1. Warren Erickson Chief Operating Officer

2. Background
Founded in 1930
Now in third generation of ownership and control
One of the largest independent dairy processors in the United States
Service Iowa, Parts of Illinois, Kansas, Missouri, Minnesota, and Nebraska

3. Background Full function plant in Des Moines, IA
Products include all fluid milk, juices, cottage cheese, sour cream, dips, yogurt, and ice cream mixes
Approximately 600 employees and $150MM in sales
For background I will show a DVD giving you some idea of the history and processes of AE

5. Milk Procurement Over 90% of AE’s milk is procured from Iowa
Two large direct ship farms – Harlan and Atlantic
Small amount of milk is from Minnesota
In September 2007 we purchased 41.5 million pounds of milk.
September 2007 Class I utilization was 77%

6. Milk pricing
AE buys milk based on components, pounds, and classification
AE sells milk based on customer accepted unit of measure –typically ounces
Class I price set in advance by USDA
All other pricing is set retroactively
Pricing has reached unprecedented levels

8. Reaction to high prices
Substitution of smaller sizes
Switching to lower cost alternatives
Difficult to change customer patterns even if prices decrease

9. Other pricing factors Political considerations (Farm Bill 2007)
Weather (NFMP, OJ)
Transportation costs
Steady increase in agriculture costs
Sweeteners
Milk Solids
Other ingredients

10. Changes in the industry
When AE was started there were over 200 dairies in Des Moines, all home delivery
30 years ago there were around one hundred retail routes (direct to home)
In the last 10 years the retail market has undergone significant changes

11. Changes in the industry (continued)
Mass merchandisers continue to branch out into grocery and expand their base of operations
Dairy is more national in scope than ever before with Dean Foods, HP Hood, and other big players

12. Challenges
Customer changes in taste and packaging preferences over time
Product mix variations on a seasonal basis (only meaningful comparison is year-to-year, month-to-month is too volatile)
High level of capital investment required for any changes
No hedge for risk protection on long term contracts

13. Why AE is different We are innovative and willing to take risks
Our products are better, we are more interested in quality
We promote our brand and our service
We offer a full line of quality products

14. Marketing We promote our brand to the end customer
Target market is women 25-49; mom’s are the gatekeepers to the household refrigerators!
Stress the health benefits of milk and dairy products
This target is skeptical of technology

15. Health Benefits of Milk:
Two servings of dairy a day can reduce adolescent obesity
Milk drinkers had ½ rate of breast cancer
Calcium and Vitamin D reduce risk of colon cancer by 75%
Reduced blood pressure
Reduced osteoporosis
Increasing the intake of milk and other dairy products lowered the development of risk factors for diabetes by 70%
Helps you lose weight and maintain a healthy weight

16. New things for AE: 8 oz. plastic school milk cartons
New flavors (orange pomegranate, blueberry buckle, raspberry cheesecake, vanilla latte yogurts; Chocolate Fiesta Milk)