2 012 Our Commitment to Sustainability Welcome to Hilmar Company

Making cheese and products that contribute nutrition, enjoyment and value to people’s lives.

Owned by 11 local Jersey cow farming families, Hilmar

Cheese Company, Inc. produces cheese and whey products

that nourish more than 20 million people worldwide each day.

From the shredded cheese in tacos to the whey protein and

lactose in infant formula, Hilmar Cheese Company and our

division, Hilmar Ingredients, deliver the promise of dairy

to consumers around the world.

About Our Cover Contents

Reflecting our commitment to the environment, The Company the community and our employees Letter from CEO 3 $10,000 Donated Our History 4 to Snack Pak 4 Kids Our Mission 5 to help them provide Goals and Progress 6 weekend meals for hungry students www.snackpak4kids.org Environmental Stewardship 8 100% of Our Employees 10 Reclaimed Economic Value 12 Water Community Engagement 14 is recycled and reused on our facilities and 40 Employees 31 Students for irrigation were promoted from received college within the company scholarships from Hilmar Cheese Company

100% of the This report is based on the methodology outlined by the Global Reporting Initiative (GRI), a nonprofit Dairy Farm Families organization that develops and publishes guidelines who ship their directly to Hilmar Cheese for reporting on sustainability performance. Company participate in the Farmers Assuring More information on the GRI can be found Responsible ManagementTM animal care program at www.globalreporting.org.

The information presented reflects data collected for 2012

.....2 A Letter from Our CEO

We appreciate you – a customer, business partner, employee, community member or consumer – taking an interest in learning a bit more about Hilmar Cheese Company, Inc.

This is our third annual corporate sustainability report. In it, we reflect on our accomplishments and the areas in which we continue to improve.

We know that we must earn the right to do business with our customers and within the communities where we operate.

Our 2012 accomplishments included in the marketplace. Our dedicated staff works groundbreaking in California for a major hard to convert high-quality milk into products construction project – a LEEDS-certified demanded by global consumers. We know corporate headquarters and food innovation that as consumer desires change, conversion center. Our California facility also saw the equipment improves and formulas evolve, our installation of an additional biogas (methane) success depends on continuing to provide the digester to reduce our carbon footprint. Milk cheese and whey products our customers need. receiving and process improvements were completed at the Texas facility. People are our most valuable resource and we must take good care of our employees 2012 also had its challenges, especially and their families. In 2012, the severity of for many of the 230 independent dairy farm workplace injuries decreased. We have improved businesses from whom we purchase milk. Feed ergonomics, implemented new technology prices were at all time highs, squeezing the to assist with specific jobs and developed margins for . Yet, the dairy farm families processes that reduce risk. Our “near miss” who directly ship milk to us demonstrated their program strives to reduce risk before it becomes continuing efforts to improve animal well-being an issue. With these actions in place we by participating in the National Dairy FARM continue looking for more we can do to make Program. Farmers Assuring Responsible Hilmar Cheese Company a safer and more ManagementTM, or FARM, includes best practices rewarding place to work. for dairy cow nutrition, health, housing and more developed by animal scientists and veterinarians. We are focused on protecting our natural resources, our employees and our future Hilmar Cheese Company is privately owned generations. It is our obligation, and it is by dairy farmers who understand the challenges the right thing to do. of the dairy farm business. The company was founded on the principle of paying for high- value milk and the philosophy that long-term industry success will come from innovation John Jeter

.....3 Our Family-Owned Company

Breaking ground on new headquarters, Hilmar, CA

Our History

In 1984, 12 Central California dairy families, seeking to maximize the value of their Jersey cows’ premium milk, created Hilmar Cheese Company, Inc. They invested heavily in research, the latest technology and employee excellence – a practice that continues to guide the privately held company today and remains a core part of The Hilmar Way. Company owners

Committed to continuous improvement and innovation, the company has grown to be a leading producer of American-style cheese and whey products. We enjoy an international reputation for superior quality and consistency of our products and unparalleled, personalized service. Today, that reputation continues as the second and third generations of family owners (pictured at right with founding owners) share responsibility. For Hilmar Cheese Company, success means fostering long-term, mutually beneficial relationships between company owners, employees, milk producers, customers and the local community.

.....4 Sustainability, Part of Our Legacy

Dalhart, TX, facility

Innovation Center & Headquarters

Hilmar, CA, facility with new building site

Our Mission from our Dalhart, Texas, manufacturing facility, and from our headquarters and manufacturing Commitment to sustainability is a core element facility in Hilmar, California. of the mission statement that Hilmar Cheese Company follows: We have incorporated recommendations from the newly created Stewardship and Through leadership-driven, high-performance Sustainability Guide for U.S. Dairy, a voluntary teamwork, Hilmar Cheese Company and framework for tracking and communicating Hilmar Ingredients develop and convert in a progress. The report also incorporates sustainable manner our premium milk supply methodology from the Global Reporting into innovative, top-quality dairy products for Initiative (GRI), a nonprofi t organization that customers worldwide who further add value develops and publishes guidelines for reporting in their markets. sustainability performance. And lastly, the report acknowledges principles important to our customers and our industry. Scope of this Report

This report for calendar year 2012 is our third More about our sustainable practices can annual report. It refl ects total company efforts be found at hilmarcheese.com.

.....5 Goals and Progress

Category Focus Goals 2012 Progress Future Plans Environmental Recycled 100% of reclaimed water 8% increase in total volume of Increase the total amount of Stewardship Water for is recycled for facility reclaimed water available, with reclaimed water recycled for Irrigation landscaping and crop 100% of the water recycled for irrigation irrigation facility landscaping and crop irrigation

Well Water Minimize the amount of 3% decrease from 2011 in the Implement additional strategies Use Reduction well water used for amount of well water used per to reduce well water use for production thousand pounds of production production

Renewable 100% of the internally 45% of internally generated Increase amount of internally Energy available biogas (methane) biogas (methane) was used as generated biogas (methane) used as a fuel source a fuel source in boilers at both for use as a fuel source. facilities in 2012 Continue to evaluate other renewable energy opportunities.

Energy Continually reduce 2% decrease from 2011 in Identify areas to implement Efficiency energy use the total amount of natural improvements gas used for production and other internal uses

Air Emissions Decrease the amount of 6% decrease from 2011 Evaluate renewable options greenhouse (GHG) direct in the total amount of to reduce GHG emissions emissions per thousand greenhouse (GHG) direct pounds of product emissions per thousand pounds of product

Solid Waste Recycle and reuse to Implemented office and break Continuous improvement Minimization create zero waste from room recycling program in recycling the material stream

Package Minimize product Installed additional Work with suppliers Minimization packaging while cardboard compactor to continually improve maintaining quality packaging efficiency and material integrity

Supplier Develop and maintain Reviewed sustainability Improve supplier auditing Responsibility relationships with suppliers programs of key production system who have similar material suppliers sustainability goals

Transportation Reduce shipping Coordinate shipping to reduce Fully utilize options to reduce miles overall number of loads shipping miles

Supplying Develop and maintain Completed dairy farm reviews Work with dairy farms who make Dairy relationships with the sustainability, animal care and Responsibility supplying dairy farms who quality milk a priority responsibly provide the highest quality milk

.....6 Goals and Progress

CategoryCategory FocusFocus GoalsGoals and Timing 2012Progress Progress FutureFuture Plans

Employees Safety Decrease incidents of Severity of workplace injuries Performance is not acceptable. workplace injuries continued to decrease; overall New and additional proactive total of OSHA workplace safety programs under injuries increased 34% development for implementation.

Training Implement The Hilmar Incorporated The Hilmar Way Adopt modules from continuous Way training into all new staff training improvement programs

Tuition Prepare employees Reimbursed more than Expand program to further for new roles and $47,000 in education fees develop talent advancement

CategoryCategory FocusFocus GoalsGoals and Timing 2012Progress Progress FutureFuture Plans

Economic Jobs and Stimulate local economy Total workforce increased Continue business success Local Support to 1,292 to increase workforce

CategoryCategory FocusFocus GoalsGoals and Timing 2012Progress Progress FutureFuture Plans

Engagement Community Identify and contribute Donor to Babcock Hall Support youth and education; Philanthropy to projects with significant renovations at Wisconsin food security; health care; impact Center for Dairy Research, the arts Univ. of Wisconsin, Madison

.....7 Environmental Stewardship

Water Use and Quality Hilmar Cheese Company, Inc. maintained 100% compliance with all state and federal We recover almost 100% of the water originally water quality rules and regulations in 2012. In in milk. This recovered water accounts for more California, we have decreased our dependence than 60% of the water used at both of our upon well water. At both sites, we established facilities. After our water goes through methods to capture rain water and process it for our water reclamation processes, it is used reuse through our water reclamation facilities. in a variety of ways:

• Recycled water to wash facilities and equipment Recycling More

• Recycled water for facility landscaping In 2012, an employee-based recycling program • Recycled water for non-food uses was implemented. Blue desk-side containers • Recycled water to irrigate crops, many and recycling bins were placed throughout the used to feed the cows offices, break rooms and our California Visitor Center park. These helped employees and Both facilities have complex multi-stage guests divert 179 tons of cardboard and 2 tons water reclamation systems consisting of of office paper, aluminum and plastic. Late in several filtration steps, anaerobic digestion the year, an additional cardboard compactor and storage. and a new stretch film baler were installed to increase recycling capabilities.

.....8 Environmental Stewardship

Water 1,482 Total Usage 1,335 Total Recycled 1,198 (all water (all water 1,077 sources) sources)

Gallons/ Gallons/ 103 pounds 103 pounds of production 2011 2012 of production 2011 2012 Combined Combined Combined Combined CA & TX CA & TX CA & TX CA & TX

Energy 205 201 1.82 1.71 Total Direct Total Indirect *

MMBTUs/ Kilowatts/ 103 pounds 103 pounds of production of production

2011 2012 2011 2012 Combined Combined Combined Combined CA & TX CA & TX CA & TX CA & TX

Greenhouse Gases

0.093 0.087 0.068 0.062 Total Direct Total Indirect **

Metric tons CO2e/ Metric tons CO2e/ 103 pounds of 103 pounds of production production

2011 2012 2011 2012 Combined Combined Combined Combined CA & TX CA & TX CA & TX CA & TX * Indirect energy is provided by outside sources such as electricity

** Indirect GHG is produced as a result of using electricity from outside sources Progress at Processing Facilities

The charts above show our progress in water conservation, recycling, energy conservation and greenhouse gas reduction. Figures represent a combined effort for both California and Texas facilities.

Highlights:

• Increased biogas (methane) use in boilers The Texas facility’s water reclamation system uses a series – California and Texas of ponds and biogas (methane) digesters to process clean irrigation water used by local farmers. The successful biogas • Additional biogas digester commissioned system used in Texas is the model for a component planned – California to be added to the California system in 2013. “This new component fully treats the organic material and will generate • Whey process regeneration to transfer heat an increased amount of biogas. The biogas will be used as a energy between existing systems and minimize fuel source in our boiler system, reducing our greenhouse gas use of steam and refrigeration emissions and total reliance on natural gas for fueling boilers,” – Texas explained Burt Fleischer, Environmental Director.

.....9 Our Employees

58 Visitor Center

391 Texas

48% 40

843 California

1,292 Total 5+ Years Promoted Training session, Dalhart, TX 2012= Employees Tenure from Within

Employee Engagement Employee Tenure

The health and well-being of our employees and Valuing employees is the key to our success. their families is most important to us. Beyond Employees are treated fairly, with respect, and comprehensive medical, dental, vision and have the opportunity to maximize their talents. retirement benefits, we offer more: In 2012, 48% of our employees have five or more years with the company. • Chaplain services • Cheese and Visitor Center discounts • Dairy farm tours to educate on practices and agriculture • Education reimbursement • Family activities including BBQs and swim nights at community pools • Full-service retirement planning through our provider • Gym membership discounts • Health and Wellness Fair • Nutrition counseling This year, one of our employee and family activities in California and Texas was a visit to an owner’s local dairy ® • Weight Watchers programs farm. “Many of our employees and families had not been on a dairy before,” explained Jean Haskell, Director of Competitive wages, a professional work Human Resources. “We thought it was important for atmosphere and the opportunity to grow, give them to understand first-hand the stewardship, care and us an advantage in attracting and retaining effort our supplying dairy farms put into providing us top talent. with the highest quality milk.”

.....10 Our Employees

New Hire Established New Operations Staff Employee Supervisor (primarily supervisors) Trainee

Food Safety Training

New Hire Orientation

Cheese/Ingredient Manufacturing (equipment – skills development)

Standard Operating Procedures (update/new equipment)

License Renewal

Grade II Operator (higher skill development, troubleshooting, technical)

New Supervisor Training Program

Leadership (business review meetings, leadership series)

Total Hours of Training 200-365 Hours 60-100 Hours 375-600 Hours 50-110 Hours Increase Increase Focus training on Implement Future Plan independent participation by building strengths the option for learning rolling out skills to organizational supervisors to opportunities via development needs and gaps complete skills computer-based program and development training and continuous program online courses improvement training for all operators

Employee Training Employee Safety

Training opportunities are offered throughout Hilmar Cheese Company is committed to the year and programs vary depending on the providing a safe work environment. In 2012, status and job requirements of our employees. the severity of our workplace injuries decreased. The chart above is a general outline of the There was an increase in the overall number training hours based on employee status. of Occupational Health and Safety recordable incidences. This increase is not acceptable. In 2012, more than 500 employees We have taken immediate action including: took advantage of the training offered by • Implemented supervisor safety tool-kit our continuous improvement team. training, providing each supervisor with Courses included: a business-wide perspective of safety • 5S Workplace Organizational Skills • Used shift meetings to educate employees • Seven Elements of Waste on pre-planned safety topics • Root Cause Analysis • Expanded awareness of successful • Practical Problem Solving behavior-based safety programs

80 Texas and 188 California employees were certified in first aid and CPR.

.....11 Economic Value

Food for the World Worldwide Ingredient Exports 2012

Hilmar Cheese Company is the fifth largest Africa South America privately held dairy business in the United States. By developing and serving markets around the world, we are able to bring Asia economic value home to our communities Oceania in California and Texas.

From a strong domestic market base, we continue to expand our export cheese business North America (without U.S.) by providing products functionally tailored to Europe the growing international demand for American . Of particular appeal are specialty Job Creation cheddars for process cheese manufacture We are a significant provider of local jobs and (including cheddar varieties with low moisture, contributor to each region’s tax bases. One way reduced salt or reduced fat), and Monterey we measure our economic value is by new job Jack and Mozzarella for pizza toppings. creation. In 2012 we added 147 completely new positions. Whey proteins and lactose from our Hilmar Ingredients division have been sold Additional employment was provided by internationally since they were first produced our use of consultants. In 2012 we hired 41 and are now found in more than 40 countries. specialists in information technology, regulatory, human resources, research and development, The major regions for our ingredients engineering and communications. business are shown on the right.

.....12 On the Farm

Hilmar Cheese Company purchases high-quality Cow Care milk from more than 230 independent dairy farms Dairy farm families operate with the greatest located near our processing facilities. These dairy respect and care for their herd’s needs. Dairy farms are family-owned and provide significant farm management decisions are made at the contributions to their local area. dairy farm level by individual producers.

We are proud to have all of the farms that Environmental Sustainability ship milk directly to Hilmar Cheese Company Innovations in efficiency, resource conservations, demonstrate their dedication to the highest and new technologies have led to an increase quality animal care through participation in in milk production in the U.S., while greenhouse the National Dairy Farm Program: Farmers gas emissions have been reduced. As a result, Assuring Responsible ManagementTM (FARM, the carbon footprint of milk and dairy production www.nationaldairyfarm.com). Established in has shrunk by more than 63% since 1994. 2009, FARM is a nationwide, verified program addressing dairy animal well-being. In 2012, Dairy is meeting the nutritional needs of a Hilmar Cheese Company provided financial growing population, with fewer cows. This success appreciation to milk shippers in recognition of is due to selective breeding, improved cow the extra effort required to participate in FARM. nutrition, improved calf and cow health care, and cow comfort. Economic Contribution The dairy farmers who ship milk to us According to the California Milk Advisory Board, participate in environmental quality programs. four cows create one job. Many dairy farms Many live on the farm and the land has been in employ both family members and others. their family for generations. Land preservation, Community involvement and local support are water conservation and recycling are part of part of the core values of American farmers. their daily activities.

.....13 Community Engagement

Hilmar Cheese Company’s XIT parade float

The owners and employees of Hilmar Cheese Improving Community Resources Company volunteer time and donate to local • Annual holiday canned food drives at organizations. Their contributions of cheese, both Texas and California facilities have gift baskets and funds help our communities a company match of $3 for every can of thrive and assist those in need. food given, with more than 1,000 food items donated in 2012 From simply putting a collection box in our foyer for eye glasses for the local Lion’s • 8,700 pounds of cheese and financial Club to working with community members assistance for local food programs: on major projects, our goal is to make our ° Feed My Starving Children communities better. ° High Plains Food Bank ° Hilmar Helping Hands • XIT Rodeo & Reunion in Texas is supported ° Lincoln Street Baptist Food Bank with funds and volunteers to help continue ° Merced County Food Bank one of the world’s most exciting western ° Merced County Rescue Mission celebrations ° Turlock Gospel Mission • Hilmar Dairy Festival & Fireworks is ° Turlock Salvation Army supported with funds and volunteers to help celebrate the dairy industry’s contributions • Snack Pak 4 Kids support helps to reduce in the local community hunger for kids living in the Texas Panhandle by providing backpacks filled with healthy Dedication to the Arts snacks over the weekend when kids are unable to access school meals • Gallo Center for the Arts – support nationally acclaimed theatrical works • Modesto Symphony – 4th year as exclusive sponsor of “Picnic at the Pops” concert • Turlock Community Theater – fund local productions and events .....14 Community Engagement

Healthier Lives Inspiring Young Minds

Hilmar Cheese Company also contributed More than 15,000 students visited our dairy to these organizations to help advance exhibits in the Dalhart XIT Museum and Hilmar human health: Visitor Center. The Visitor Center also hosted more than 300 groups from around the world. • American Red Cross emergency relief funds for Hurricane Sandy and Hurricane Isaac Hilmar Cheese Company provides an • Dalhart and Hilmar Community Pools annual scholarship program to assist with and water safety programs college or trade school tuition for children • Dallam-Hartley Counties of our employees, the dairy farm families Healthcare Foundation who ship milk to us, and local students • Emanuel Medical Center pursuing agricultural degrees. Legacy Circle Donor Along with our exhibits, educational • International Red Cross annual holiday efforts and scholarships, we support the donation on behalf of customers work of these groups:

Congratulations to the community of Hilmar • 4-H and FFA for receiving the “Baby Relay for Life” award • Boy Scouts and Girl Scouts from the American Cancer Society for raising more than $187,000 at their first year relay. • Community athletic teams Employee teams in California and Texas worked • Dairy Research Center, University for matching company funds to raise $26,000 of Wisconsin in 2012. • Dallam-Hartley Library • Friends of Hilmar Library

.....15 Innovation Center & Headquarters 8901 North Lander Avenue, P.O. Box 910, Hilmar, CA 95324 USA T: 209.667.6076 hilmarcheese.com hilmaringredients.com

California Manufacturing Facility 9001 North Lander Avenue, P.O. Box 910, Hilmar, CA 95324 USA T: 209.667.6076

Texas Manufacturing Facility 12400 US Highway 385, P.O. Box 1300, Dalhart, TX 79022 USA T: 806.244.8800

Visitor Center at Hilmar Cheese Company 9001 North Lander Avenue, P.O. Box 910, Hilmar, CA 95324 USA T: 800.577.5772 or 209.656.1196 Fax: 209.656.1116 visithilmarcheese.com ©170.13 Hilmar Cheese Company, Inc. ©170.13 Hilmar Cheese Company,