international	17	%	15	%
Bond fund	36	%	38	%
Cash/Accrued income	1	%	2	%

	100	%	100	%

The following table sets forth the plan’s funded status and amounts recognized in the Company’s consolidated balance sheet at December 31, 2004 and 2003:


	2004			2003
Change in projected benefit obligation
Projected benefit obligation at beginning of period	$	4,950		$	4,927
Service cost	$	—		$	13
Interest cost	$	296		$	45
Actuarial (gain) / loss	$	402		$	(1	)
Benefits paid	$	(162	)	$	(34	)

Projected benefit obligation at end of period	$	5,486		$	4,950

Change in plan assets
Fair value at beginning of period	$	3,155		$	3,055
Actual return on plan assets	$	195		$	134
Employer contributions	$	802		$	—
Benefits paid	$	(162	)	$	(34	)

Fair value at end of period	$	3,990		$	3,155

Funded status
Assets over (under) obligation	$	(1,497	)	$	(1,794	)
Unrecognized net actuarial (gain) / loss	$	2,360		$	2,026
Unrecognized prior service cost	$	2		$	4

Net amount recognized	$	865		$	236

Components of net periodic benefit cost
Service cost	$	120		$	13
Interest cost	$	296		$	45
Expected return on plan assets	$	(288	)	$	(38	)
Recognized net actuarial (gain) / loss	$	44		$	7
Amortization of prior service cost	$	1		$	—

Net periodic benefit cost	$	173		$	27

F-92

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

In 2004 and 2003, a minimum liability adjustment of $(334) and $105 was recorded as a component of other comprehensive income (loss).

Amounts recognized in the balance sheet consist of:


	2004			2003
Accrued benefit costs	$	(1,497	)	$	(1,794	)
Intangible assets	$	2		$	4
Accumulated other comprehensive income	$	2,360		$	2,026

Net amount recognized	$	865		$	236


	2004			2003
Projected benefit obligation	$	5,486		$	4,950
Accumulated benefit obligation	$	5,486		$	4,950
Fair value of plan assets	$	3,990		$	3,155

The Company expects to contribute $430 to its pension plan in 2005.

The following benefit payments are expected to be paid:


2005	$	139
2006	$	145
2007	$	159
2008	$	182
2009	$	206
Years 2010-2015	$	1,370

Weighted-average assumptions as of December 31, 2004 and 2003 were as follows:


	2004		2003
Discount rate	5.75	%	6.25	%
Rate of compensation increase	N/A		N/A
Expected return on plan assets	8.50	%	8.50	%

The expected long-term rate of return on plan assets was developed based on a capital markets model which uses expected class returns, variance and correlation assumptions. The expected class returns were developed starting with current treasury yields and then adding corporate bond spreads and equity risk premiums to develop the return expectations for each class. The expected class returns are forward-looking and are not developed by an examination of historical returns. The variance and correlation assumptions are also forward-looking. They take into account historical relationships, but are adjusted to reflect expected capital market trends.

As to certain other DSWA employees who are unionized, as part of the union contracts, DSWA makes contributions on behalf of the employees to multi-employer union pension plans. Management has concluded the ongoing contributions and liabilities associated with these plans are not material.

F-93

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

12.

Defined Contribution and Non-Qualified Deferred Compensation Plans

Defined Contribution Plans

Effective January 1, 1998, WGNA merged its three (3) defined contribution plans into one plan (the “WGNA 401(k) Plan”). The WGNA 401(k) Plan is a defined contribution plan conducted under section 401(k) of the Internal Revenue Code and provides for employee contributions as well as employer matching contributions. Participants in the WGNA 401(k) Plan are comprised of employees of WGNA before the merger. Employees may contribute up to 15 percent of their pre-tax earnings and the Company matches 50 percent of the first 6 percent. The Company’s matching contributions under the WGNA 401(k) Plan were approximately $1,184 and $332 for the year ended December 31, 2004, and the period from November 7, 2003 to December 31, 2003, respectively.

The Company has a second defined contribution plan under section 401(k) of the Internal Revenue Code that provides for employee contributions as well as employer matching contributions (the “SWNA 401(k) Plan”). Participants in the SWNA 401(k) Plan are comprised of employees of SWNA before the merger. Employees may contribute 2 percent to 25 percent of their pre-tax earnings and the Company matches 50 percent of the first 6 percent. The Company’s matching contributions under the SWNA 401(k) Plan were approximately $1,131 and $230 for the year ended December 31, 2004, and the period from November 7, 2003 to December 31, 2003, respectively.

The Company also has a defined contribution plan for which no employee contributions are required (the “SWNA Profit Sharing Plan”). Annual contributions are made by the Company based on employees’ salaries. Employees’ interests in the contributions vest in 20 percent increments for each year of service. Participants in the SWNA Profit Sharing Plan are comprised of employees of SWNA before the merger. The Company’s contributions for the period from November 7, 2003 to December 31, 2003 were made in April 2004 and were approximately $579. The Company’s contributions for the year ended December 31, 2004 will be made in April 2005 and are approximately $3,176.

Non-Qualified Deferred Compensation Plans

The Company has a deferred compensation plan available for certain key executives of WGNA prior to the merger (the “WGNA Deferred Compensation Plan”). Participants make voluntary contributions that the Company holds in trust. The Company is not obligated to, and has not, made contributions to this plan. The assets, consisting of marketable equity securities, are legally considered assets of the Company and are subject to the claims of the Company’s general creditors. A liability is recorded which is equal to the value of the assets held in trust. These non-current assets and the related liability are stated at fair value and equaled $1,034 and $1,535 as of December 31, 2004 and 2003, respectively.

F-94

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

liabilities and was $5,996 and $5,186 as of December 31, 2004 and 2003, respectively. The Company’s interest expense related to this plan was approximately $456 and $61, for the year ended December 31, 2004 and the period from November 7, 2003 to December 31, 2003, respectively.

13.

Post-Retirement Medical Benefits

The Company provides post-retirement medical coverage for qualifying former employees of a predecessor organization. Approximately 100 employees have been grandfathered into this program and no additional employees will become eligible. The plan is not funded and the liability is not collateralized. The measurement date used to determine accumulated postretirement benefits is January 1.

The following table sets forth the plan’s funded status and amounts recognized in the Company’s consolidated balance sheet at December 31, 2004 and 2003:


	2004			2003
Change in accumulated postretirement benefit obligation
Projected accumulated postretirement benefit obligation at beginning of period	$	2,589		$	2,150
Service cost	$	58		$	58
Interest cost	$	169		$	147
Actuarial (gain) / loss	$	347		$	290
Benefits paid	$	(97	)	$	(56	)

Accumulated postretirement benefit obligation at end of period	$	3,066		$	2,589

Funded status
Accumulated postretirement benefit obligation	$	3,066		$	2,589
Unrecognized net actuarial (gain) / loss	$	(1,084	)	$	(790	)
Unrecognized prior service cost		(885	)		(944	)

Net amount recognized	$	1,097		$	855

Components of net periodic postretirement benefit cost
Service cost	$	58		$	—
Interest cost		169			173
Recognized net actuarial (gain) / loss		53			111
Amortization of prior service cost		59			126

Net periodic postretirement benefit cost	$	339		$	410

Amounts recognized in the balance sheet consist of:

F-95

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

The following benefit payments are expected to be paid:


2005	$	122
2006	$	236
2007	$	359
2008	$	482
2009	$	594
Years 2010-2015	$	2,170

Weighted-average assumptions as of December 31, 2004 and 2003 were as follows:


	2004		2003
Discount rate	5.75	%	6.50	%
Expected return on plan assets	N/A		N/A

Assumed health care cost trend rates at December 31, 2004 and 2003 were as follows:


	2004		2003
Health care cost trend rate assumed for next year	10.5	%	11.0	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.0	%	5.0	%
ear that the rate reaches the ultimate trend rate	2013		2016

14.

Lease Commitments

The Company is committed under various capital and operating leases for office space, vehicles, and bottling and distribution facilities. Following is a summary of future minimum payments under capitalized leases and under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2004:


	Capitalized Leases		Operating Leases
2005	$	445	$	12,552
2006		123		9,884
2007		—		6,530
2008		—		4,751
2009		—		3,992
Thereafter		—		11,386

Total minimum lease payments		568		49,095

Less amount representing interest		34
Present value of minimum capital lease payments		534

Current portion		415

Long-term capitalized lease obligations	$	119

F-96

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2004 and the

period from November 7, 2003 to December 31, 2003

(in thousands of dollars)

Rental expense for operating leases the year ended December 31, 2004, and for the period from November 7, 2003 to December 31, 2003 was $19,669 and 2,665, respectively.

15.

Legal Claims

The Company is subject to legal claims in the ordinary course of business. Management does not believe that the resolution of such claims will result in a material adverse impact on the Company’s financial position, results of operations or liquidity.

16.

Insurance Recovery

During 2004, the Company received an insurance recovery of approximately $3,000 relating to a facility destroyed due to fire in San Diego, California. The insurance recovery is included in other income in the accompanying statement of operations for the year ended December 31, 2004.

17.

Supplemental Cash Flow Disclosure

Cash paid for interest during the year ended December 31, 2004 and the period from November 7, 2003 to December 31, 2003 was $22,183 and $1,371, respectively.

The Company made some minor acquisitions during the year ended December 31, 2004. The net cash and non-cash paid for acquisitions is as follows:


Fair value of assets acquired
Accounts receivable	$	239
Inventory	$	11
Intangible assets	$	1,340
Other assets	$	15

Total assets	$	1,605
Fair value of liabilities assumed
Accounts payable	$	118

Net assets acquired	$	1,487

Purchase price—cash	$	998

Purchase price—non-cash	$	489

F-97

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of DS Waters, LP

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in mandatorily redeemable preferred units, mandatorily redeemable common units and partners’ deficit and cash flows present fairly, in all material respects, the financial position of DS Waters, LP and its subsidiaries at November 14, 2005 and December 31, 2004 and the results of their operations and their cash flows for the period from January 1, 2005 to November 14, 2005 and the year ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. 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 audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

LOGO

Atlanta, Georgia

May 12, 2006

F-98

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

November 14, 2005 and December 31, 2004


	November 14, 2005			December 31, 2004
	(in thousands of dollars)
Assets
Current assets
Cash and cash equivalents	$	15,922		$	3,289
Trade accounts receivable, net of allowance for doubtful accounts of $13,163 and $8,191		92,105			76,730
Accounts receivable from related party		—			3,050
Inventories		14,760			14,441
Prepaids and other current assets		12,639			11,233

Total current assets		135,426			108,743
Property, plant and equipment, net		299,276			378,707
Intangibles, net		17,582			308,577
Notes receivable and other assets		5,795			6,041
Deferred financing costs, net		11,256			12,837

	$	469,335		$	814,905

Liabilities, Mandatorily Redeemable Preferred and Common Units, and Partners’ Deficit
Current liabilities
Checks written in excess of bank balances	$	14,438		$	11,855
Current portion of long-term debt		35,713			20,442
Accounts payable		34,590			24,859
Accounts payable to related parties		8,263			14,787
Accrued expenses and other current liabilities		70,265			40,855
Customer deposits		29,846			27,677

Total current liabilities		193,115			140,475
Long-term debt, less current portion		369,556			388,926
Other long-term liabilities		42,115			41,413

Total liabilities		604,786			570,814

Mandatorily redeemable preferred units		325,000			325,000
Mandatorily redeemable common units		500			749

Total redeemable units		325,500			325,749

Partners’ deficit		(460,951	)		(81,658	)

	$	469,335		$	814,905

The accompanying notes are an integral part of these consolidated financial statements.

F-99

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS

Period Ended November 14, 2005 and Year Ended December 31, 2004


	November 14, 2005			December 31, 2004
	(in thousands of dollars)
Net product sales	$	603,073		$	668,662
Rental revenue		92,816			121,392

Net sales		695,889			790,054
Cost of sales		258,237			282,571

Gross profit		437,652			507,483
Selling, distribution and administrative expenses		458,506			543,715
Impairment of goodwill and tradename intangibles		245,960			524,500
Impairment of long-lived assets		62,701			—
Amortization expense		19,614			23,182

Loss from operations		(349,129	)		(583,914	)
Other expenses
Interest expense, net		32,620			24,011
Other income		(3,095	)		(1,868	)

Net loss	$	(378,654	)	$	(606,057	)

The accompanying notes are an integral part of these consolidated financial statements.

F-100

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CHANGES IN

MANDATORILY REDEEMABLE PREFERRED UNITS,

MANDATORILY REDEEMABLE COMMON UNITS, AND PARTNERS’ CAPITAL (DEFICIT)

Period Ended November 14, 2005 and Year Ended December 31, 2004


										Partners’ Capital (Deficit)
	Mandatorily Redeemable Preferred Units				Mandatorily Redeemable Common Units					Common Units				Accumulated Deficit			Other Comprehensive Loss			Total Partners’ Capital (Deficit)
	Units		Capital		Units		Capital			Units	Capital			Accumulated Deficit			Other Comprehensive Loss			Total Partners’ Capital (Deficit)
	(in thousands of dollars, except unit data)
Balances at December 31, 2003	$	325	$	325,000	0.8		$	500		1,060.0	$	549,229		$	(10,563	)	$	(2,026	)	$	536,640
Comprehensive loss
Contributions from partners												2,972									2,972
Distributions to partners												(14,879	)								(14,879	)
Net loss															(606,057	)					(606,057	)
Issuance of common units					0.4			249
Other comprehensive income—
Increase of minimum pension liability																		(334	)		(334	)

Comprehensive loss																					(606,391	)

Balances at December 31, 2004		325.0	$	325,000	1.2		$	749		1,060.0	$	537,322		$	(616,620	)	$	(2,360	)	$	(81,658	)
Comprehensive loss
Contributions from partners																					—
Distributions to partners					(0.4	)		(249	)												—
Net loss															(378,654	)					(378,654	)
Issuance of common units																					—
Other comprehensive income—
Increase of minimum pension liability																		(639	)		(639	)

Comprehensive loss																					(379,293	)

Balances at November 14, 2005		325.0	$	325,000	0.8		$	500		1,060.0	$	537,322		$	(995,274	)	$	(2,999	)	$	(460,951	)

The accompanying notes are an integral part of these consolidated financial statements.

F-101

DS WATERS, LP

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS

Period Ended November 14, 2005 and Year Ended December 31, 2004


	November 14, 2005			December 31, 2004
	(in thousands of dollars)
Cash flows from operations
Net loss	$	(378,654	)	$	(606,057	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization of property, plant and equipment		73,623			83,638
Amortization of intangibles		19,614			23,182
Impairment of goodwill and tradename intangibles		245,960			524,500
Impairment of long-lived assets		62,701
Amortization of deferred financing costs		2,460			2,305
Loss (gain) on disposal of assets		(4,724	)		922
Provision for bad debts		15,513			15,508
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(30,888	)		(17,104	)
Accounts receivable from related party		3,050			(1,130	)
Inventories		(319	)		(2,438	)
Prepaids and other current assets		(1,406	)		2,852
Other assets		(24	)		(329	)
Accounts payable		9,731			2,884
Accounts payable to related parties		(6,524	)		(17,968	)
Accrued expenses and other current liabilities		29,410			12,690
Customer deposits		2,169			(5,093	)
Other liabilities		61			(633	)

Net cash provided by operating activities		41,753			17,729

Cash flows from investing activities
Acquisitions, net of cash acquired		—			(998	)
Proceeds from sales of property, plant and equipment		19,795			9,238
Purchases of property, plant and equipment		(46,272	)		(53,375	)

Net cash used in investing activities		(26,477	)		(45,135	)

Cash flows from financing activities
Checks written in excess of bank balances		2,583			1,494
Costs of issuance of long-term debt		(879	)		(2,276	)
Repayments of long-term debt		(15,022	)		(16,183	)
Borrowings and repayments of capital leases, net		724			(543	)
Net borrowings on revolver		10,200			18,800
Proceeds from issuance of common units		—			249
Contributions from partners		—			2,972
Distributions to partners		(249	)		(14,879	)

Net cash used in financing activities		(2,643	)		(10,366	)

Net increase (decrease) in cash and cash equivalents		12,633			(37,772	)
Cash and cash equivalents at beginning of period		3,289			41,061

Cash and cash equivalents at end of period	$	15,922		$	3,289

Supplemental disclosure of cash flow information (Note 17)

The accompanying notes are an integral part of these consolidated financial statements.

F-102

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

1. Business Organization

Formation of DS Waters, LP

On November 7, 2003 (the “Transaction Date”), GROUPE DANONE, a French company traded on the Paris stock exchange, (“Danone”) and Suntory Limited, a private Japanese company, (“Suntory”) created, through indirect wholly owned subsidiaries, the Company, a joint venture comprising Danone’s U.S. HOD business and Suntory’s U.S. HOD and Retail business. Danone and Suntory are limited partners of the Company. DS Waters of America General Partner, LLC (“GenPar”), a Delaware limited liability company, is the general partner of the Company and is indirectly owned 50% by Danone and 50% by Suntory. Pursuant to the Amended and Restated Partnership Agreement of DS Waters, LP dated as of November 7, 2003, by and among Danone, Suntory, GenPar and the Company’s Chief Executive Officer (collectively, the “Partners”), the Company was formed and was caused to organize two subsidiaries: DS Waters Enterprises General Partner, LLC (“Enterprises GenPar”), a wholly owned subsidiary, and DS Waters Enterprises, LP (“Enterprises”), a subsidiary owned by both the Company, as the sole limited partner and Enterprises GenPar, as the sole general partner. Enterprises was then caused to form two wholly owned limited liability companies: Water Group of North America General Partner, LLC (“WGNA GenPar”) and Sparkletts Waters of North America General Partner, LLC (“SWNA GenPar”). Prior to the Transaction Date, Danone Waters of North America, Inc., an indirect wholly-owned operating subsidiary of Danone, was converted to a limited partnership, Sparkletts Waters of North America, LP (“SWNA”), and Suntory Water Group, Inc., an indirect wholly-owned operating subsidiary of Suntory, was converted to a limited partnership, Water Group of North America LP (“WGNA”). On the Transaction Date, Danone and Suntory contributed all of the equity of SWNA and WGNA, respectively, to Enterprises and SWNA GenPar and WGNA GenPar, respectively, in exchange for partnership interests in the Company totaling approximately 49.97% each. On March 31, 2004, SWNA merged with and into WGNA to form DSWA. GenPar’s partnership interest equals approximately 0.0001% of the total common partnership units with a value of $1. The Company’s Chief Executive Officer (the “CEO”), contributed $500 in cash and a $250 note receivable (the “CEO Note”) held by the Company, in exchange for a partnership interest of approximately 0.07%.

In March 2005, DS Waters, LP and DS Waters General Partner, LLC through action of the Board of Directors cancelled 431,124 profits interest units and 750 investment units held by the CEO. In consideration for cancellation of the investment units, the Company returned the $550 cash investment to the CEO without interest and cancelled his note.

Subsequent Event

Sale of DS Waters Enterprises, LP

On November 15, 2005 (the “Transaction Date”), DS Waters, LP, DS Waters Enterprises General Partner, LLC, and Groupe Danone (collectively the “Sellers”), sold (i) 100% of the limited partnership interest of DS Waters Enterprises, LP (“Enterprises”) and (ii) 100% of the general partnership interest of Enterprises to DSW Acquisition, LLC, which is a direct wholly-owned subsidiary of DS Waters Holdings, LLC (collectively,

F-103

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

the “Transaction”). A majority ownership interest in DS Waters Holdings, LLC is held indirectly by Kelso and Company, L.P. (“Kelso”), a New York based private investment firm. A group of management holds the remaining ownership interests of DS Waters Holdings, LLC. As a result of the Transaction, Enterprises is no longer affiliated with the Sellers or Suntory Limited, a private Japanese company that, prior to the Transaction, held an indirect ownership interest in DS Waters, LP.

The Transaction effected a change in control of all of the operations of the Company on November 15, 2005. As further described in Notes 5 and 6, the negotiation and consummation of the Transaction generated the need to perform interim impairment tests of the Company’s intangible assets, goodwill, and its other long lived assets during the period ended November 14, 2005. As a result of these tests, significant impairment charges were recorded related to the revised estimates of the fair values of those respective assets.

2. Put Option Agreement

Under the terms of the Put Option Agreement between Danone and Suntory dated September 4, 2003, (the “Put Option Agreement”), Suntory had the right to sell 60% of its equity interest in the Company to Danone in the three months after November 7, 2006, subject to a floor of $175,000 and a ceiling of $400,000, and the remaining 40% of its equity interest in the three months after November 7, 2008, subject to a floor of $135,000 and a ceiling of $300,000. The put option was exercised on November 15, 2005 to facilitate the completion of the Transaction.

3. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, Enterprises and DSWA. All significant inter-company accounts and transactions have been eliminated.

Use of Estimates

Cash and Cash Equivalents

Concentrations of Credit Risk

F-104

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

significant concentration in any one region. No one customer accounted for more than 10 percent of revenue. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable risk is limited.

Trade Accounts Receivable

Inventories

Property, Plant and Equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets (Note 6). Leasehold improvements are amortized over the lesser of the lease term or the useful lives of the assets. The cost of maintenance and repairs are charged to operations as incurred and major renewals and betterments are capitalized. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are relieved from the accounts and any resulting gain or loss is reflected in operations during the period of disposition.

Derivative Instruments

Software Development Costs

The Company capitalizes certain computer software project costs in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (“SOP 98-1”). In accordance with SOP 98-1, internal and external costs incurred during the application development stage are capitalized and, once placed in service, amortized on a straight-line basis over a period of 5 to 7 years. These costs include external direct costs of materials and services consumed in developing internal-use software and payroll costs for employees who are directly associated with the internal-use computer software project. These costs are included as capital assets in progress in property, plant and equipment in the consolidated balance sheet until the assets are ready for their intended use and placed in service. Capital assets in progress included $29 and $68 of software development costs as of November 14, 2005 and December 31, 2004, respectively. The Company had capitalized as a component of property, plant and equipment software development costs of $1,100 and $728 placed in service during the period ended November 14, 2005 and the year ended December 31, 2004, respectively. Amortization of software development costs was $1,722 and $1,707 for the period ended November 14, 2005 and the year ended December 31, 2004, respectively.

F-105

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

Intangible Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142 Goodwill and Other Intangible Assets (“SFAS 142”), the Company has discontinued the amortization of goodwill and intangible assets with indefinite useful lives. SFAS 142 requires that goodwill and intangible assets deemed to have indefinite lives be reviewed for impairment upon adoption of SFAS 142 and assessed annually thereafter, or if other impairment indicators are present. The Company will perform an annual impairment review as of September 30 each year and whenever events or changes in circumstances indicate that such assets might be impaired. Other intangible assets with finite lives will continue to be amortized over their estimated useful lives. As further described in Note 4, impairment charges related to goodwill and indefinite lived intangibles were recorded in 2004 and the period ended November 14, 2005.

Impairment of Long-Lived Assets

The Company assesses the recoverability of long-lived assets at least annually or whenever adverse events or changes in circumstances indicate that impairment may have occurred in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). If the future undiscounted cash flows expected to result from the use of the related assets are less then the carrying value of such assets, an impairment has been incurred and a loss is recognized to reduce the carrying value of the long-lived assets to fair value, which is determined by discounting estimated future cash flows. Assets to be disposed of, which include those of the entire Company during the period ended November 14, 2005, are classified as held for sale and are reported at the lower of the carrying amount or the fair value less costs to sell. As further described in Note 5, impairment charges related to property, plant and equipment were recorded during the period ended November 14, 2005.

Customer Deposits

Insurance Accruals

Deferred Financing Costs

Deferred financing costs are amortized on a straight-line basis which approximates the effective interest method over the term of the related debt. Amortization of deferred financing costs is included in interest expense and was $2,460 and $2,305 for the period ended November 14, 2005, and the year ended December 31, 2004, respectively.

F-106

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

Fair Value of Financial Instruments

The carrying amounts of short-term borrowings and long-term debt approximate fair value because of their variable interest rates.

Revenue Recognition

Rebates

The Company accounts for discounts, rebates, bill-backs and similar arrangements with its Retail customers as components of net sales in accordance with the Financial Accounting Standards Board’s Emerging Issues Task Force Issue 01-09, Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendor’s Products. Rebates of $11,733 and $12,600 were included in net product sales for the period ended November 14, 2005 and the year ended December 31, 2004, respectively.

Handling and Distribution Costs

Distribution costs are recognized as a component of operating expenses and consist of those costs incurred to deliver products from branch locations to end-user customers. Distribution expenses were approximately $229,645 and $284,145 for the period ended November 14, 2005, and the year ended December 31, 2004, respectively.

Advertising

The Company expenses advertising costs as incurred, except for direct-response advertising which is capitalized and amortized over its expected period of future benefits.

At November 14, 2005 and December 31, 2004, $2,470 and $1,754 of advertising was reported as assets, respectively. Advertising expense was $20,369 and $31,337 for the period ended November 14, 2005 and year ended December 31, 2004, respectively.

Comprehensive Loss

F-107

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

the period ended November 14, 2005 and the year ended December 31, 2004 is composed of changes in the minimum pension liability, as detailed in the accompanying Consolidated Statement of Changes in Mandatorily Redeemable Preferred Units, Mandatorily Redeemable Common Units and Partners’ Capital (Deficit).

Management Profits Interest Units

During 2004, certain members of management contributed $249 in cash and $121 in notes receivable held by the Company, in exchange for a partnership interest of approximately .04%. In March 2005, the Board of Directors issued Corporate Transaction Agreements to the Company’s senior management that cancelled their Profits Interest Units and Notes in consideration for refund of their respective cash investments, without interest.

Federal Income Taxes

Reclassification

Certain prior year amounts have been reclassified to conform to current year presentation, with no impact on previously reported partners’ deficit or net loss.

4. Inventories

Inventories consisted of the following:


	2005		2004
Raw materials	$	6,426	$	4,569
Finished goods		5,095		5,323
Resale items		3,239		4,549

	$	14,760	$	14,441

F-108

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

5. Intangibles

Intangibles are comprised of the following:


	2005			2004
Intangible assets not subject to amortization
Goodwill —	$	—		$	167,791
Tradenames		6,657			84,826
Intangible assets subject to amortization
Customer lists		209,319			234,458
Covenants not to compete		—			2,102
Accumulated amortization		(198,394	)		(180,600	)

Total intangibles, net	$	17,582		$	308,577


2006	$	1,821
2007		1,821
2008		1,821
2009		1,821
2010		1,821

In 2004, due to competitive pressure in the cooler rental business, the Company performed, with the assistance of independent valuation experts, an impairment test of the carrying value of certain of its tradenames. The Company calculated the estimated fair value of tradenames using the royalty savings approach, which requires estimates and judgments regarding future revenues, profits and other factors. The estimated fair value of the tradenames in 2004 was less than their carrying value and an impairment write-down was required. The impairment was calculated by deducting the estimated fair value from the carrying value, which resulted in an impairment write down of $133,000, which is included in the accompanying 2004 Statement of Operations.

Under SFAS 142, goodwill impairment occurs if the carrying value of a reporting unit’s net assets exceeds its estimated fair value. The majority of the Company’s goodwill is included in the home and office delivery reporting unit (“HOD”). The Company performed an impairment test required under SFAS 142 at December 31, 2004 and determined that due to competitive pressure in the cooler rental business, operating profits and cash flows were lower than expected in the fourth quarter of 2004 and the first quarter of 2005. Based on that trend, the earnings forecast for the next five years were revised. In December 2004, an interim impairment analysis was performed and a goodwill impairment loss of $391,500 was recognized in the HOD reporting unit. The fair value of that reporting unit was estimated using the expected present value of future discounted cash flows with the assistance of independent valuation experts.

During 2005, management committed to a plan to sell the Company to outside investors, and as discussed in Note 1, this sale was completed on November 15, 2005. The long lived assets of the Company were accordingly assessed for impairment pursuant to the provisions of SFAS No. 142 and SFAS No. 144. The SFAS No. 142 assessment generated a goodwill impairment charge of $167,791, resulting in the elimination of all remaining goodwill in the Company’s balance sheet, as well as an impairment charge of $78,169 related to the carrying

F-109

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

value of the Company’s indefinite lived intangible assets. The SFAS No. 144 assessment generated additional impairment charges which were allocated among the remaining balance of indefinite lived intangibles, property plant and equipment, and definite lived intangibles in amounts of $282, $37,008, and $25,411 respectively. These charges are reflected on the accompanying statement of operations for the period ended to November 14, 2005.

6. Property, Plant and Equipment

Property, plant and equipment consisted of the following:


	Estimated Useful Life in Years	2005			2004
Land	—	$	51,109		$	54,306
Buildings and leasehold improvements	5-30		108,374			115,111
Machinery and equipment	3-10		232,731			219,515
Vehicles, office furniture and other	5-15		140,439			138,342
Returnable bottles	4		106,112			95,936
Rental equipment, primarily water coolers	5-10		200,574			215,355
Capital assets in progress			145			3,695

			839,484			842,260
Accumulated depreciation and amortization			(503,200	)		(463,553	)

Subtotal			336,284			378,707
FAS 144 Impairment			(37,008	)		—

		$	299,276		$	378,707

Approximately $4,707 and $3,368 of property, plant and equipment relate to assets under capital leases as of November 14, 2005 and December 31, 2004, respectively. Accumulated amortization of assets under capital lease was $3,584 and $2,946 at November 14, 2005 and December 31, 2004, respectively.

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


	2005		2004
Insurance accruals	$	5,406	$	—
Payroll and employee benefits		26,635		17,963
Deferred equipment rental revenue		4,392		4,747
Sales, property and other taxes		6,175		2,530
Other		27,657		15,615

	$	70,265	$	40,855

F-110

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

In February 2004, the Company announced plans to consolidate its operations. This consolidation program includes workforce reductions and closure of excess facilities. The expected completion was March 2006. The consolidation program resulted in costs incurred primarily for workforce reduction of approximately 715 employees across certain business functions and abandoned or excess facilities relating to lease terminations and non-cancelable lease costs. To determine the lease loss, which is the Company’s loss after its cost recovery efforts from subleasing a building, certain estimates were made related to the time period over which the relevant building would remain vacant, sublease terms and sublease rates, including common area charges. If market rates decrease in these markets or if it takes longer than expected to sublease these facilities, the actual loss could exceed the estimate.

A summary of the consolidation costs and other costs recognized for the period ended November 14, 2005 is as follows:


	Workforce Reduction			Excess Facilities			Total
Accrued liability at December 31, 2003	$	2,058		$	432		$	2,490
Charges		16,693			1,517			18,210
Payments		(15,354	)		(390	)		(15,744	)

Accrued liability at December 31, 2004		3,397			1,559			4,956
Charges		3,050			1,559			4,609
Payments		(4,277	)		(1,200	)		(5,477	)

Accrued liability at November 14, 2005	$	2,170		$	1,918		$	4,088

2005	$			$	166		$	166
2006		2,107			1,283			3,453
2007 and thereafter					469			469

	$	2,107		$	1,918		$	4,088

8. Related Party Transactions

Prior to the formation of the Company, WGNA participated in an insurance program among Suntory’s North American subsidiaries. Claims incurred by WGNA prior to the Transaction Date will continue to be administered by Suntory. Accrued expenses under this program, which were included in accounts payable to related parties, were $8,263 and $14,536 as of November 14, 2005 and December 31, 2004.

CCDA Waters LLC (“CCDA”) is a joint venture between The Coca-Cola Company and Danone that sells bottled water principally to U.S. retailers. The Company and CCDA have mutual co-packing agreements whereby the Company sells 2.5 gallon and 1 gallon bottled water packages to CCDA and CCDA sells half-liter bottled water packages to the Company. Sales are at cost. For the year ended December 31, 2004, sales to CCDA were approximately $14,681, and purchases from CCDA were approximately $6,826. Accounts receivable from CCDA are recorded in accounts receivable from related party as of December 31, 2004 were $3,050. Accounts payable to CCDA are recorded in accounts payable to related parties as of December 31, 2004 were approximately $251. This relationship ceased in 2005.

F-111

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

9. Long-Term Debt

The Company’s long-term debt and capital lease obligations consisted of the following:


	2005			2004
Term loan	$	369,000		$	384,000
Revolving line of credit		29,000			18,800
Notes payable		6,012			6,034
Capital lease obligations		1,257			534

		405,269			409,368
Less: Current portion		(35,713	)		(20,442	)

	$	369,556		$	388,926

Required principal repayments of long-term debt and capital lease obligations for the next five years are as follows:


2006	$	35,713
2007		55,476
2008		104,080
2009		161,000
Thereafter		49,000

	$	405,269

On November 7, 2003, the Company, Enterprises (as borrower), JPMorgan Chase Bank, Citigroup Global Capital Markets, Inc. and other lenders entered into the $550,000 Senior Secured Credit Facility (the “Credit Agreement”) comprised of a $400,000 term loan with a maturity date of November 7, 2009 (the “Term Loan”) and a $150,000 revolving credit line (the “Revolver”) with a maturity date of November 7, 2008. The agreement was amended on September 30, 2004 and the Revolver commitment was reduced to $100,000.

F-112

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

availability under the Revolver ranging from 37.5 basis points to 50 basis points. Interest rates on borrowings under the Revolver ranged from 7.99% to 10.00% at November 14, 2005 and from 6.41% to 8.25% at December 31, 2004.

Interest payments are due on the Term Loans and Revolver quarterly. The Revolver, as amended, includes an $80,000 letter of credit facility and a $10,000 swing-line facility. The total loans outstanding under the Revolver, the letter of credit facility and the swing-line facility may not exceed $100,000. At November 14, 2005 and December 31, 2004, the Company had undrawn letters of credit outstanding, primarily to collateralize certain insurance deductibles, of approximately $47,201 and $30,361, respectively. Funds available under the Company’s revolving credit facility at November 14, 2005 and December 31, 2004 totaled $23,799 and $50,839, respectively.

The Credit Agreement provides for certain financial covenants including a leverage ratio and interest coverage ratio. The Company was in compliance with its debt covenants as of November 14, 2005. The Company has pledged all of its assets as collateral for the Credit Facility.

The Credit Agreement also requires that the Company maintain an interest rate protection agreement. Effective April 13, 2004, the Company entered into an interest rate cap transaction covering $191,500 of its debt, with a cap based on 30-day LIBOR rates of 6% for $795. The agreement, which has quarterly settlement dates, is in effect through March 31, 2007. The fair value of the interest rate cap at November 14, 2005 of approximately $32 is included in the asset section of the consolidated balance sheet.

The Company has a note payable in the amount of $6,000, which was used to partially finance the acquisition and construction of a water bottling plant in Katy, Texas. The note collateralizes a Variable Rate Demand Industrial Bond issued November 1, 1996 by Waller County Industrial Corporation in the amount of $6,000, due October 30, 2026. The note bears interest at a variable interest rate, not to exceed 15%, that is based primarily on commercial paper rates and is reset quarterly. The interest rate was 3.37% and 2.65% at November 14, 2005 and December 31, 2004, respectively.

10. Mandatorily Redeemable Preferred Units

F-113

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

High Yield Offering, as defined in the Partnership Agreement. After the fifth anniversary of the Transaction Date, the Company may, at its option, redeem the PIK Preferred, in whole or in part, for cash at a redemption price equal to the holder’s PIK Capital Account and the applicable percentage included in the Partnership Agreement. Upon completion of an initial public offering or change in control (as defined in the Partnership Agreement), the holder may require the Company to purchase all or a portion of its PIK Preferred at a purchase price equal to 101% of its PIK Capital Account. The holder will have no voting rights except as provided by law and as provided in the covenants section of the Partnership Agreement as it relates to the PIK Preferred. The PIK Preferred will rank senior to all Common Units and to all other equity interests of the Company, but will rank junior to all the current and future debt obligations of the Company.

Under the terms of the Partnership Agreement, the Preferred Units will earn additional PIK Preferred Units at a 12% annual rate, compounding semi-annually. The liquidation value of the PIK Preferred is determined by the value of the PIK Capital Account, which cannot exceed the cumulative total PIK Preferred units earned multiplied by $1,000 per unit. The PIK Capital Account was initially set as of November 7, 2003 at $325,000 and will increase, or decrease, as a result of the allocation of net profits and losses among the Company’s capital accounts. Net profits and losses, for purposes of allocation among capital accounts, are determined as specified in the Partnership Agreement. In general, net profits are allocated to the PIK Capital Account first and net losses would be allocated to the PIK Capital Account only after the balances in partner common unit capital accounts are reduced to zero.

11. Defined Benefit Pension Plan

Effective January 1, 1998, DSWA merged its two frozen defined benefit pension plans into one plan, which is also frozen.

The Company’s defined benefit pension plan weighted-average asset allocations consist of the following:


Asset category	2005		2004
Equity fund—domestic	46	%	46	%
Equity fund—international	17	%	17	%
Bond fund	36	%	36	%
Cash/Accrued income	1	%	1	%

	100	%	100	%

F-114

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

The following table sets forth the plan’s funded status and amounts recognized in the Company’s consolidated balance sheet:


	2005			2004
Change in projected benefit obligation
Projected benefit obligation at beginning of period	$	5,486		$	4,950
Service cost		—			—
Interest cost		272			296
Actuarial loss		539			402
Benefits paid		(175	)		(162	)

Projected benefit obligation at end of period	$	6,122		$	5,486

Change in plan assets
Fair value at beginning of period	$	3,989		$	3,155
Actual return on plan assets		34			195
Employer contributions		401			802
Benefits paid		(175	)		(162	)

Fair value at end of period	$	4,249		$	3,990

Funded status
Assets under obligation	$	(1,873	)	$	(1,497	)
Unrecognized net actuarial loss		2,999			2,360
Unrecognized prior service cost		1			2

Net amount recognized	$	1,127		$	865

Component of net periodic benefit cost
Service cost	$	107		$	120
Interest cost		272			296
Expected return on plan assets		(299	)		(288	)
Recognized net actuarial loss		58			44
Amortization of prior service cost		1			1

Net periodic benefit cost	$	139		$	173

In 2005 and 2004, a minimum liability adjustment of ($639) and ($334) was recorded as a component of other comprehensive loss.

Amounts recognized in the balance sheet consist of:


	2005			2004
Accrued benefit costs	$	(1,873	)	$	(1,497	)
Intangible assets		1			2
Accumulated other comprehensive income		2,999			2,360

Net amount recognized	$	1,127		$	865

F-115

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)


	2005		2004
Projected benefit obligation	$	6,122	$	5,486
Accumulated benefit obligation		6,122		5,486
Fair value of plan assets		4,249		3,990

The Company expects to contribute $482 to its pension plan in 2006.

The following benefit payments are expected to be paid:


2006	$	155
2007		165
2008		180
2009		201
2010		224
Thereafter		1,470

Weighted-average assumptions were as follows:


	2005		2004
Discount rate	5.50	%	5.75	%
Rate of compensation increase	N/A		N/A
Expected return on plan assets	8.50	%	8.50	%

12. Defined Contribution and Non-Qualified Deferred Compensation Plans

Defined Contribution Plans

Effective January 1, 1998, WGNA merged its three (3) defined contribution plans into one plan (the “WGNA 401(k) Plan”). The WGNA 401(k) Plan is a defined contribution plan conducted under section 401(k) of the Internal Revenue Code and provides for employee contributions as well as employer matching contributions. Participants in the WGNA 401(k) Plan are comprised of employees of WGNA before the merger. Employees may contribute up to 15% of their pre-tax earnings and the Company matches 50% of the first 6%. The Company’s matching contributions under the WGNA 401 (k) Plan were $0, and $1,184 for the period ended November 14, 2005 for the year ended December 31, 2004, respectively.

F-116

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

The Company has a second defined contribution plan under section 401(k) of the Internal Revenue Code that provides for employee contributions as well as employer matching contributions (the “SWNA 401(k) Plan”). Participants in the SWNA 401(k) Plan are comprised of employees of SWNA before the merger. Employees may contribute 2% to 25% of their pre-tax earnings and the Company matches 50% of the first 6%. The Company’s matching contributions under the SWNA 401(k) Plan were $0 and $1,131 for the period ended November 14, 2005 and for the year ended December 31, 2004, respectively.

Effective January 1, 2005, DS Waters of America, LP merged its two defined contribution plans into one plan (the “DSW of America, LP Retirement Savings Plan”). The DSW-RSP is a defined contribution plan conducted under section 401(k) of the Internal Revenue Code and provides for employee contributions as well as employer matching contributions. Participants in the DSW-RSP are comprised of employees of DS Waters of America, LP after the merger. Employees may contribute 1% to 25% of their pre-tax earnings and the Company matches 100% of the first 3%, and 50% of the next 2% contributed. The Company’s matching contributions under the DSW-RSP were approximately $5,437 for the period ended November 14, 2005. The Company’s matching contributions to the WGNA 401(k) Plan and the SWNA 401(k) Plan for the year ended December 31, 2004 were $1,184 and $1,131, respectively.

The Company also has a defined contribution plan for which no employee contributions are required (the “SWNA Profit Sharing Plan”). Annual contributions are made by the Company based on employees’ salaries. Employees’ interests in the contributions vest in 20% increments for each year of service. Participants in the SWNA Profit Sharing Plan are comprised of employees of SWNA before the merger. The Company’s contributions for the period ended November 14, 2005 are expected to be made in the 2^nd Quarter of 2006, and are approximately $3,502.

Non-Qualified Deferred Compensation Plans

The Company has a deferred compensation plan available for certain key executives of WGNA prior to the merger (the “WGNA Deferred Compensation Plan”). Participants make voluntary contributions that the Company holds in trust. The Company is not obligated to, and has not, made contributions to this plan. The assets, consisting of marketable equity securities, are legally considered assets of the Company and are subject to the claims of the Company’s general creditors. A liability is recorded which is equal to the value of the assets held in trust. These non-current assets and the related liability are stated at fair value and equaled $672 and $1,034 for the period ended November 14, 2005, and for the year ended December 31, 2004, respectively.

The Company maintains a deferred compensation plan available for a limited number of higher salaried employees of SWNA prior to the merger (the “SWNA Deferred Compensation Plan”). Employees contribute to the plan and the Company accrues interest of approximately 9.5%. Balances are distributed upon termination of employment. The SWNA Deferred Compensation Plan is not funded and the liability is not secured. The Company’s liability under this SWNA Deferred Compensation Plan is recorded in other long-term liabilities and was $0 and $5,996 for the period ended November 14, 2005, and for the year ended December 31, 2004, respectively. The Company’s interest expense related to this plan was $0 and $456 for the period ended November 14, 2005, and for the year ended December 31, 2004, respectively.

Effective January 1, 2005 the Company initiated a third deferred compensation plan available for a limited number of higher salaried employees of DS Waters of America, LP after the merger (the “DS Waters of America, LP Executive Deferred Compensation Plan”). After December 31, 2004, no contributions were made to the “WGNA Deferred Compensation Plan,” or the “SWNA Deferred Compensation Plan.” Employees contribute to the plan and the Company accrues interest of approximately 7.5%. Balances are distributed upon termination of

F-117

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

employment. The DSW Deferred Compensation Plan is not funded and the liability is not collateralized. The Company’s liability under this DSW Deferred Compensation Plan is recorded in other long-term liabilities and was $3,842 and $5,996 for the period ended November 14, 2005 and for the year ended December 31, 2004, respectively. The Company’s interest expense related to this plan was approximately $336 and $456, for the period ended November 14, 2005 and for the year ended December 31, 2004, respectively.

13. Post-Retirement Medical Benefits

The following table sets forth the plan’s funded status and amounts recognized in the Company’s consolidated balance sheet:


	2005			2004
Change in accumulated postretirement benefit obligation
Projected accumulated postretirement benefit obligation at beginning of period	$	3,066		$	2,589
Service cost		—			58
Interest cost		152			169
Actuarial loss		33			347
Benefits paid		(112	)		(97	)

Accumulated postretirement benefit obligation at end of period	$	3,139		$	3,066

Funded status
Accumulated postretirement benefit obligation	$	3,139		$	3,066
Unrecognized net actuarial gain		(1,020	)		(1,084	)
Unrecognized prior service cost		(775	)		(885	)

Net amount recognized	$	1,344		$	1,097

Components of net periodic postretirement benefit cost
Service cost	$	—		$	58
Interest cost		152			169
Recognized net actuarial loss		97			53
Amortization of prior service cost		110			59

Net periodic postretirement benefit cost	$	359		$	339


Amounts recognized in the balance sheet consist of:
	2005			2004
Accrued postretirement benefit costs	$	1,344		$	1,097

The following benefit payments are expected to be paid:


2006	$	236
2007		359
2008		482
2009		594
2010		655
Thereafter		1,705

F-118

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

Weighted-average assumptions were as follows:


	2005		2004
Discount rate	5.50	%	5.75	%
Expected return on plan assets	N/A		N/A

Assumed health care cost trend rates were as follows:
	2005		2004
Health care cost trend rate assumed for next year	10.5	%	10.5	%
Rate to which the cost trend rate is assumed todecline (the ultimate trend rate)	5.0	%	5.0	%
Year that the rate reaches the ultimate trend rate	2013		2013

14. Lease Commitments


	Capitalized Leases		Operating Leases
2006	$	760	$	12,999
2007		499		9,009
2008		41		7,267
2009				6,158
2010				4,858
Thereafter				16,744

Total minimum lease payments		1,300	$	57,035

Less amount representing interest		82

Present value of minimum capital lease payments		1,218

Current portion		701

Long-term capitalized lease obligations	$	517

Rental expense for operating leases the period ended November 14, 2005 and for the year ended December 31, 2004 was $16,180 and $19,669, respectively.

15. Legal Claims

F-119

DS WATERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Period Ended November 14, 2005 and Year Ended December 31, 2004

(in thousands of dollars)

16. Insurance Recovery

17. Supplemental Cash Flow Disclosure

Cash paid for interest during the period ended November 14, 2005 and the year ended December 31, 2004 was $28,045 and $22,183, respectively.

The Company made some minor acquisitions during the year ended December 31, 2004. The net cash and non-cash paid for acquisitions are as follows:


Fair value of assets acquired
Accounts receivable	$	239
Inventory		11
Intangible assets		1,340
Other assets		15

Total assets	$	1,605
Fair value of liabilities assumed
Accounts payable		118
Notes payable		—

Net assets acquired	$	1,487

Purchase price—cash	$	998

Purchase price—non-cash	$	489

F-120