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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, as of June 29, 2002 (based on the average of the high and low prices of the Common Stock on June 28, 2002, as reported by Nasdaq) was approximately $1,436,500,563. The aggregate market value calculation excludes the aggregate market value of shares beneficially owned by the executive officers and directors of the registrant and holders affiliated with them. This determination of affiliate status is not necessarily a conclusive determination that such persons are affiliates for any other purposes.

As of March 20, 2003, the latest practicable date, 35,036,152 shares of Common Stock were outstanding.

Portions of the Dreyer’s Grand Ice Cream, Inc. definitive Proxy Statement for the 2003 Annual Meeting of Stockholders to be held on May 21, 2003, are incorporated by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. With the exception of those portions which are specifically incorporated by reference in this Annual Report on Form 10-K, the Dreyer’s Grand Ice Cream, Inc. Proxy Statement for the 2003 Annual Meeting of Stockholders is not to be deemed filed as part of this Annual Report.

This Annual Report on Form 10-K contains forward-looking information. Forward-looking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management of Dreyer’s Grand Ice Cream, Inc. (the Company) and other matters. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. Forward-looking information may be included in this Annual Report on Form 10-K or may be incorporated by reference from other documents filed with the Securities and Exchange Commission (SEC) by the Company. You can find many of these statements by looking for words including, for example, “believes”, “expects”, “anticipates”, “estimates” or similar expressions in this Annual Report on Form 10-K or in documents incorporated by reference in this Annual Report on Form 10-K.

These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by these forward-looking statements. You should understand that various factors, in addition to those discussed elsewhere in this Annual Report on Form 10-K and in the documents referred to in this Annual Report on Form 10-K, could affect the future results of the Company, and could cause results to differ materially from those expressed in these forward-looking statements, including, but not limited to:


	•	~~Executive Officers~~risk factors described under the “Risks and Uncertainties” section in Item 7;

	•	the level of consumer spending for frozen dessert products;

	•	the Company’s ability to achieve efficiencies in manufacturing and distribution operations without negatively affecting sales;

	•	the cost of energy and gasoline used in manufacturing and distribution;

	•	the cost of dairy raw materials and other commodities used in the Company’s products;

	•	the Company’s ability to develop, market and sell new frozen dessert products;

	•	the success of the ~~Registrant~~ ~~The~~ Company’s ~~executive officers~~marketing and ~~their ages are as follows:~~ promotion programs and competitors’ marketing and promotion responses;

	•	market conditions affecting the prices of the Company’s products;

	•��	responsiveness of both the trade and consumers to the Company’s new products and marketing and promotion programs;

	•	existing and future governmental regulations resulting from the events of September 11, 2001, and any military actions which could affect commodity and service costs to the Company; and

	•	uncertainty regarding the completion and effect of the proposed transactions with Nestlé described in “Recent Events” below.

Other factors that could cause actual results to differ from expectations are discussed in “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Item 7A — Qualitative and Quantitative Disclosures About Market Risk”. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this Annual Report on Form 10-K or, in the case of documents incorporated by reference in this Annual Report on Form 10-K, the dates of those documents. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events.

The following discussion should be read together with the Company’s consolidated financial statements and related notes thereto included elsewhere in this document and in “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

The Company’s website address ishttp://www.dreyersinc.com. The Company’s SEC filings, including its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, and its Current Reports on Form 8-K, including amendments thereto, are made available as soon as reasonably practicable after such material is electronically filed with the SEC. These filings can be accessed free of charge at the SEC’s website athttp://www.sec.gov, or by following the links provided under “Financial Information” or “SEC Edgar Filings” in the Investors section of the Company’s website. In addition, the Company will voluntarily provide paper copies of its filings free of charge, upon request, when the printed version becomes available. The request should be directed to Dreyer’s Grand Ice Cream, Inc., Attn: Investor Relations, 5929 College Avenue, Oakland, CA 94618-1391.

The Company entered into an Agreement and Plan of Merger and Contribution, dated June 16, 2002, as amended, (the Merger Agreement), with New December, Inc. (New Dreyer’s), December Merger Sub, Inc., Nestlé Holdings, Inc. (Nestlé) and NICC Holdings, Inc. (NICC Holdings), a wholly-owned subsidiary of Nestlé, to combine the Company with Nestlé Ice Cream Company, LLC (NICC), the Nestlé affiliate which holds Nestlé’s United States frozen dessert business. The combination will result in both the Company and NICC becoming wholly-owned subsidiaries of New Dreyer’s, a Delaware corporation formed by the Company to effect the transactions contemplated by the Merger Agreement (the Merger).

A Registration Statement on Form S-4 was filed by New Dreyer’s with the SEC in connection with the Merger and was declared effective on February 14, 2003. A proxy statement/prospectus for a Special Meeting of Stockholders (Special Meeting) to vote on the Merger was mailed on February 18, 2003 to the Company’s stockholders of record as of January 29, 2003. On March 20, 2003, the Special Meeting was held and the Company’s stockholders approved the Merger Agreement and the Merger.

If the Merger is completed, each stockholder (other than Nestlé and its affiliates) who holds shares of the Company’s common stock at the effective time of the Merger will receive one share of Class A Callable Puttable Common Stock of New Dreyer’s for each share of the Company’s common stock. Subject to the terms and conditions of the amended and restated certificate of incorporation of New Dreyer’s, the holders of New Dreyer’s Class A Callable Puttable Common Stock will be permitted to sell (put) some or all of their shares to New Dreyer’s for $83.00 per share during two periods, the first beginning on December 1, 2005 and ending on January 13, 2006, and the second beginning on April 3, 2006 and ending on May 12, 2006. The New Dreyer’s Class A Callable Puttable Common Stock will also be subject to redemption (call) by New Dreyer’s at the request of Nestlé at $88.00 per share during a six-month period beginning on January 1, 2007 and ending on June 30, 2007. At the effective time of the Merger, NICC Holdings will contribute all of its ownership interest of NICC to New Dreyer’s and will receive in exchange for such contribution, 55,001,299 shares of Class B Common Stock of New Dreyer’s. The Class B Common Stock is similar to the Class A Callable Puttable Common Stock, except that it lacks the call and put features and has additional voting rights. The shares of the Company’s common stock currently held by Nestlé will be converted into the same number of shares of Class B Common Stock of New Dreyer’s. As of December 28, 2002, Nestlé owned approximately 23 percent of the Company’s common stock on a diluted basis. If the Merger is completed, Nestlé and its affiliates will own approximately 67 percent of New Dreyer’s common stock on a diluted basis.

In addition, if the Merger is completed, each outstanding option to purchase the Company’s common stock under the Company’s existing stock option plans will, at the completion of the Merger, be converted into an option to acquire:


	•	prior to the date that New Dreyer’s Class A Callable Puttable Common Stock is redeemed under the call right or prior to the completion of a short form merger of New Dreyer’s with Nestlé or an affiliate of Nestlé S.A., that number of shares of New Dreyer’s Class A Callable Puttable Common Stock equal to the number of shares of the Company’s common stock subject to the option immediately prior to the completion of the Merger, at the price or prices per share in effect immediately prior to the completion of the Merger.

	•	at or after the date New Dreyer’s Class A Callable Puttable Common Stock is redeemed under the call right or after the completion of a short form merger of New Dreyer’s with Nestlé or an affiliate of Nestlé S.A., the same consideration that the holder of the options would have received had the holder exercised the stock options prior to the redemption or short form merger and received consideration in respect of the shares of Class A Callable Puttable Common Stock under the redemption or short form merger at the price or prices in effect at that time.

The New Dreyer’s stock options will otherwise be subject to the same terms and conditions applicable to the original options to purchase the Company’s common stock immediately prior to the completion of the Merger.

Certain regulatory requirements must be satisfied before the Merger is completed. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), and the rules promulgated thereunder by the United States Federal Trade Commission (the FTC), the Merger cannot be completed until notifications have been given and information has been furnished to the FTC and the Antitrust Division of the United States Department of Justice (the Antitrust Division), and the specified waiting periods have expired or have been terminated. The Company and Nestlé filed notification and report forms under the HSR Act with the FTC and the Antitrust Division on July 3, 2002. On August 2, 2002, the FTC made a request for additional information and documentary material. Both the Company and Nestlé declared substantial compliance with the FTC’s request by December 26, 2002. On February 25, 2003, the Company announced that the Company and Nestlé committed to the FTC not to close the Merger without first giving 20 days written notice to the FTC of an intent to close, and that in no event would the parties give such notice to the FTC in a manner that would permit the Merger to close prior to March 31, 2003.

In an effort to address concerns of the FTC arising out of the Merger, on March 3, 2003, the Company and NICC entered into an agreement with Integrated Brands, Inc. (Integrated Brands), a subsidiary of CoolBrands International Inc., for the sale and purchase of certain ice cream assets of Dreyer’s and certain distribution assets of NICC (the Sale Agreement). Under the terms of the Sale Agreement, the Company agreed to sell to Integrated Brands the Dreamery® and Whole Fruit™ Sorbet brands and, subject to the receipt of the required consent by Godiva Chocolatier, Inc. (Godiva), to assign the license for the Godiva® ice cream brand, and NICC agreed to sell to Integrated Brands its distribution assets in the states of Oregon, Washington and Florida and in the metropolitan areas of the San Francisco Bay Area, Southern California (Los Angeles and San Diego), Baltimore/ Washington, D.C., Philadelphia, Delaware Valley Area (PA) and Central/ Southern New Jersey. The Sale Agreement also contemplates that, when the sale closes, the parties will enter into other ancillary agreements related to the manufacture and distribution of ice cream products. The sale to Integrated Brands will be completed only if the Merger is completed.

On March 4, 2003, the FTC authorized its staff to commence legal action and seek a preliminary injunction to block the Merger pending trial. The Company, NICC, Nestlé and the FTC are discussing the terms of the proposed sale to Integrated Brands in order to address concerns expressed by the FTC. Depending on the outcome of these discussions, the Company, NICC and Nestlé may agree with the FTC to certain conditions relating to the Sale Agreement or other matters.

A substantial delay in obtaining satisfactory approvals and consents from the FTC to close the Merger or the insistence upon unfavorable terms or conditions by the FTC, such as significant asset dispositions, could have a material adverse effect on the business, financial condition, results of operations or cash flows of the Company, or may result in the Company, NICC and Nestlé litigating with a governmental agency, or possibly cause the parties to the Merger Agreement to abandon the Merger. As a result, there can be no assurance that the Merger will close.

Several of the Company’s joint venture partners and partner brand manufacturers have rights to terminate their arrangements with the Company upon completion of the Merger, subject to various other terms and conditions. The Company can provide no assurance as to the potential actions of these business partners. Should any of the Company’s significant partners or suppliers choose to terminate these arrangements in accordance with their rights to do so following the completion of the Merger, the Company may incur significant decreases in gross profit and/or be required to write-off certain assets as a result of the loss of these business partners. Unilever United States, Inc. (Unilever) has announced that it may decide to sell Ben & Jerry’s® through the grocer’s warehouse instead of through the Company’s distribution system after completion of the Merger. However, under the terms of the Company’s agreement with Unilever, Unilever must give the Company at least nine months notice after completion of the Merger to terminate its agreement with the Company.

Company’s joint venture partners or partner brand manufacturers terminate their arrangements with the Company because of the completion of the Merger, aspects of the Company’s Strategic Plan will not be applicable. Finally, if the Merger is not completed, the Company may also change many elements of its Strategic Plan.

The Merger will be accounted for as a reverse acquisition under the purchase method of accounting. For this purpose, NICC will be deemed to be the acquirer and the Company will be deemed to be the acquiree. As a result, the Company is charging to expense all costs related to the Merger as incurred. These expenses totaled $10,561,000 in 2002. The Company currently estimates that it will incur total transaction expenses related to the Merger, including costs to be incurred to close the Merger, of approximately $34,000,000.

Dreyer’s Grand Ice Cream, Inc. and its consolidated subsidiaries are, unless the context otherwise requires, sometimes referred to herein as Dreyer’s or “the Company”. The Company, successor to the original Dreyer’s Grand Ice Cream business, was originally incorporated in California on February 23, 1977 and reincorporated in Delaware on December 28, 1985.

Dreyer’s manufactures and distributes ice cream and other frozen dessert products. Since 1977, Dreyer’s has developed from a specialty ice cream sold principally in selected San Francisco Bay Area grocery and ice cream stores to a broad line of ice cream and other frozen dessert products sold under the Dreyer’s and Edy’s® brand names in approximately 92 percent of the retail outlets serving the households in the United States. The Dreyer’s line of products are available in the 13 western states, Texas and certain markets in the Far East and South America. The Company’s products are sold under the Edy’s brand name throughout the remaining regions of the United States and certain markets in the Caribbean and Europe. The Dreyer’s and Edy’s line of ice cream and related products are distributed through a direct-store-delivery system further described below under the caption “Marketing, Aggregated Segments, Sales and Distribution.” These products are relatively expensive and are sold by the Company and its independent distributors to grocery stores, convenience stores, club stores, ice cream parlors, restaurants, hotels and certain other accounts. The Dreyer’s and Edy’s brands enjoy strong consumer recognition and loyalty. The Company also manufactures and/or distributes branded ice cream and frozen dessert products of other companies.

Ice cream was traditionally supplied by dairies as an adjunct to their basic milk business. Accordingly, ice cream was marketed like milk, as a fungible commodity, and manufacturers competed primarily on the basis of price. This price competition motivated ice cream producers to seek economies in their formulations. The resulting trend to lower quality ice cream created an opportunity for the Company and other producers of premium ice creams, whose products can be differentiated on the basis of quality, technological sophistication and brand image, rather than price. Moreover, the market for all packaged ice creams was influenced by the steady increase in market share of “private label” ice cream products owned by the major grocery chains and the purchase or construction by the chains of their own milk and ice cream plants resulting in less demand for the ice cream supplied by independent dairies. As a result, independent premium brands, such as the Company’s, are normally stocked by major grocery chains.

While many foodservice operators, including hotels, schools, hospitals and other institutions, buy ice cream primarily on the basis of price, there are others in the foodservice industry who purchase ice cream based on its quality. Operators of ice cream shops wanting to feature a quality brand, restaurants that include an ice cream brand on their menu and clubs or chefs concerned with the quality of their fare are often willing to pay for Dreyer’s quality, image and brand identity.

The Company and its predecessors have always been innovators of flavors, package development and formulation. William A. Dreyer, the founder of Dreyer’s and the creator of Dreyer’s Grand Ice Cream, is credited with inventing many popular flavors including Rocky Road. Dreyer’s was the first manufacturer to

produce an ice cream lower in calories. The Company’s Grand Light® formulation was a precursor to the reduced fat and reduced sugar products in the Company’s current product line. The Company uses only the highest quality ingredients in its products. The Company’s philosophy is to make changes in its formulations or production processes only to the extent that such changes do not compromise quality for cost even when the industry in general may adopt such new formulation or process compromises. Company brand products include licensed and joint venture products.

The Company’s premium product line includes Dreyer’s and Edy’s Grand® Ice Cream, its flagship product. This ice cream utilizes traditional formulations with all natural flavorings and is characterized by premium quality, taste and texture, and diverse flavor selection. The flagship product is complemented by Dreyer’s and Edy’s Homemade Ice Cream, a heavier and sweeter line of ice creams, and the Company’s “better for you” products including Frozen Yogurt, Grand Light, No Sugar Added and Fat Free ice creams. The Company believes these better for you products are well-positioned in the market where products are characterized by lower levels of fat, sugar and cholesterol than those of regular ice cream. The Company’s premium product line also includes M&M/ Mars ice cream products that are manufactured and distributed under a joint venture with M&M/ Mars, a division of Mars, Incorporated.

The Company’s superpremium product line includes Dreyer’s and Edy’s Dreamery Ice Cream, Whole Fruit Sorbet, Starbucks® Ice Cream and Godiva Ice Cream. The Company manufactures and distributes Starbucks Ice Cream products under a joint venture with Starbucks Corporation (Starbucks), and Godiva Ice Cream under a long-term license with Godiva.

The Company also produces and markets Grand Soft®, a premium soft serve product. The Company’s novelty line features Whole Fruit Bars, Starbucks Frappuccino® Bars, Dreyer’s and Edy’s Ice Cream Bars and Sundae Cones.

The Company’s product lines now include approximately 151 flavors. Some flavors are seasonal and are produced only as a featured flavor during particular months. The Company operates a continuous flavor development and evaluation program and adjusts its product line based on general popularity and intensity of consumer response.

The Company holds registered trademarks on many of its products. Dreyer’s believes that consumers associate the Company’s trademarks, distinctive packaging and trade dress with its high-quality products. The Company does not own any patents that are material to its business. Research and development expenses are currently not significant, nor have they been significant in the past.

In addition to its company brand products, the Company also distributes products for other manufacturers (partner brands). The most significant partner brand relationships for the Company, in terms of 2002 sales, are those with Unilever (Ben & Jerry’s and Good Humor®-Breyers® products), ConAgra Foods, Inc. (Healthy Choice® products), Silhouette Brands, Inc. (distributed novelty products) and NICC (Häagen-Dazs® and Nestlé products). See “Recent Events” for additional information regarding the Company’s arrangements with manufacturers of partner brands.

In 1994, the Company adopted a strategic plan to accelerate sales of its brands throughout the country (the Strategic Plan). The Strategic Plan could potentially change as described in “Recent Events” above. The objective of the Strategic Plan was to build high-margin brands with leading market shares, through investments in effective consumer marketing activities, and through expansion and improvement of the Company’s direct-store-distribution network to national scale. The potential benefits of the Strategic Plan are increased market share and future earnings above levels that would have been attained in the absence of the Strategic Plan.

In accordance with the Strategic Plan, the Company embarked on an aggressive national expansion, involving the entry into new markets throughout the country, the opening of new manufacturing and

warehouse facilities, and the introduction of several new products. As part of this expansion, the Company also acquired various regional distribution companies and the Grand Soft equipment manufacturing business. The Company made substantial investments in physical infrastructure, information systems, brand-building activities, and selling capabilities, which substantially increased the Company’s cost structure.

Although the Strategic Plan places primary emphasis on expanding sales of the Company’s own brands, the Company also increased its business of distributing products for other manufacturers (partner brands) such as Unilever, ConAgra Foods, Inc., Silhouette Brands, Inc. and NICC. In 1999, Ben & Jerry’s, one of the Company’s more significant partner brands, transferred slightly more than half of its distribution business with the Company to another distributor. In March 2001, the Company resumed distribution for Ben & Jerry’s in all of the original markets, as well as additional markets, under a new long-term agreement.

While the Company has negotiated long-term contracts with each of its key partner brands, there can be no guarantee that such relationships will continue, insofar as the manufacturers of such partner brands are also key competitors of the Company. Nonetheless, the Company believes that the quality of its distribution services, and the resulting incremental sales, will continue to provide a strong rationale for the partner brand program for all parties.

The Company continues to pursue the benefits of the Strategic Plan through four long-term initiatives. These initiatives are as follows: (1) growth in sales of the Company’s premium ice cream brands; (2) growth in sales of the Company’s superpremium ice cream brands; (3) accelerated development of the Company’s business in a wider number of retail channels, especially mass-merchandisers, convenience stores and foodservice outlets; and (4) a focus on improved productivity through a reduction in total delivered costs, meaning the per-unit costs of manufacturing, selling and distribution and support activities.

The Company believes that the benefits under the Strategic Plan will be realized in future years, although no assurance can be given that the expectations relative to future market share and earnings benefits of the strategy will be realized. Specific factors that might cause a shortfall in the Strategic Plan benefits include, but are not limited to, the Company’s ability to achieve efficiencies in its manufacturing and distribution operations without negatively affecting sales; the cost of dairy raw materials and other commodities used in the Company’s products; competitors’ marketing and promotion responses; market conditions affecting the prices of the Company’s products; the Company’s ability to increase sales of its own branded products; and responsiveness of both the trade and consumers to the Company’s new products and marketing and promotion programs. See “Recent Events” above for additional information regarding facts that may affect the Strategic Plan.

The Company’s marketing strategy is based upon management’s belief that a significant number of people prefer a quality product and quality image in ice cream just as they do in other product categories. A quality image is communicated in many ways – taste, packaging, flavor selection, price and often through advertising and promotion. If consistency in the product’s quality and image are strictly maintained, a brand can develop a clearly defined and loyal consumer following. It is the Company’s goal to develop such a consumer following in each major market in which it does business.

The packaged ice cream category, which is the Company’s primary market, may be characterized as composed of three main categories: low-priced brands; premium brands; and superpremium brands. These categories are primarily distinguished by a broad range of retail price differences, and also by the quantity and quality of ingredients and by packaging. The category is relatively fragmented among national and regional competitors in comparison with many other food categories. The Company believes that its key competitive advantages lie in its capabilities in marketing and product development and in the breadth of its product line.

The Company sells brands that compete in the premium and superpremium categories, but, in general, does not compete in the low-price category of the market that is largely dominated by grocer-owned private

label brands. The Company’s original brands were in the premium category. As part of the Strategic Plan, the Company has expanded the number of brands it offers in the premium category, and has made a significant entry into the superpremium category, which is characterized by significantly higher gross margins. Prior to 1998, certain provisions in the distribution agreement with Ben & Jerry’s restricted the Company’s capability to launch competitive superpremium products; since that time, the Company has had no such restrictions.

As part of its strategy of expanding sales and offering innovative new brands, the Company has reached several joint venture and license agreements with other companies. These companies have successful and highly recognized brand names in other food categories, and they and the Company have entered into these agreements to create incremental sales through the introduction of ice cream products under these brand names. These agreements include joint ventures with Starbucks and M&M/ Mars, as well as a license agreement with Godiva. All of these agreements are of a long-term nature, and the Company characterizes these ice cream brands, taken together with the brands that it owns outright, as company brands.

Unlike most other ice cream manufacturers, the Company uses a direct-store-delivery distribution network to distribute the Company’s products directly to the retail ice cream cabinet by either the Company’s own personnel or independent distributors who primarily distribute the Company’s products. This store level distribution allows service to be tailored to the needs of each store. The implementation of this system has resulted in an ice cream distribution network capable of providing frequent direct service to grocery stores in every market where the Company’s products are sold. Under the Strategic Plan, the Company’s distribution network has been significantly expanded to where the Company’s products are available to approximately 92 percent of the retail outlets serving the households in the United States. This distribution network is considerably larger than any other direct-store-delivery system for ice cream products currently operating in the United States.

The Company refers to its distribution system as “direct-store-service”, to distinguish the value-added activities provided to consumers and retail customers from the more traditional “distribution” activities. Part of this service is the expansion of “scan-based trading” with major retailers. Under this program, the Company reaches agreements with major supermarket chains under which the Company maintains and owns the inventory of its products in each store, and is paid by the supermarket based on the actual volume sales to consumers each week. This program involves the electronic transfer of sales data from the supermarket to the Company. Because faster payments roughly offset higher inventory levels, this program has not significantly impacted the Company’s working capital, but has the potential to result in significantly lower per-unit distribution costs.

In connection with the expansion of the Company’s distribution network, the Company has acquired various distributors. On February 9, 2000, the Company purchased the remaining 84 percent of the outstanding common stock of Cherokee Cream Company, Inc., the parent of Sunbelt Distributors, Inc., which was the Company’s independent distributor in Texas. On September 29, 2000, the Company acquired certain assets of Specialty Frozen Products, L.P., which was the leading independent direct-store-delivery ice cream distributor in the Pacific Northwest.

The distribution network in the Western United States now includes 10 distribution centers in large metropolitan areas such as Los Angeles, the San Francisco Bay Area, Phoenix, Portland, Salt Lake City, Houston, Seattle and Denver. The Company also has independent distributors handling the Company’s products in various areas of the 13 western states, the Far East and South America. Distribution in the remainder of the United States is under the Edy’s brand name with most of the distribution handled through 18 distribution centers, including centers in the New York/ New Jersey metropolitan area, Chicago, the Washington/ Baltimore metropolitan area, Atlanta, Tampa, Miami and St. Louis. The Company also has independent distributors handling the Company’s products in certain market areas east of the Rocky Mountains, in the Caribbean and in Europe.

Taken together, independent distributors accounted for approximately 17 percent of the Company’s net sales in fiscal 2002. The Company’s agreements with its independent distributors are generally terminable upon 30 days notice by either party.

Each distributor, whether company-owned or independent, is primarily responsible for sales of all products within its respective market area. However, the Company provides sales and marketing support to its independent distributors, including training seminars, sales aids of many kinds, point of purchase materials, assistance with promotions and other sales support.

The Company accounts for its operations geographically for management reporting purposes. These geographic segments have been aggregated for financial reporting purposes due to similarities in the economic characteristics of the geographic segments and the nature of the products, production processes, customer types and distribution methods throughout the United States.

Aggregated net sales from external customers totaled $1,345,957,000, $1,211,245,000 and $1,040,788,000 for 2002, 2001 and 2000, respectively. Aggregated net sales consist of net sales of company branded products, including licensed and joint venture products (company brands), and net sales of partner brands for management reporting purposes. Net sales of company brands were $752,352,000, $707,873,000 and $691,871,000 in 2002, 2001 and 2000, respectively. Net sales of partner brands were $593,605,000, $503,372,000 and $348,917,000 in 2002, 2001 and 2000, respectively.

Net income available to common stockholders for the aggregated segments totaled $29,060,000, $8,269,000 and $24,220,000 in 2002, 2001 and 2000, respectively. Total assets for the aggregated geographic segments were $512,572,000 and $498,689,000 at December 28, 2002 and December 29, 2001, respectively.

Three customers, Albertson’s, Inc., Kroger Co. and Safeway, Inc., each accounted for 10 percent or more of 2002 net sales. The Company’s export sales were about one percent of 2002 net sales. The Company typically experiences a seasonal fluctuation in net sales, with more demand for its products during the spring and summer than during the fall and winter.

The Company manufactures its products at its plants in Union City, California; City of Commerce, California; Fort Wayne, Indiana; Houston, Texas; and Salt Lake City, Utah. The Company also has manufacturing agreements with five different companies to produce the majority of its novelty products. During 2002, approximately 22,000,000 dozens (97 percent of total novelty production) of Whole Fruit Bars, Starbucks Frappuccino Bars, Dreyer’s and Edy’s Ice Cream Bars and Godiva bars were produced under these agreements. In addition, the Company has agreements to produce products for other manufacturers. In 2002, the Company manufactured approximately 12,000,000 gallons of product under these partner brand agreements. Total company production, including both company brands and partner brands, was 124,000,000 gallons during 2002.

The largest component of the Company’s cost of production is raw materials, principally dairy products and sugar. During 2000, dairy raw material costs declined which favorably impacted gross profit by approximately $9,300,000 as compared to 1999. During 2001, dairy raw material costs increased which unfavorably impacted gross profit by approximately $30,000,000 as compared to 2000. During 2002, dairy raw material costs decreased which favorably impacted gross profit by approximately $36,500,000 as compared to 2001. Through the year-to-date period ended February 2003, dairy raw material costs have been favorable as compared to the year-to-date period ended February 2002.

The primary factor causing volatility in the Company’s dairy costs is the price of cream. Under current Federal and State regulations and industry practice, the price of cream is linked to the price of butter as traded on the Chicago Mercantile Exchange. Over the last 10 years, the price of butter in the United States has averaged

$1.15 per pound. However, the market is inherently volatile and can experience large seasonal fluctuations. The Chicago Mercantile Exchange butter market is characterized by very low trading volumes and a limited number of participants. The available futures markets for butter are still in the early stages of development, and do not have sufficient liquidity to enable the Company to fully reduce its exposure to the volatility of the market. The Company has proactively addressed this price volatility by purchasing either butter or butter futures contracts with the intent of reselling or settling its positions at the Chicago Mercantile Exchange.

While the ice cream industry has generally sought to compensate for the cost of increased dairy prices through price increases, the industry is highly competitive and there can be no guarantee that the Company will be able to increase prices to compensate for increased dairy prices in the future. In addition, price increases may have negative effects on sales volume. In the past, spikes in butter costs have been followed by rapid decreases, as milk supply increases. Given this trend, the Company regards long-term average butter prices as the best indicator of strategic dairy costs.

In order to ensure consistency of flavor, each of the Company’s manufacturing plants purchase, to the extent practicable, all of its required dairy ingredients from a limited number of suppliers. These dairy products and most other ingredients or their equivalents are available from multiple sources. The Company maintains a rigorous process for evaluating qualified alternative suppliers of its key ingredients.

The events of September 11, 2001 reinforced the need to enhance the security of the United States. Congress responded by passing the Public Health Security and Bioterrorism Preparedness and Protection Act of 2002 (the Act), which President Bush signed into law on June 12, 2002. The Act includes a large number of provisions to help ensure the safety of the United States from bioterrorism, including new authority for the Secretary of Health and Human Services (HHS) to take action to protect the nation’s food supply against the threat of intentional contamination. The Food and Drug Administration, as the food regulatory arm of HHS, is responsible for developing and implementing these food safety measures, including four major regulations. The Company has internally reviewed its policies and procedures regarding food safety and has increased security procedures as appropriate. The Company continues to monitor risks in this area and is evaluating the impact of these proposed regulations on an ongoing basis.

The Company anticipates that it is likely to incur higher costs for energy at its facilities. The unfavorable cost impact resulting from these price changes cannot yet be quantified. The Company may also experience an interruption of electricity in California during rolling blackouts or at other times. To date, these blackouts have been for short time periods and have had a minimal impact on the Company. In addition, the Company believes that it may continue to incur higher costs for gasoline and there could be risks of shortages. At January and February 2003 price levels, the Company would incur an increase of approximately $1,600,000 in its gasoline costs in 2003 as compared to 2002. A $.10 change in the price per gallon of gasoline would result in a change in annualized gasoline expense of approximately $600,000.

The Company’s manufactured products compete on the basis of brand image, quality, breadth of flavor selection and price. The ice cream industry is highly competitive and most ice cream manufacturers, including full line dairies, the major grocery chains and other independent ice cream processors, are capable of manufacturing and marketing high quality ice creams. Furthermore, there are relatively few barriers to new entrants in the ice cream business. However, reduced fat and reduced sugar ice cream products generally require technologically-sophisticated formulations and production in comparison to standard or “regular” ice cream products.

Much of the Company’s competition comes from the “private label” brands produced by or for the major supermarket chains. These brands generally sell at prices below those charged by the Company for its products. Because these brands are owned by the retailer, they often receive preferential treatment when the retailers allocate available freezer space. The Company’s competition also includes premium and superpremium ice creams produced by other ice cream manufacturers, some of whom are owned by parent companies much larger than the Company.

The Company distributes products as “partner brands” for several key competitors such as ConAgra Foods, Inc. (Healthy Choice products), NICC (Häagen-Dazs and Nestlé products), and Unilever (Ben & Jerry’s and Good Humor-Breyers products). In most of these cases, the Company only provides distribution services while maintaining a competitive selling effort for its own brands with key retail accounts. The distribution of these partner brand products provides profits for the Company, and the Company believes that the parent companies of the partner brands realize substantial benefits from this program.

On December 28, 2002, the Company had approximately 4,600 employees. Approximately 450 of the Company’s employees are covered by collective bargaining agreements. The Company’s Union City manufacturing, sales and distribution employees are represented by the Teamsters Local 853 and by the International Union of Operating Engineers, Stationary Local No. 39. The contract with Teamsters Local 853 for the Company’s manufacturing employees expires in December 2004 and the contract for sales and distribution employees expires in September 2003. The contract with the International Union of Operating Engineers, Stationary Local No. 39 expires in August 2005. Certain of the Company’s employees in the Monterey area are represented by the General Teamsters, Warehousemen and Helpers Union Local 890. The contract with this union expires in June 2003. The Sacramento distribution employees are represented by the Chauffeurs, Teamsters and Helpers Union, Local 150, whose contract with the Company expires in August 2004. The St. Louis distribution employees are represented by the United Food & Commercial Workers Union, Local 655, whose contract with the Company expires in January 2004. The Company has never experienced a strike by any of its employees.

The Company owns its headquarters located at 5929 College Avenue in Oakland, California. The headquarters buildings include 83,000 square feet of office space utilized by the Company and 10,000 square feet of retail space leased to third parties.

The Company owns a manufacturing and distribution facility in Union City, California. This facility has approximately 40,000 square feet of manufacturing, dry storage and office space and 60,000 square feet of cold storage warehouse space. The plant has an estimated maximum capacity of 43,000,000 gallons per year. During 2002, the facility produced approximately 20,000,000 gallons of ice cream and related products.

The Company leases an ice cream manufacturing plant with an adjoining cold storage warehouse located in the City of Commerce, California. This facility has approximately 72,000 square feet of manufacturing, dry storage and office space and 18,000 square feet of cold storage space. The lease on this property, including renewal options, expires in 2011. The plant has an estimated maximum capacity of 37,000,000 gallons per year. During 2002, the facility produced approximately 20,000,000 gallons of ice cream and related products.

The Company owns a cold storage warehouse facility located in the City of Industry, California. This facility has approximately 92,000 square feet of cold and dry storage warehouse space and office space. This facility supplements the cold storage warehouse and office space leased in the City of Commerce.

The Company owns a manufacturing plant with an adjoining cold storage warehouse in Fort Wayne, Indiana. This facility has approximately 58,000 square feet of manufacturing and office space and 102,000 square feet of dry and cold storage space. The plant has an estimated maximum capacity of 69,000,000 gallons per year. During 2002, the facility produced approximately 56,000,000 gallons of ice cream and related products. The Company’s original purchase and development of the Fort Wayne facility was financed by industrial development bonds, which were fully paid in 2001.

The Company owns a manufacturing and distribution facility in Houston, Texas. This facility has approximately 50,000 square feet of manufacturing, dry storage and office space and 80,000 square feet of cold storage warehouse space. The plant has an estimated maximum capacity of 36,000,000 gallons per year. During 2002, this facility produced approximately 22,000,000 gallons of ice cream and related products.

The Company owns a manufacturing and distribution facility in Salt Lake City, Utah. This facility has approximately 26,000 square feet of manufacturing, dry storage and office space and 15,000 square feet of cold storage space. Approximately 2,600 square feet of dry storage space included in the facility’s 26,000 square feet is leased. Another 18,000 square feet of dry storage space and 4,000 square feet of cold storage space is leased. The plant has an estimated maximum capacity of 11,000,000 gallons per year. During 2002, the facility produced approximately 6,000,000 gallons of ice cream and related products.

The Company intentionally acquires, designs and constructs its manufacturing and distribution facilities with a capacity greater than current needs require. This is done to facilitate growth and expansion and minimize future capital outlays. The cost of carrying this excess capacity is not significant. The estimated capacities mentioned above represent the maximum potential production for each plant. Actual plant capacity can be heavily influenced by seasonal demand fluctuations, internal or external inventory storage availability and costs, and the type of product or package produced.

The Company leases or rents other various local distribution and office facilities with leases expiring through the year 2011, including options to renew, except for one that has 85 years remaining under the lease.

See the description of the Merger and the FTC’s decision to authorize its staff to seek a preliminary injunction under “Recent Events” in Item 1. To date, the Company is not aware of a complaint having been filed by the FTC seeking to enjoin the Merger.

All officers hold office at the pleasure of the Board of Directors. There is no family relationship among the above officers.

Mr. Rogershas served as the Company’s Chairman of the Board and Chief Executive Officer since its incorporation in February 1977.

Mr. Cronkhas served as a director of the Company since its incorporation in February 1977 and has been the Company’s President since April 1981. In June 2002, Mr. Cronk announced that he will retire at the close of the Merger, but will continue to serve as a director of New Dreyer’s. If the Merger is not completed, Mr. Cronk will not retire.

Mr. Manwellhas served as Secretary of the Company since its incorporation in February 1977 and as a director of the Company since April 1981. Since March 1982, Mr. Manwell has been a partner in the law firm of Manwell & Schwartz.

Mr. Delaplanehas served as Vice President — Sales of the Company since May 1987.

Mr. Johnstonhas served as Vice President — Marketing of the Company since March 1996. From September 1995 to March 1996, he served as Vice President — New Business of the Company. From May 1988 to August 1995, he served as the Company’s Director of Marketing.

Mr. Kahnhas served as Vice President — Finance and Administration and Chief Financial Officer of the Company since March 1998. From 1994 through October 1997, Mr. Kahn served in the positions of Senior Vice President, Chief Financial Officer and Vice President for several divisions of PepsiCo, Inc., including Pizza Hut, Inc., and from November 1997 to February 1998 was employed by Tricon, Inc., following PepsiCo’s spin-off of Pizza Hut to Tricon, Inc.

Mr. Oldenburghas served as Vice President — Operations of the Company since September 1986.

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

The Company’s Common Stock has been traded on the Nasdaq National Market under the symbol “DRYR” since 1981. The following table sets forth the range of quarterly high and low closing sale prices of the Common Stock as reported on the Nasdaq National Market:

On March 20, 2003, the number of holders of record of the Company’s common stock was approximately 5,552.

The Company paid a regular quarterly dividend of $.06 per share of common stock for each quarter of 2002 and 2001, and $.03 per share of common stock for each quarter of 2000. The Company’s revolving line of credit agreement prohibits the declaration and payment of dividends in excess of $10,000,000 and $15,000,000 in 2001 and 2002, respectively, and in excess of $20,000,000 in each of the years 2003, 2004 and 2005.

^{PART II(1)Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.}

The Company’s ~~Common Stock has been traded~~fiscal year is a 52-week or a 53-week period ending on the ~~Nasdaq National Market under the symbol “DRYR” since 1981. On March 23,~~last Saturday in December. Fiscal years 2002, 2001, the number of holders of record of the Company’s common stock was approximately 5,828. The following table sets forth the range of quarterly high and low closing sale prices of the Common Stock as reported on the Nasdaq National Market:

High
Low
Fiscal 2000:
First Quarter $25.125 $14.438
Second Quarter 26.125 21.000
Third Quarter 25.047 20.500
Fourth Quarter 33.563 20.469

Fiscal 1999:
First Quarter $15.875 $11.750
Second Quarter 17.125 11.500
Third Quarter 19.688 15.125
Fourth Quarter 18.281 15.125

~~The Company paid a regular quarterly dividend of $.03 per share of common stock for each quarter of 2000,~~ 1999, and ~~1998. On February 14, 2001, the Board~~1998 consisted of ~~Directors, subject to compliance with applicable law, contractual provisions, and future review~~52 weeks, while fiscal year 2000 consisted of the condition of the Company, declared its intention to increase the regular quarterly dividend from $.03 per common share to $.06 per common share starting with the first quarter of 2001. The Company’s revolving line of credit agreement prohibits the declaration and payment of dividends in excess of $10,000,000 and $15,000,000 in 2001 and 2002, respectively, and in excess of $20,000,000 in each of the years 2003, 2004 and 2005.

On November 18, 1997, the Company issued shares of common stock to holders of record on October 30, 1997 to effect a two-for-one common stock split. Unless otherwise indicated, all share information appearing in this report has been restated to reflect this stock split on a retroactive basis.

53 weeks.

Item 6. Selected Financial Data.

	Year Ended December
(In thousands, except per share amounts)	2000(7)	1999	1998	1997	1996


Operations:
Sales and other income(1)		$1,198,114		$1,101,907		$1,025,988		$973,091	$796,195
Income (loss) before cumulative effect of change in
accounting principle		25,378		11,587		(46,510	)	8,774	6,997
Net income (loss)		25,378		10,992		(46,510	)	8,028	6,997
Net income (loss) available to common stockholders		24,220		9,872		(47,630	)	3,968	2,000


Per Common Share(2):
Basic:
Income (loss) before cumulative effect of change in
accounting principle		.86		.38		(1.75	)	.18	.08
Net income (loss)		.86		.36		(1.75	)	.15	.08

Diluted:
Income (loss) before cumulative effect of change in
accounting principle		.72		.35		(1.75	)	.17	.07
Net income (loss)		.72		.33		(1.75	)	.14	.07
Dividends declared(3)		.12		.12		.12		.12	.12


Balance Sheet:
Total assets(4)		468,451		441,065		461,721		502,146	477,763
Working capital(4)		59,114		29,513		61,059		78,576	70,136
Long-term debt(5)		121,214		104,257		169,781		165,913	163,135
Redeemable convertible preferred stock(6)		100,540		100,078		99,654		99,230	98,806
Stockholders’ equity		100,372		73,694		61,174		108,688	102,919

Year Ended December
(In thousands, except per share amounts) 2000(7) 1999 1998 1997 1996

Operations:
  Sales and other income(1) $1,198,114 $1,101,907 $1,025,988 $973,091 $796,195
  Income (loss) before cumulative effect of change in
         accounting principle 25,378 11,587 (46,510 ) 8,774 6,997
  Net income (loss) 25,378 10,992 (46,510 ) 8,028 6,997
  Net income (loss) available to common stockholders 24,220 9,872 (47,630 ) 3,968 2,000

Per Common Share(2):
Basic:
     Income (loss) before cumulative effect of change in
        accounting principle .86 .38 (1.75 ) .18 .08
     Net income (loss) .86 .36 (1.75 ) .15 .08

Diluted:
     Income (loss) before cumulative effect of change in
        accounting principle .72 .35 (1.75 ) .17 .07
     Net income (loss) .72 .33 (1.75 ) .14 .07
Dividends declared(3) .12 .12 .12 .12 .12

Balance Sheet:
  Total assets(4) 468,451 441,065 461,721 502,146 477,763
  Working capital(4) 59,114 29,513 61,059 78,576 70,136
  Long-term debt(5) 121,214 104,257 169,781 165,913 163,135
  Redeemable convertible preferred stock(6) 100,540 100,078 99,654 99,230 98,806
  Stockholders’ equity 100,372 73,694 61,174 108,688 102,919

~~(1)~~

⁽²⁾

As a result of EITF ~~00-14,~~01-9, “Accounting for ~~Sales Incentives”~~Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”, ~~discounts and other sales incentives (including~~ certain ~~trade promotion~~ expenses ~~and coupon redemption costs), which the Company presently classifies~~previously classified as a selling, general and administrative ~~expense, will be shown~~expenses are now recorded as a reduction of net sales beginning in the ~~second~~first quarter of ~~2001. This~~2002. In accordance with this pronouncement, these amounts reflect this retroactive reclassification ~~will have~~which had no effect on net income (loss) as previously reported.

~~(2)~~
⁽³⁾	Fiscal 2002 results include $10,561,000 of Merger transaction expenses. In addition, fiscal 2002 results do not include goodwill amortization because, on January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” which requires that goodwill and other indefinite-lived intangible assets no longer be amortized. Other income, net for fiscal 2002 includes $3,069,000 of losses from butter trading activities and a $1,093,000 loss resulting from the impairment of an investment in Momentx Corporation.

⁽⁴⁾	~~Retroactively restated to reflect the effects of the common stock split in 1997.~~Fiscal 1998 results include certain restructuring and impairment charges.

~~(3)~~
⁽⁵⁾	On February 14, 2001, the Board of Directors declared its intention to increase the regular quarterly dividend from $.03 ~~per common share for each quarter of 2000~~ to $.06 per common share for each quarter of 2001.

~~(4)~~
⁽⁶⁾	Certain reclassifications have been made to prior years’ financial data to conform to the current year presentation.

~~(5)~~
⁽⁷⁾	Excludes current portion of long-term debt.

~~(6)~~

~~Redeemable on June 30, 2001.~~

~~(7)~~

⁽⁸⁾

The Company’s ~~fiscal year is a 52-week or a 53-week period ending on~~redeemable convertible preferred stock was converted to common stock in the ~~last Saturday in December. Fiscal year 2000 consisted~~second quarter of ~~53 weeks, while fiscal years 1999, 1998, 1997 and 1996 each consisted of 52 weeks.~~2001.

See “Recent Events” in Item 1 for information as to the uncertainty regarding the completion and effect of the Merger.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	•	~~Item 7.~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~ ~~Forward-Looking Statements~~ The Company may from time to time make written or oral forward-looking statements. Written forward-looking statements may appear in documents filed with the Securities and Exchange Commission, in press releases, and in reports to stockholders. The Private Securities Litigation Reform Act of 1995 contains a “safe harbor” for forward-looking statements upon which the Company relies in making such disclosures. In accordance with this “safe harbor” provision, we have identified that forward-looking statements are contained in this Annual Report on Form 10-K. Also, in connection with this “safe harbor” provision, the Company identifies importantrisk factors ~~that could cause the Company’s actual results to differ materially. Those factors include but are not limited to those discussed in~~described under the “Risks and Uncertainties” section ~~below. Any such statement is qualified by reference to~~ below;

	•	the cautionary statements set forth below and in the Company’s other filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Such forward-looking statements involve known and unknown risks and uncertainties, which may cause the Company’s actual actions or results to differ materially from those contained in any forward-looking statement made by or on behalflevel of ~~the Company.~~ consumer spending for frozen dessert products;

	•	~~Risks and Uncertainties~~ The Company believes that the benefits under the Strategic Plan will be realized in future years, although no assurance can be given that the expectations relative to future market share and earnings benefits of the strategy will be achieved. Specific factors that might cause such a difference include, but are not limited to, the Company’s ability to achieve ~~the cost reductions anticipated from its restructuring program and to achieve~~ efficiencies in ~~its~~ manufacturing and distribution operations without negatively affecting ~~sales,~~ sales;

	•	the cost of energy and gasoline used in manufacturing and distribution;

	•	the cost of dairy raw materials and other commodities used in the Company’s ~~products,~~products;

	•	the Company’s ability to develop, market and sell new frozen dessert products;

	•	the success of the Company’s marketing and promotion programs and competitors’ marketing and promotion ~~responses,~~ responses;

	•	market conditions affecting the ~~price~~prices of the Company’s ~~products, the Company’s ability to increase sales~~products;

	•	responsiveness of ~~its own branded products, responsiveness of~~both the trade and consumers to the Company’s new products and ~~increased~~ marketing and ~~trade~~ promotion ~~expenses.~~ programs;

	•	~~Financial Summary~~ ~~The Company recorded net income available~~existing and future governmental regulations resulting from the events of September 11, 2001, and any military actions which could affect commodity and service costs to ~~common stockholders of $24,220,000, or $.72 per diluted common share, for~~ the ~~53 weeks ended December 30, 2000. These results represent a substantial improvement over~~Company; and

	•	uncertainty regarding the net income available to common stockholders of $9,872,000, or $.33 per diluted common share, for the 52 weeks ended December 25, 1999. Consolidated sales increased nine percent over 1999 to $1,194,356,000. The improved results for 2000 reflect thecompletion and effect of ~~increased sales~~the proposed transactions with Nestlé as described under “Recent Events” below.

You are cautioned not to place undue reliance on these statements, which speak only as of the date of this Annual Report on Form 10-K or, in the case of documents incorporated by reference in this Annual Report on Form 10-K, the dates of those documents. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events.


	•	prior to the date that New Dreyer’s Class A Callable Puttable Common Stock is redeemed under the call right or prior to the completion of ~~higher-margin products, comparatively lower dairy raw material costs, higher average wholesale prices, and higher unit sales~~a short form merger of New Dreyer’s with Nestlé or an affiliate of Nestlé S.A., that number of shares of New Dreyer’s Class A Callable Puttable Common Stock equal to the number of shares of the Company’s ~~established brands.~~ ~~RESULTS OF OPERATIONS~~ ~~53 Weeks Ended 2000 Compared with 52 Weeks Ended 1999~~ ~~Consolidated sales for 2000 increased $94,539,000, or nine percent,~~common stock subject to ~~$1,194,356,000 from $1,099,817,000 for 1999.~~ ~~Sales~~the option immediately prior to the completion of the ~~Company’s branded products, including our licensed and joint venture products (company brands), increased $110,836,000,~~Merger, at the price or ~~15 percent,~~prices per share in effect immediately prior to ~~$840,356,000 from $729,520,000 for 1999. Company brands represented 70 percent of consolidated sales in 2000 compared with 66 percent in 1999. The increase in sales~~the completion of the ~~Company’s branded products resulted from increased sales~~Merger.

	•	at or after the date New Dreyer’s Class A Callable Puttable Common Stock is redeemed under the call right or after the completion of ~~higher-margin products, higher average wholesale prices and higher unit sales~~a short form merger of New Dreyer’s with Nestlé or an affiliate of Nestlé S.A., the same consideration that the holder of the ~~Company’s established brands. The products that led this increase were~~options would have received had the ~~co-branded M&M/Mars line, superpremium Dreamery™ Ice Cream, premium Dreyer’s Grand Ice Cream and Edy’s Grand Ice Cream and Whole Fruit Bars. Average wholesale prices for~~holder exercised the Company’s branded products increased approximately six percent, before the effect of increased trade promotion expenses which are classified as selling general and administrative expenses (see “New Accounting Pronouncement”). This increase was duestock options prior to the ~~combined effect of higher wholesale prices~~redemption or short form merger and ~~a shift~~received consideration in ~~mix to higher-priced products. Gallon sales~~respect of the shares of Class A Callable Puttable Common Stock under the redemption or short form merger at the price or prices in effect at that time.

Certain regulatory requirements must be satisfied before the Merger is completed. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), and the rules promulgated

thereunder by the United States Federal Trade Commission (the FTC), the Merger cannot be completed until notifications have been given and information has been furnished to the FTC and the Antitrust Division of the United States Department of Justice (the Antitrust Division), and the specified waiting periods have expired or have been terminated. The Company and Nestlé filed notification and report forms under the HSR Act with the FTC and the Antitrust Division on July 3, 2002. On August 2, 2002, the FTC made a request for additional information and documentary material. Both the Company and Nestlé declared substantial compliance with the FTC’s request by December 26, 2002. On February 25, 2003, the Company announced that the Company and Nestlé committed to the FTC not to close the Merger without first giving 20 days written notice to the FTC of an intent to close, and that in no event would the parties give such notice to the FTC in a manner that would permit the Merger to close prior to March 31, 2003.

If the Merger is completed, the Company and NICC will become wholly-owned subsidiaries of New Dreyer’s and New Dreyer’s will be a publicly-held registrant. As such, the Company’s Strategic Plan discussed below will not necessarily be the strategic plan of New Dreyer’s. In addition, if any of the Company’s joint venture partners or partner brand manufacturers terminate their arrangements with the Company because of the completion of the Merger, aspects of the Company’s Strategic Plan will not be applicable. Finally, if the Merger is not completed, the Company may also change many elements of its Strategic Plan.

In accordance with the Strategic Plan, the Company embarked on an aggressive national expansion, involving the entry into new markets throughout the country, the opening of new manufacturing and warehouse facilities, and the introduction of several new products. As part of this expansion, the Company also acquired various regional distribution companies and the Grand Soft equipment manufacturing business. The Company made substantial investments in physical infrastructure, information systems, brand-building activities, and selling capabilities, which substantially increased the Company’s cost structure.

The Company distributes products as “partner brands” for several key competitors such as ConAgra Foods, Inc. (Healthy Choice™ products), NICC (Häagen-Dazs® and Nestlé products), and Unilever (Ben & Jerry’s and Good Humor®-Breyers® products). In most of these cases, the Company only provides distribution services while maintaining a competitive selling effort for its own brands with key retail accounts. The distribution of these partner brand products provides profits for the Company, and the Company believes that the parent companies of the partner brands realize substantial sales benefits from this program. The Company has negotiated long-term contracts with each of its key partner brands. However, because the manufacturers of these partner brands are also key competitors of the Company, there can be no guarantee that such relationships will continue. Nonetheless, the Company believes that the quality of its distribution services, and the resulting incremental sales, will continue to provide a strong rationale for the partner brand program for all parties.

Several of the Company’s joint venture partners and partner brand manufacturers have rights to terminate their arrangements with the Company upon completion of the Merger, subject to various other terms and conditions. The Company can provide no assurance as to the potential actions of these business partners. Should any of the Company’s significant partners or suppliers choose to terminate these arrangements in accordance with their rights to do so following the completion of the Merger, the Company may incur significant decreases in gross profit and/or be required to write-off certain assets as a result of the loss of these business partners. Unilever United States, Inc. (Unilever) has announced that it may decide to sell Ben & Jerry’s® through the grocer’s warehouse after completion of the Merger instead of through the Company’s distribution system. However, under the terms of the Company’s agreement with Unilever, Unilever must give the Company at least nine months notice after completion of the Merger to terminate its agreement with the Company.

If the Merger is completed, the Company and NICC will become wholly-owned subsidiaries of New Dreyer’s and New Dreyer’s will be a publicly-held registrant. As such, the Company’s Strategic Plan discussed above will not necessarily be the strategic plan of New Dreyer’s. In addition, if any of the Company’s joint-venture partners or partner brand manufacturers terminate their arrangements with the Company because of the completion of the Merger, aspects of the Company’s Strategic Plan will not be applicable. Finally, if the Merger is not completed, the Company may also change many elements of the Strategic Plan.

The primary factor causing volatility in the Company’s dairy costs is the price of cream. Under current federal and state regulations and industry practice, the price of cream, a primary ingredient in ice cream, is linked to the price of butter. Over the last 10 years, the price of butter in the United States has averaged $1.15 per pound. However, the market is inherently volatile and can experience large seasonal fluctuations. The Chicago Mercantile Exchange butter market is characterized by very low trading volumes and a limited number of participants. The available futures markets for butter are still in the early stages of development, and do not have sufficient liquidity to enable the Company to fully reduce its exposure to the volatility of the market. However, the Company has proactively addressed this price volatility by purchasing either butter or butter futures contracts with the intent of reselling or settling its positions at the Chicago Mercantile Exchange. In spite of these efforts to mitigate this risk, commodity price volatility still has the potential to materially affect the Company’s performance, including, but not limited to, its profitability, cash flow and competitive position.

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. The Company believes that the following critical accounting policies, which the Company’s senior management has discussed with the audit committee of the board of directors, represent the most significant judgments and estimates used in the preparation of the consolidated financial statements:


	•	Employee Bonuses and Profit-Sharing Plan Contributions — The Company’s ~~branded products increased 9,000,000 gallons, or nine percent, to approximately 109,000,000 gallons. The average national dollar market share of the Company’s Dreyer’s~~liabilities for employee bonuses and Edy’s branded premium packaged products was 14.9 percent in 2000 compared to 14.5 percent in 1999. The same statistic for superpremium packaged products was 24.9 percent in 2000 compared to 19.3 percent in 1999. Sales of products distributed for other manufacturers (partner brands) decreased $16,297,000 or four percent, to $354,000,000 from $370,297,000 for 1999. Sales of partner brands represented 30 percent of consolidated sales in 2000 compared with 34 percent in 1999. The primary cause of the decrease in partner brand sales for 2000 was that the Company began distributing Ben & Jerry’s products in a smaller geographic area during September 1999. (see “New Ben & Jerry’s Distribution Agreement”). Average wholesale prices for partner brands increased approximately two percent, while unit sales decreased six percent. ~~Cost of goods sold increased $51,505,000, or six percent, over 1999, while the gross margin increased to 26 percent from 24 percent. This gross margin improvement was~~profit sharing plan contributions are based primarily the result of increased sales of higher-margin products, comparatively lower dairy raw material costs, higher average wholesale prices, and higher unit sales of the Company’s established brands. The effect of these positive factors more than offset the loss of distribution gross profit from Ben & Jerry’s sales. (see “New Ben & Jerry’s Distribution Agreement”). The impact of the decrease in dairy raw material costs favorably impacted gross profit in 2000 by approximately $9,300,000on estimated full year profitability as compared to ~~1999.~~ 10

Other income increased $1,668,000, or 80 percent, to $3,758,000 from $2,090,000 for 1999 due to an increase in brokerage income partially offset by a decrease in earnings from joint ventures accounted for under the equity method.

Selling, general and administrative expenses increased $20,593,000, or nine percent, to $255,739,000 from $235,146,000 for 1999 but remained unchanged as a percentage of total sales at 21 percent. This increase primarily reflects marketing spending, including trade promotion expenses (see “New Accounting Pronouncement”) related to the ongoing support of the Dreamery™ line and the Dreyer’s and Edy’s premium portfolio and, to a lesser extent, increases in adminstrative expenses. Costs associated with the Company’s ~~earlier bid to acquire Ben & Jerry’s and the subsequent negotiations of the national distribution agreement also contributed to the increase.~~

~~Interest expense increased $902,000, or eight percent, over 1999, primarily due to higher average borrowings required for funding acquisitions.~~

annual plan. The income tax provision increased due to a correspondingly higher pre-tax income in 2000. The effective tax rate decreased slightly to 37.5 percent from 38.1 percent for 1999. The Company’s income tax provisions for 2000 and 1999 differ from tax provisions calculated at the federal statutory tax rate primarily due to tax credits and state income taxes.

~~52 Weeks Ended 1999 Compared with 52 Weeks Ended 1998~~

~~Consolidated sales for 1999 increased $77,482,000, or eight percent, to $1,099,817,000 from $1,022,335,000 for 1998.~~

~~Sales of the Company’s branded products, including our licensed and joint venture products (company brands), increased $81,775,000, or 13 percent, to $729,520,000, from $647,745,000 for 1998.~~ Company brands represented 66 percent of consolidated sales in 1999 compared with 63 percent in 1998. The increase in sales of the Company’s branded products resulted from the introduction of new, higher-margin products, increased average wholesale prices and higher unit sales of the Company’s established brands. The products that led this increase in sales were Dreyer’s and Edy’s Grand Ice Cream, the recently introduced Dreamery™ Ice Cream and Godiva® Ice Cream. Despite the fact that sales of the Company’s “better for you” products continued their decline, although at a slower rate, the Company’s market share increased. The increase was due to the fact that the Company’s “better for you” product sales declined at a slower rate than the industry as a whole. Average wholesale prices for the Company’s branded products increased approximately seven percent, before the effect of increased trade promotion expenses. This increase was due to the combined effect of higher wholesale prices and a shift in mix to higher-priced products. Gallon sales of the Company’s branded products increased 7,000,000 gallons, or eight percent, to approximately 100,000,000 gallons. The average national dollar market share of the Company’s Dreyer’s and Edy’s branded premium packaged products was 14.5 percent in 1999 compared to 14.8 percent in 1998. The same statistic for superpremium packaged products was 19.3 percent in 1999 compared to 10.8 percent in 1998.

Sales of products distributed for other manufacturers (partner brands) decreased $4,293,000, or one percent, to $370,297,000 from $374,590,000 for 1998. Sales of partner brands represented 34 percent of consolidated sales in 1999 compared with 37 percent in 1998. The primary cause of the decrease in partner brand sales for 1999 was that the Company began distributing Ben & Jerry’s products in a smaller geographic area during September 1999. Average wholesale prices for partner brands increased approximately three percent, while unit sales decreased five percent.

Cost of goods sold increased $10,045,000, or one percent, over 1998, while the gross margin increased to 24 percent from 19 percent. This gross margin improvement was primarily the result of increased sales of new, higher-margin products, comparatively lower dairy raw material costs, higher average wholesale prices, and higher unit sales of the Company’s established brands. These improvements were partially offset by reduced sales of Ben & Jerry’s products. The impact of the decrease in dairy raw material costs favorably impacted gross profit in 1999 by approximately $15,000,000 as compared to 1998.

~~Other income decreased $1,563,000, or 43 percent, to $2,090,000 from $3,653,000 for 1998 due to a decline in earnings from a joint venture accounted for under the equity method.~~

Selling, general and administrative expenses increased $22,995,000, or 11 percent, to $235,146,000 from $212,151,000 for 1998. Selling, general and administrative expenses represented 21 percent of consolidated sales in 1999 and 1998. Selling, general, and administrative expenses in 1998 included a $5,000,000 bad debt provision for an independent distributor’s trade accounts receivable. Excluding the effect of the bad debt provision, selling, general and administrative expenses would have increased by $27,995,000, or 14 percent, over 1998. This increase primarily reflects significantly higher trade promotion and marketing expenses associated with the launch of new products.

As discussed in “The Strategic Plan and Restructuring Program” section of this Management’s Discussion and Analysis, the Company implemented a restructuring program and other actions during 1998. As a part of this restructuring program, the Company pursued various proposals relating to the outsourcing from the equipment manufacturing business of its Grand Soft unit during 1999. An analysis of purchase offers received on this business concluded that an outright sale was not economically feasible. As an alternative, the Company’s Grand Soft unit outsourced its equipment production to an independent sub-manufacturer. As a result, the Company completed the outsourcing from the equipment manufacturing business at a cost less than originally estimated and recorded a $1,315,000 reversal of the excess restructuring accrual in the 1999 Consolidated Statement of Operations.

~~Interest expense decreased $1,556,000, or 12 percent, over 1998, primarily due to lower average borrowings.~~

The income tax provision increased due to a correspondingly higher pre-tax income in 1999. The effective tax rate increased to 38.1 percent from 37.9 percent for 1998. The Company’s income tax provisions for 1999 and 1998 differ from tax provisions calculated at the federal statutory tax rate primarily due to tax credits and state income taxes.

In the first quarter of 1999, the Company adopted Statement of Position 98-5, “Reporting on the Costs of Start-Up Activities” (SOP 98-5). SOP 98-5 requires that the costs of start-up activities, including preoperating costs, be expensed as incurred and that previously unamortized preoperating costs be written off and treated as a cumulative effect of a change in accounting principle. As a result of adopting SOP 98-5, the Company recorded an after-tax charge of $595,000, or $.02 per common share, in the first quarter of 1999.

~~The Strategic Plan and Restructuring Program~~

In 1994, the Company adopted a strategic plan to accelerate the sales of its brand throughout the country (the Strategic Plan). The key elements of this plan are: 1) to build high-margin brands with leading market shares through effective consumer marketing activities, 2) to expand the Company’s direct-store-delivery distribution network to national scale and enhance this capability with sophisticated information and logistics systems and 3) to introduce innovative new products. The potential benefits of the Strategic Plan are increased market share and future earnings above those levels that would be attained in the absence of the Strategic Plan.

In accordance with the Strategic Plan, the Company embarked on an aggressive national expansion. This expansion involved the entry into 34 new markets, which included the opening of a major manufacturing and distribution center in Texas, a significant increase in marketing spending and the introduction of several new products. At the same time, the Company invested in its soft-serve equipment manufacturing business, Grand Soft. The investments which were required to fund the brand-building actions and national expansion and to support the Grand Soft business substantially increased the Company’s cost structure.

Beginning in late 1997 and continuing into 1998, the cost of dairy raw materials, the primary ingredient in ice cream, increased significantly. These costs peaked in 1998 at a rate more than double of that experienced in 1997. This increase reduced the Company’s 1998 gross profit by approximately $22,000,000 when compared with 1997. Aggressive discounting by the Company’s competitors made it difficult to raise prices by an amount sufficient to compensateaccrues for these higher dairy raw material costs. During this same period, sales volumes of the Company’s “better for you” products continued the significant decline that began in 1997, consistent with an industry-wide trend. Since these “better for you” products enjoy higher margins than the Company’s classic ice cream, the volume decline hadexpenses on a significant impact on the Company’s profitability in 1998. Finally, in August 1998, Ben & Jerry’s informed the Company of its intention to terminate its distribution agreement. Subsequent negotiations with Ben & Jerry’s revised the original contract terms to allow the Company to distribute Ben & Jerry’s products in a smaller geographic area. Starting September 1, 1999, this was estimated to reduce the Company’s distribution gross profit of Ben & Jerry’s products by approximately 54 percent. The Company estimates that the distribution gross profit in the markets where it stopped distributing Ben & Jerry’s products represented approximately six percent, or $13,000,000, of its gross profit in 1998.

The above factors: the higher dairy raw material costs; the decline in “better for you” volumes; and the reduction in Ben & Jerry’s sales, has in the past, and may continue to have in the future, a negative effect on the Company’s gross profit and its ability to successfully implement the Strategic Plan. The Company, therefore, concluded that a thorough reassessment of its cost structure and strategy was necessary. This reassessment yielded restructuring actions designed to improve profitability and accelerate cost reductions by increasing focus on the core elements of the Strategic Plan. On October 16, 1998, the board of directors approved the restructuring actions.

The Company intends to continue to pursue the benefits of the Strategic Plan through four long-term initiatives. These initiatives are as follows: 1) growth in share and sales in the premium ice cream business; 2) expansion of the Company’s new, higher-margin superpremium ice cream brands; 3) accelerated development of the Company’s business in a wider number of retail channels, especially mass-merchandisers, convenience stores, and foodservice outlets; and 4) a focus on improved productivity through a reduction in total delivered costs, meaning the per-unit costs of manufacturing, selling and distribution, and support activities.

The Company continues to make progress towards the key elements of the Strategic Plan. This progress has yielded an increased market share in a consolidating industry. For example, the Company has had significant success in the superpremium segment in recent years with the introductions of Dreyer’s and Edy’s Dreamery™ Ice Cream, Whole Fruit Sorbet, Starbucks® Ice Cream, and Godiva® Ice Cream. In 2000, the Company signed a new agreement with Ben & Jerry’s to resume national distribution of its superpremium product line to the grocery channel in the Spring of 2001 and to work together with Ben & Jerry’s to expand the Company’s distribution of Ben & Jerry’s products in non-grocery channels. In the premium segment, the 2000 launch of the new co-branded M&M/Mars line has increased the Company’s presence in the premium category. These products are being manufactured and distributed by the Company under the terms of the joint venture agreement. The formation of this long-term partnership with M&M/Mars to market a new line of ice cream products featuring M&M/Mars’ leading candy brands is consistent with the Company’s strategy to expand its portfolio of brands and products to reach consumers across the entire ice cream category.

~~Revision of Ben & Jerry’s Distribution Agreement~~

During the third quarter of 1998, Ben & Jerry’s notified the Company of its intention to terminate the distribution agreement between the Company and Ben & Jerry’s. The Company subsequently entered into negotiations with Ben & Jerry’s to resolve issues associated with the pending termination. In the first quarter of 1999, the companies reached a resolution regarding these termination issues by amending the existing distribution agreement and entering into a new distribution agreement. The Company retained the rights to distribute Ben & Jerry’s products in all existing markets, except the New York metropolitan area (discussion follows in “1998 Restructuring Program and Other Actions” section of this Management’s Discussion and Analysis), and on terms and conditions different in some respects from those in place prior to the amendment. The Company stopped distributing Ben & Jerry’s products in New York on April 1, 1999. After August 1999, the Company continued to distribute Ben & Jerry’s in selected markets covering a smaller geographic area under the terms of the new distribution agreement. The Company received a reduced margin for distributing Ben & Jerry’s in selected markets in 1999, but was no longer prohibited from competing directly with Ben & Jerry’s in the superpremium ice cream category in all markets after August 1999. In addition to notifying the Company of its intention to terminate the distribution agreement above, Ben & Jerry’s notified the Company of its intention to terminate its separate distribution agreement with the Company’s independent distributor in Texas (discussion follows in the 1998 Restructuring Program and Other Actions of this Management’s Discussion and Analysis).

The distribution gross profit on Ben & Jerry’s products contributed just over 11 percent of the Company’s gross profit in 1998. The Company estimates that the distribution margin received in the markets where the Company stopped distributing Ben & Jerry’s products in 1999 contributed approximately six percent, or $13,000,000, of its total gross profit in 1998. ~~New Ben & Jerry’s Distribution Agreement~~ On October 25, 2000, the Company announced that it signed a new, long-term distribution agreement with Ben & Jerry’s Homemade, Inc., now a Unilever subsidiary. Under this agreement, the Company became the distributor of Ben & Jerry’s products for the grocery channel in all of its company-operated markets across the country. The Company and Ben & Jerry’s are expanding the Company’s role as a Ben & Jerry’s distributor in other non-grocery channels, such as convenience stores. The agreement took effect on March 5, 2001, has a term of five years, and automatically renews for two additional five-year periods unless terminated by either partypro rata basis at the end of each ~~five-year period.~~ ~~1998 Restructuring Program~~quarter based on the expected full year profitability. Due to the variability of its business, interim adjustments to these accruals could be material. However, at year-end when the full year profitability is known, variations between what had been accrued and ~~Other Actions~~actually paid are usually less significant.

		The ~~implementation of~~Company’s liability for employee bonuses at December 28, 2002 and December 29, 2001 totaled $16,104,000 and $4,860,000, respectively. The Company’s liability for accrued pension contributions and 401(k) matching contributions was $10,711,000 and $8,237,000 at December 28, 2002 and December 29, 2001, respectively.

	•	Self-insurance — The Company’s liabilities for self-insured health, workers compensation and vehicle plans are developed from third-party actuarial valuations that rely on various key assumptions. These valuation assumptions have historically been fairly reliable at estimating the 1998 restructuring program and other actions resulted in a pre-tax charge to earnings of $59,114,000 in 1998. This included $10,590,000 recorded in the third quarter which related primarily to Ben & Jerry’s actions that occurred in September 1998 and to a severance program, which management had already begun in advance of board approval of the remainder of the restructuring program. The remaining charges totaling $48,524,000 were recorded in the fourth quarter of 1998. ~~The five key elements of the restructuring program and other actions follow:~~ ~~(1)~~Company’s self-insurance liabilities at each balance sheet date. In ~~1998,~~addition, the Company ~~decided to exit~~maintains individual claim and aggregated stop-loss policies with third-party insurance carriers. These policies effectively limit the ~~equipment manufacturing business associated with its Grand Soft ice cream unit. The Grand Soft business consists~~range of both ice cream sales and equipment manufacturing operations. The Company has remained in the profitable ice cream portion of this business, but has outsourced the unprofitable equipment manufacturing operations. In the fourth quarter of 1998, the Company recorded $8,696,000 in asset impairment charges and $2,258,000 in estimated closing costs associated with the outsourcing from this business. The $8,696,000 charge is included in impairment of long-lived assets in the 1998 Consolidated Statement of Operations and is comprised of $5,714,000 of goodwill, $1,956,000 of property, plant and equipment and $1,026,000 of inventory and other assets. The remaining assets of Grand Soft totaled $1,762,000 at December 26, 1998 and consisted primarily of trade accounts receivable, which were fully recoverable. The assets were written down to net realizable value based on an estimate of what an independent third party would pay for the assets of the business. The charge of $2,258,000 for closing costs is included in the provision for restructuring charges in the 1998 Consolidated Statement of Operations and a $2,258,000 liability was included in accounts payable and accrued liabilities in the 1998 Consolidated Balance Sheet, as no closing costs were paid in 1998. The closing costs were based on estimates of legal fees, employee separation payments and expected settlements. The closing costs estimate included $576,000 of severance-related costs for the 23 employees, from all areas of responsibility, who were notified of their pending terminations prior to December 26, 1998. During 1999, the Company paid $811,000 of closing costs. During 1999, an analysis of purchase offers received on the Grand Soft equipment manufacturing business concluded that an outright sale was not economically feasible. As an alternative, the Company’s Grand Soft unit outsourced its equipment production to an independent sub-manufacturer. As a result, the Company completed the outsourcing of the equipment manufacturing business at a cost less than originally estimated and recorded a $1,315,000 reversal of the excess restructuring accrual in the 1999 Consolidated Statement of Operations. The accrued liability of $132,000 in severance-related costs at December 25, 1999 was paid during 2000. ~~The Grand Soft manufacturing operations generated revenues of $3,093,000 and $3,346,000, and incurred pre-tax operating losses of $(2,335,000) and $(2,274,000) in 1998 and 1997, respectively.~~ (2) The Company implemented a program designed to reduce operating expenses in manufacturing, sales and distribution, and administration. Core pieces of this program included outsourcing of certain non-strategic activities, consolidation of warehouse facilities and selected reductions in sales and distribution staffing. These actions were completed in the fourth quarter of 1998. ~~As part of this program, the Company reviewed operations at all of its manufacturing facilities in order to identify and dispose of under-utilized assets.~~potential claim losses. As a result of ~~this review,~~the historic reliability of its valuation assumptions and its stop-loss insurance policies, the Company ~~recorded~~believes that there is a ~~charge~~low likelihood that the use of different assumptions or estimates would result in a material change in its self-insurance assets, liabilities or expense.

		The Company’s liability for self-insured health plans at December 28, 2002 and December 29, 2001 totaled $2,040,000 and $1,209,000, respectively. Deposits made to third party claims processors for workers compensation and vehicle losses totaled $15,148,000 and $1,287,000, at December 28, 2002 and December 29, 2001, respectively. The cost of ~~goods sold of $5,317,000 in the fourth quarter of 1998, related primarily to the write-down of manufacturing assets.~~ ~~In connection with reducing operating expenses for sales and distribution, the Company recorded $1,042,000 of severance and related charges in the fourth quarter of 1998 that~~claims are included in the provision for restructuring charges in the 1998 Consolidated Statement of Operations. A total of 38 sales and distribution employees were to be terminated under this program. Of this total, 16 were terminated in 1998 and paid $153,000 in severance benefits. The remaining 22 employees were notified of their pending terminations prior to December 26, 1998. An accrual for severance benefits of $889,000 was outstanding at December 26, 1998. During 1999, the Company paid $632,000 in severance benefits. The remaining accrued liability at December 25, 1999 totaling $257,000 was repaid during 2000. 13

The Company also recorded a $933,000 charge to cost of goods sold in the third quarter of 1998 for severance actions begun in advance of board approval of the remainder of the restructuring program. The Company paid $514,000 of these severance benefits in 1998, leaving a liability of $419,000, which is included in accounts payable and accrued liabilities in the 1998 Consolidated Balance Sheet. During 1999, the Company paid the remaining severance benefits totaling $419,000. Accordingly, there was no liability remaining for these severance benefits at December 25, 1999.

~~In addition, in 1998, the Company~~ charged to expense ~~$4,478,000~~as incurred.

•

Goodwill, net — The Company has recorded goodwill related to previous business acquisitions. The Company tests goodwill for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of ~~previously capitalized costs classified as property, plant and equipment associated with~~a reporting unit below its carrying value. If the ~~expansion~~fair value of a reporting unit is less than its ~~headquarters, as~~carrying value, then an impairment loss would be recognized equal to the ~~expansion plan was canceled in an effort to reduce future administration costs. The $4,478,000 charge was based on a third-party independent appraisal~~excess of the ~~fair market~~carrying value of the ~~related real property and is included in impairment~~reporting unit goodwill over the fair value of ~~long-lived assets in the 1998 Consolidated Statement of Operations.~~

~~(3)~~that goodwill. The Company ~~in carrying out~~performs its national expansion program, made significant investments to support an aggressive expansion in Texas. These investments, while building sales volume, delivered results below expectations. The Company modified this expansion strategy in order to concentrateimpairment test on more profitable opportunities. The objective in Texas has been to preserve volumes while seeking margin improvement. As a result of this change in strategy, the Company expects to realize substantially lower production volumes over the remaining useful lifeeach of its Texas manufacturing plant than originally contemplated. The Company therefore concluded that its investment in the Texas plant was non-recoverable and recorded an impairment charge of $16,200,000 in the fourth quarter of 1998five reporting units. These reporting units correspond to reduce the net book value of the plant to its estimated fair market value. The $16,200,000 impairment charge was based on a third-party independent appraisal and is included in impairment of long-lived assets in the 1998 Consolidated Statement of Operations.

The Company anticipates that the production levels at the Texas manufacturing plant may increase for the next several years pending the addition of more manufacturing capacity in the eastern half of the United States. Despite these short-term increases, the Company projects that production at the Texas manufacturing plant will remain below the volume originally contemplated.

~~(4) As previously mentioned, Ben & Jerry’s indicated its intention to terminate its separate distribution agreement with~~ the Company’s independent distributor in Texas, Sunbelt Distributors, Inc. (Sunbelt), in which the Company had a 16 percent minority equity interest. Ben & Jerry’s action placed at significant risk the recoverabilityfive geographic segments that it uses to manage its operations. Virtually all of the Company’s ~~equity investment, distribution rights, and trade accounts receivable relating to this distributor. In the third quarter of 1998, the Company recorded~~previous acquisitions (usually regional distributors) were located entirely within a bad debt provision of $5,000,000 relating to the trade accounts receivable, when originally notified of the Ben & Jerry’s decision. The $5,000,000 bad debt provision is included in selling, general and administrative expenses in the 1998 Consolidated Statement of Operations. In light of Ben & Jerry’s plans to terminate its relationship with Sunbelt and the previously noted change in the Company’s Texas strategy, the Company evaluated the recoverability of all assets associated with Sunbelt. Accordingly, in addition to the bad debt allowance recorded in the third quarter of 1998, the Company recorded additional charges of $10,533,000 in the fourth quarter of 1998 related to the impairment of its minority equity investment and distribution rights associated with the Company’s agreement with Sunbelt. The Company concluded that these assets were unrecoverable due to the substantially-reduced profits and cash flow resulting from Ben & Jerry’s decision to terminate Sunbelt’s distribution agreement. The $10,533,000 charge, which is comprised of $9,449,000 of distribution rights and $1,084,000 of the equity investment, is included in impairment of long-lived assets in the 1998 Consolidated Statement of Operations.

During the first quarter of 2000, the Company determined that the outlook for Sunbelt’s business was likely to improve, due to new distribution agreements with other frozen food manufacturers, and due to the prospective impact of the Company’s new products. Therefore, in order to further stabilize its business in Texas, the Company made the decision to acquire full ownership of Cherokee Cream Company, Inc. (Cherokee) and its wholly-owned subsidiary, Sunbelt. The Company purchased the remaining 84 percent of the outstanding common stock of Cherokee on February 9, 2000, for $7,855,000. However, because the potential business improvements in Sunbelt are prospective, and because Sunbelt had not significantly reduced its past-due receivable balances with the Company, the Company made the determination that it was not appropriate to reverse any of the bad debt allowance previously established relating to Sunbelt’s trade accounts receivable.

(5) Due to the notice of termination from Ben & Jerry’s, the Company charged to expense $4,657,000 of the unamortized portion of distribution rights related to the acquisition of the Ben & Jerry’s New York distributor. The Company acquired this business in 1989 as part of the development of its long-standing relationship with Ben & Jerry’s. The other tangible assets of this business were merged with the Company’s New York operations and are fully recoverable. This charge was recorded in the third quarter of 1998 and is included in impairment of long-lived assets in the 1998 Consolidated Statement of Operations.

~~The following table summarizes the classification of the charges (reversals) in the 1999 and 1998 Consolidated Statement of Operations related to the restructuring program and other actions:~~

1998
1999
(In thousands) Third Quarter
Fourth Quarter
Full Year
Full Year
(Reversal of) provision for
    restructuring charges:
    Grand Soft $            $  2,258 $  2,258 $(1,315 )
    Sales and distribution severance 1,042 1,042
               3,300 3,300 (1,315 )
Impairment of long-lived assets:
    Grand Soft 8,696 8,696
    Texas plant 16,200 16,200
    Texas independent distributor 10,533 10,533
    Ben & Jerry’s revision 4,657 4,657
    Headquarters’ expansion 4,478 4,478
             4,657 39,907 44,564
Other charges:
    Texas independent distributor 5,000 5,000
    Sales and distribution severance 933 933
    Asset disposals 5,317 5,317
5,933 5,317 11,250
       $10,590 $48,524 $59,114 $(1,315 )

During 1999, the restructuring program and other actions were completed with the exception of the payment of $389,000 of remaining severance and related benefits. During 2000, the Company made payments totaling $389,000 of which $132,000 related to Grand Soft expenses and $257,000 was for sales and distribution severance.

~~The following table summarizes the 2000, 1999 and 1998 activity in the restructuring and other accruals included in accounts payable and accrued liabilities in the Consolidated Balance Sheet:~~

Restructuring Accruals
Other Accruals
(In thousands) Grand Soft
Sales and
Distribution
Severance
Subtotal
Sales and
Distribution
Severance
Total
Balances at December 27, 1997 $ $ $ $ $
Additions 2,258 1,042 3,300 933 4,233
Payments (153 ) (153 ) (514 ) (667 )
Reversals
Balances at December 26, 1998 2,258 889 3,147 419 3,566
Additions
Payments (811 ) (632 ) (1,443 ) (419 ) (1,862 )
Reversals (1,315 ) (1,315 ) (1,315 )
Balances at December 25, 1999 132 257 389 389
Additions
Payments (132 ) (257 ) (389 ) (389 )
Reversals
Balances at December 30, 2000 $ $ $ $ $

~~New Accounting Pronouncement~~

At its July 19-20, 2000 meeting, the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF), reached a consensus on EITF 00-14, “Accounting for Certain Sales Incentives”(EITF 00-14). This new pronouncement requires that discounts and other sales incentives be recorded as a reduction in revenue at the date of sale. At the present time, the Company classifies these incentives (including certain trade promotion expenses and coupon redemption costs) as a selling, general and administrative expense. During 2000, 1999 and 1998, these incentives, as currently defined in this pronouncement, totaled $129,876,000, $99,980,000 and $86,066,000, respectively. The reclassification of these expenses will result in a decrease in company brand and total sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses and will, therefore, have no effect on net income (loss) as previously reported. The Company will implement EITF 00-14 as required in the second quarter of 2001. Reclassification of prior period financial statements is required.

~~Seasonality~~

The Company experiences more demand for its products during the spring and summer than during the fall and winter. The Company’s inventory is maintained at the same general level relative to sales throughout the year by adjusting production and purchasing schedules to meet demand. The ratio of inventory to sales typically does not vary significantly from year to year.

~~Effects of Inflation and Changing Prices~~

~~The largest component of the Company’s cost of production is raw materials, principally dairy products and sugar. Historically, and over the long-term,~~single reporting unit. Consequently, the Company has been able to ~~compensate~~specifically assign its goodwill to its reporting units for ~~increases in~~purposes of impairment testing. The Company estimates the ~~price level~~fair market value of these commodities through price increases and manufacturing and distribution operating efficiencies. During 2000, dairy raw material costs declined which favorably impacted gross profit by approximately $9,300,000 as comparedits reporting units based on a multiple of their specific pre-tax


		earnings (after overhead allocations). The Company employs an earnings multiple that it believes is the market rate for the valuation of businesses that are equivalent to ~~1999. During 1999, dairy raw material costs favorably impacted gross profit by approximately $15,000,000 as compared~~its reporting units. However, the estimated earnings multiple, together with other inputs to ~~1998. During 1998,~~ the ~~increase in dairy raw material costs unfavorably impacted gross profit by $22,000,000 as compared to 1997. Dairy raw material costs have been unfavorable thus far during 2001 as compared to 2000.~~impairment test, are based upon estimates that carry a degree of uncertainty.

~~Other cost increases such as labor and general administrative costs were offset by productivity gains and other operating efficiencies.~~

~~FINANCIAL CONDITION~~

The Company’s ~~cash flows from operating activities provided cash~~business has grown at a fairly rapid pace since its inception. As a result, the estimated fair market value of $43,653,000, $79,123,000 and $29,196,000, in 2000, 1999 and 1998, respectively. Cash flows from operating activities for 2000 were primarily used to fund capital expenditures of $24,513,000 and to make distributor acquisitions totaling $28,137,000. Cash flows from operating activities for 1999 of $79,123,000 were primarily used to fund capital expenditures of $23,756,000 and to make repayments of long-term debt totaling $55,058,000. The increase in cash flows from operating activities during 1999 is due to improved profitability and working capital management.

The Company’s cash flows used in investing activities totaled $55,440,000, $24,048,000 and $34,845,000 in 2000, 1999 and 1998, respectively. On February 9, 2000, the Company acquired the remaining 84 percent of the outstanding common stock of an independent distributor in Texas for $7,855,000, which includes cash acquired of $204,000. In connectionits reporting units has increased with this ~~transaction,~~growth. This has created a surplus of estimated fair market value over the ~~Company recorded approximately $15,269,000~~carrying value of goodwill, distribution rights and other intangibles. On September 29, 2000, the Company acquired certain assets of Specialty Frozen Products, L.P., the leading independent direct-store-delivery ice cream distributor in the Pacific Northwest. The total cost of this acquisition, which was accounted for as a purchase, was $20,182,000 in cash, of which $18,922,000 was paid in 2000. The $20,182,000 was comprised of a payment of $15,550,000 for the purchase of certain assets, and a total of $4,632,000 in legal and other costs. In connection with this transaction, the Company recorded approximately $13,054,000 of goodwill, distribution rights and other intangibles. The decline in capital expenditures from 1998 to 1999 reflects the completion of a phase of capital investment required to support geographical expansion. The 1998 capital expenditures reflect the Company’s expansioneach of its manufacturing capacity and direct-store-delivery distribution network. The Company plans to make capital expenditures totaling approximately $40,000,000 during 2001. It is anticipated that these expenditures will be largely financed through internally-generated funds and borrowings.

During 1999 and 1998, cash outflows from investing activities primarily consisted of capital expenditures totaling $23,756,000 and $35,078,000, respectively. The decline in capital expenditures from 1998 to 1999 reflects the completion of a phase of capital investment required to support geographical expansion. The 1998 capital expenditures reflect the Company’s expansion of its manufacturing capacity and direct-store-delivery distribution system.

During 2001, the Company plans to make capital expenditures totaling approximately $40,000,000. It is anticipated that these expenditures will be largely financed through internally-generated funds and borrowings.

The Company’s cash flows from financing activities provided cash of $11,350,000 and $3,194,000 during 2000 and 1998 respectively, compared with cash used of $53,088,000 during 1999. Cash provided by financing activities during 2000 primarily consisted of an increase of $141,374,000 in outstanding debt offset by repayments of $130,700,000 under the former revolving line of credit. On July 25, 2000, the Company entered into a new credit agreement with various banks for a revolving line of credit of $240,000,000 with an expiration date of July 25, 2005. Borrowings under the line bear interest at LIBOR plus a margin ranging from 0.75 to 1.875 percent. Cash used in financing activities during 1999 primarily reflected repayments of long-term debt. During 1998, borrowings of $12,400,000 on the Company’s line of credit and cash flows from operations were used to make $8,641,000 of payments on the Company’s other debt and to pay $3,950,000 in cash dividends to common and preferred stockholders.

Working capital increased by $29,601,000 from 1999 to 2000 primarily due to timing of vendor payments. In addition, a $7,978,000 capital lease obligation classified as a current liability was repaid during the second quarter of 2000 through a long-term debt borrowing under the Company’s line of credit.

The Company reviewed its 1998 restructuring program and other actions with its various banks and private lenders, and secured any modifications to debt agreements required as a result of the restructuring. These modifications resulted in higher interest rates on certain debt securities during 1999, which were more than offset by lower average borrowings. Further, in July 2000, the Company entered into the new line of credit agreement discussed above. The Company anticipates that the restructuring plan will continue to enhance its cash flow through longer-term savings in its cost structure.

At December 30, 2000, the Company had $2,721,000 in cash and cash equivalents, and an unused credit line of $154,500,000. The total available under the Company’s revolving line of credit is $240,000,000.reporting units. The Company believes that each of its ~~credit line, along with its liquid resources, internally-generated cash, and financing capacity, will be adequate~~reporting unit’s surplus is sufficient to ~~meet both short-term and long-term operating and capital requirements.~~

~~The Company paid~~cover a ~~regular quarterly dividend~~moderate decline in estimated fair market value, making the probability of $.03 per share of common stock for each quarter of 2000, 1999 and 1998. On February 14, 2001, the Board of Directors subject to compliance with applicable law, contractual provisions, and future review of the condition of the Company, declared its intention to increase the regular quarterly dividend from $.03 per common share to $.06 per common share starting with the first quarter of 2001.

~~On October 3, 1997, the Series B preferred stock was converted into~~an impairment unlikely in most situations. However, a total of 1,008,000 shares of redeemable convertible Series A preferred stock (Series A), redeemable on June 30, 2001. The Series A preferred stock is convertible, at the option of the holder, into 5,800,000 shares of common stock onsevere or before June 30, 2001. If the holder does not convert, the Company will redeem the shares by paying $100,752,000 on June 30, 2001. The Company presently anticipates that it would fund such redemption from operating cash flows, borrowings or other financing sources.

Item 7A.Quantitative and Qualitative Disclosures about Market Risk.

~~Market Risk~~

The Company has long-term debt with both fixed and variable interest rates. As a result, the Company is exposed to market risk caused by fluctuations in interest rates. The following summarizes interest rates on the Company’s long-term debt at December 30, 2000.

($ in thousands) Long-Term Debt
Interest Rates
Fixed Interest Rates:
    Senior notes $42,857 7.68-8.34 %
    Senior notes 3,400 9.30 %
Variable Interest Rates:
    Revolving line of credit 85,500 7.85 %
    Industrial revenue bonds 4,500 5.20 %

$136,257

~~If variable interest rates increased ten percent, the Company’s interest expense would increase approximately $694,000.~~

The Company does not have short-term or long-term monetary investments. Additionally, the Company does not transact business in foreign currencies. As such, the Company is not at risk due to fluctuations in foreign exchange rates.

The Company anticipates it will experience unfavorable energy costs, specifically for natural gas, and for electricity at its California facilities in 2001. These California facilities account for approximately 30 percent of the Company’s total production. The unfavorable cost impact resulting from these price changes cannot yet be quantified. The Company may also experience an interruption of electricity in California during rolling blackouts or at other times. To date, these blackouts have been for short time periods and have had a minimal impact on the Company.

THIS SPACE INTENTIONALLY LEFT BLANK

Item 8. Financial Statements and Supplementary Data.

~~The information required by Item 8 is incorporated by reference herein from Part IV, Item 14(a)(1) and (2).~~

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

~~Not applicable.~~

PART III

Item 10. Directors and Executive Officers of the Registrant.

The information set forth under the captions “Board of Directors — Nominees for Director,” “Board of Directors — Continuing Directors,” “Security Ownership of Certain Beneficial Owners and Management — Section 16(a) Beneficial Ownership Reporting Compliance,” “Executive Compensation — Compensation Committee Interlocks and Insider Participation” and “Matters Submitted to a Vote of Stockholders — Election of Directors”extraordinary decline in the ~~Company’s definitive Proxy Statement for the 2001 Annual Meeting~~fair market value of ~~Stockholders to be filed with the Commission, and the information contained~~an individual reporting unit could result in ~~Part I of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant,” is incorporated herein by reference.~~

Item 11. Executive Compensation.

The information set forth under the captions “Executive Compensation” and “Board of Directors — Remuneration of Directors” in the Company’s definitive Proxy Statement for the 2001 Annual Meeting of Stockholders to be filed with the Commission is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Company’s definitive Proxy Statement for the 2001 Annual Meeting of Stockholders to be filed with the Commission is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

The information set forth under the captions “Executive Compensation — Compensation Committee Interlocks and Insider Participation” and “Executive Compensation — Other Relationships” in the Company’s definitive Proxy Statement for the 2001 Annual Meeting of Stockholders to be filed with the Commission is incorporated herein by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) The following documents are filed as part of this Annual Report on Form 10-K:


~~(1) Financial Statements:~~
~~Consolidated Statement of Operations for each of the three years in the period ended~~
~~December 30, 2000~~	21
~~Consolidated Balance Sheet at December 30, 2000 and December 25, 1999~~	22
~~Consolidated Statement of Changes in Stockholders’ Equity for each of the three years in~~
~~the period ended December 30, 2000~~	23
~~Consolidated Statement of Cash Flows for each of the three years in the period ended~~
~~December 30, 2000~~	24
~~Notes to Consolidated Financial Statements~~	25
~~Report of Independent Accountants~~	39	a material impairment charge.

~~Financial statements of any other 50 percent or less owned company have been~~ ~~omitted because the Company’s proportionate share of income (loss) from continuing~~ ~~operations before income tax provision (benefit)~~Goodwill, net at December 28, 2002 and ~~cumulative effect of change in~~ ~~accounting principle is less than 20 percent of the respective consolidated amounts,~~ December 29, 2001 totaled $84,651,000 and ~~the investment in and advances to any such company is less than 20 percent of~~ ~~consolidated total assets.~~$39,114,000, respectively.



	~~(2) Financial Statement Schedule:~~•
	~~Schedule II. Valuation and Qualifying Accounts~~		45
	~~All other schedules are omitted because they are not applicable or the required~~
	~~information is shown in the financial statements or notes thereto.~~

	~~(3) Exhibits~~

~~The exhibits listed in the accompanying exhibit index at page 40 are filed or incorporated by reference to exhibits previously filed with the Commission as part of this Annual Report on Form 10-K.~~

(b) Reports on Form 8-K

~~No reports on Form 8-K were filed by the Company during the quarter ended December 30, 2000.~~

CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended
($ in thousands, except per share amounts) Dec. 30, 2000 Dec. 25, 1999 Dec. 26, 1998
Revenues:
   Sales $ 1,194,356 $1,099,817 $ 1,022,335
   Other income 3,758 2,090 3,653
1,198,114 1,101,907 1,025,988
Costs and expenses:
   Cost of goods sold 889,412 837,907 827,862
   Selling, general and administrative 255,739 235,146 212,151
   Impairment of long-lived assets 44,564
   (Reversal of) provision for restructuring charges (1,315 ) 3,300
   Interest, net of amounts capitalized 12,352 11,450 13,006
1,157,503 1,083,188 1,100,883
Income (loss) before income tax provision (benefit) and
   cumulative effect of change in accounting principle 40,611 18,719 (74,895 )
Income tax provision (benefit) 15,233 7,132 (28,385 )
Income (loss) before cumulative effect of change in
   accounting principle 25,378 11,587 (46,510 )
Cumulative effect of change in accounting principle 595
Net income (loss) 25,378 10,992 (46,510 )
Accretion of preferred stock to redemption value 462 424 424
Preferred stock dividends 696 696 696
Net income (loss) available to common stockholders $      24,220 $       9,872 $   (47,630 )

Per common share-basic:
   Income (loss) available to common stockholders before
     cumulative effect of change in accounting principle $           .86 $          .38 $       (1.75 )
   Cumulative effect of change in accounting principle .02
   Net income (loss) $           .86 $          .36 $       (1.75 )
Per common share-diluted:
   Income (loss) available to common stockholders before
     cumulative effect of change in accounting principle $           .72 $          .35 $       (1.75 )
   Cumulative effect of change in accounting principle .02
   Net income (loss) $           .72 $          .33 $       (1.75 )

~~See accompanying Notes to Consolidated Financial Statements.~~

CONSOLIDATED BALANCE SHEET

($ in thousands, except per share amounts)
Dec. 30, 2000
Dec. 25, 1999
Assets
Current Assets:
   Cash and cash equivalents $     2,721 $     3,158
   Trade accounts receivable, net of allowance for doubtful accounts of
     $2,611 in 2000 and $5,715 in 1999 77,310 79,251
   Other accounts receivable 18,810 13,528
   Inventories 68,801 54,669
   Deferred income taxes 4,584 11,586
   Prepaid expenses and other 6,950 6,621
   Total current assets 179,176 168,813

Property, plant and equipment, net 190,833 197,392
Goodwill, distribution rights and other intangibles, net 92,892 67,125
Other assets 5,550 7,735
Total assets $ 468,451 $ 441,065

Liabilities and Stockholders’ Equity
Current Liabilities:
  Accounts payable and accrued liabilities $   80,260 $   90,666
  Accrued payroll and employee benefits 24,759 29,913
  Current portion of long-term debt 15,043 18,721
  Total current liabilities 120,062 139,300

Long-term debt, less current portion 121,214 104,257
Deferred income taxes 26,263 23,736
Total liabilities 267,539 267,293
Commitments and contingencies
Redeemable convertible preferred stock, $1 par value - 1,008,000 shares
   authorized; 1,008,000 shares issued and outstanding in 2000 and 1999 100,540 100,078
Stockholders’ Equity:
  Preferred stock, $1 par value - 8,992,000 shares authorized,
     no shares issued or outstanding in 2000 and 1999
  Common stock, $1 par value - 60,000,000 shares authorized; 28,268,000 shares
     and 27,871,000 shares issued and outstanding in 2000 and 1999, respectively 28,268 27,871
  Capital in excess of par 58,396 53,172
  Notes receivable from stockholders (2,284 ) (2,501 )
  Retained earnings (Accumulated deficit) 15,992 (4,848 )
Total stockholders’ equity 100,372 73,694
Total liabilities and stockholders’ equity $ 468,451 $ 441,065

~~See accompanying Notes to Consolidated Financial Statements.~~

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Common Stock
Capital
in Excess Notes
Receivable
from (Accumulated
Deficit)
Retained
(In thousands) Shares Amount of Par Stockholders Earnings Total
Balances at December 27, 1997 27,020 $27,020 $42,822 $(652 ) $ 39,498 $ 108,688
    Net loss for 1998 (46,510 ) (46,510 )
    Accretion of preferred stock to
         redemption value (424 ) (424 )
    Preferred stock dividends declared (696 ) (696 )
    Common stock dividends declared (3,269 ) (3,269 )
    Issuance of common stock under
         employee stock plans, net 298 298 4,038 (807 ) 3,529
    Repurchases and retirements of common
         stock (6 ) (6 ) (138 ) (144 )
Balances at December 26, 1998 27,312 27,312 46,722 (1,459 ) (11,401 ) 61,174
    Net income for 1999 10,992 10,992
    Accretion of preferred stock to
         redemption value (424 ) (424 )
    Preferred stock dividends declared (696 ) (696 )
    Common stock dividends declared (3,319 ) (3,319 )
    Issuance of common stock under
          employee stock plans, net 579 579 6,671 (1,042 ) 6,208
    Repurchases and retirements of common
         stock (20 ) (20 ) (221 ) (241 )
Balances at December 25, 1999 27,871 27,871 53,172 (2,501 ) (4,848 ) 73,694
    Net income for 2000 25,378 25,378
    Accretion of preferred stock to
         redemption value (462 ) (462 )
    Preferred stock dividends declared (696 ) (696 )
    Common stock dividends declared (3,380 ) (3,380 )
    Issuance of common stock under
         employee stock plans, net 457 457 5,785 (171 ) 6,071
    Repurchases and retirements of common
         stock (60 ) (60 ) (1,485 ) 388 (1,157 )
    Tax benefits from employee stock
         option plans 924 924
Balances at December 30, 2000 28,268 $28,268 $58,396 $(2,284 ) $ 15,992 $ 100,372

~~See accompanying Notes to Consolidated Financial Statements.~~

CONSOLIDATED STATEMENT OF CASH FLOWS

Year Ended
($ in thousands) Dec. 30, 2000 Dec. 25, 1999 Dec. 26, 1998
Cash flows from operating activities:
  Net income (loss) $   25,378 $ 10,992 $(46,510 )
  Adjustments to reconcile net income (loss) to cash flows
     from operations:
      Depreciation and amortization 37,479 35,515 36,176
      Deferred income taxes 6,665 4,305 (26,612 )
      Impairment of long-lived assets 44,564
      Loss on disposal of property, plant and equipment 1,360 1,803 5,317
      Tax benefits from employee stock option plans 924
      Provision for losses on trade accounts receivable 1,602 5,000
      (Reversal of) provision for restructuring charges (1,315 ) 3,147
      Cumulative effect of change in accounting principle 595
      Changes in assets and liabilities, net of amounts acquired:
        Trade accounts receivable 6,607 3,802 (6,042 )
        Other accounts receivable (5,071 ) 15,637 (12,783 )
        Inventories (11,044 ) (5,197 ) (1,137 )
        Prepaid expenses and other (236 ) (2,113 ) 3,192
        Accounts payable and accrued liabilities (14,832 ) 4,731 27,662
        Accrued payroll and employee benefits (5,179 ) 10,368 (2,778 )
43,653 79,123 29,196
Cash flows from investing activities:
  Acquisition of property, plant and equipment (24,513 ) (23,756 ) (35,078 )
  Retirement of property, plant and equipment 515 726 284
  Purchase of certain assets of Specialty Frozen Products, L.P. (18,922 )
  Purchase of common stock of Cherokee Cream Company, Inc. (7,651 )
  Purchase of independent distributors (1,564 ) (1,000 ) (311 )
  (Increase) decrease in other assets (3,305 ) (18 ) 260
(55,440 ) (24,048 ) (34,845 )
Cash flows from financing activities:
  Proceeds from long-term debt, net 141,374 12,400
  Repayments of long-term debt (130,700 ) (55,058 ) (8,641 )
  Issuance of common stock under employee stock plans, net 6,071 6,208 3,529
  Repurchases and retirements of common stock (1,157 ) (241 ) (144 )
  Cash dividends paid (4,238 ) (3,997 ) (3,950 )
11,350 (53,088 ) 3,194
(Decrease) increase in cash and cash equivalents (437 ) 1,987 (2,455 )
Cash and cash equivalents, beginning of year 3,158 1,171 3,626
Cash and cash equivalents, end of year $     2,721 $   3,158 $   1,171
Supplemental cash flow information:
      Cash paid during the year for:
      Interest (net of amounts capitalized) $   12,326 $ 11,566 $ 12,785
      Income taxes (net of refunds) $     6,400 $      843 $      881
Supplemental acquisition information:
      Fair value of assets acquired $   39,934
      Cash paid in connection with acquisitions (26,777 )
      Liabilities assumed $   13,157

~~See accompanying Notes to Consolidated Financial Statements.~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Operations

Dreyer’s Grand Ice Cream, Inc. and its subsidiaries (the Company) are engaged primarily in the business of manufacturing and distributing premium and superpremium ice cream and other frozen dessert products to grocery and convenience stores, foodservice accounts and independent distributors in the United States.

The Company’s products are also segregated between sales of company branded products, including our licensed and joint venture products (company brands), and sales of products distributed for other manufacturers (partner brands) for management reporting purposes. Sales of company brands were $840,356,000, $729,520,000 and $647,745,000 in 2000, 1999 and 1998, respectively. Sales of partner brands were $354,000,000, $370,297,000 and $374,590,000 in 2000, 1999 and 1998, respectively.

Three customers each accounted for ten percent or more of 2000 sales. Sales to each of these three customers were $135,178,000, $121,731,000 and $119,817,000, respectively. Three customers each accounted for ten percent or more of 1999 sales. Sales to each of these three customers were $127,573,000, $126,075,000 and $114,843,000, respectively. Sales to one customer accounted for ten percent or more of 1998 sales and were $106,703,000.

Note 2 Summary of Significant Accounting Policies

~~Consolidation~~

~~The consolidated financial statements include the accounts of Dreyer’s Grand Ice Cream, Inc. and its subsidiaries. All intercompany transactions have been eliminated.~~

~~Fiscal Year~~

~~The Company’s fiscal year is a 52-week or 53-week period ending on the last Saturday in December. Fiscal year 2000 consisted of 53 weeks. Fiscal years 1999 and 1998 each consisted of 52 weeks.~~

~~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. These estimates and assumptions 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 from those estimates.

~~Financial Statement Presentation~~

~~Certain reclassifications have been made to prior year financial statements to conform to the current year presentation.~~

~~Cash Equivalents~~

~~The Company classifies financial instruments as cash equivalents if the original maturity of such investments is three months or less.~~

~~Inventories~~

Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. Cost includes materials, labor, manufacturing overhead, and certain warehouse and distribution expenses.

Property, Plant and Equipment, net

— The cost of additions to property, plant and equipment, along with major repairs and improvements, ~~are~~is capitalized, while maintenance and minor repairs are charged to expense as incurred. Property, plant and equipment is depreciated using the straight-line method over the assets’ estimated useful lives, generally ranging from two to 35 years. Interest costs relating to capital assets under construction are capitalized.

~~Goodwill, Distribution Rights and Other Intangibles~~

~~Goodwill and distribution rights are amortized~~

The Company has been using the ~~straight-line~~same types of property, plant and equipment (e.g. trucks, manufacturing equipment) for many years. Based on this experience, the Company believes its depreciation method, ~~over their~~depreciable lives and salvage values have proven to be fairly reliable estimates. This belief has been substantiated by historically small gains and losses recorded when assets have been disposed of. The Company therefore believes that there is a low likelihood that the use of different assumptions and estimates would result in a material change to its depreciation expense. However, future changes to the Company’s Strategic Plan or operating plans can result in a shortening of the estimated useful ~~lives, ranging~~life of certain affected assets. In these cases, the Company would decrease the remaining depreciable life on a prospective basis. This would result in an increase in depreciation expense which, in limited situations, could be material. If changes to the Company’s plans occur suddenly or are implemented quickly, an impairment charge could result. Depending on the scope of the changes and the assets affected, such an impairment could be material.


	•	Trade Accounts Receivable, net — The Company assesses the recoverability of trade accounts receivable based on estimated losses resulting from 20the inability of customers to ~~36 years. Other intangibles~~make required payments. The Company’s estimates are ~~amortized using~~based on the ~~straight-line method over their estimated useful lives, ranging from three to eight years.~~ 25

~~Impairment~~aging of ~~Long-Lived Assets~~

accounts receivable balances and historical write-off experience, net of recoveries. The Company reviews ~~long-lived assets~~trade accounts receivable for recoverability regularly and ~~certain identifiable intangibles, including goodwill and distribution rights, for impairment~~ whenever events or ~~changes~~circumstances, such as deterioration in ~~circumstances~~the financial condition of a customer, indicate that a change in the ~~carrying amount~~allowance might be required.


	Historically this methodology has been a fairly reliable means of ~~an asset may not be recoverable.~~assessing the recoverability of trade accounts receivable at each balance sheet date. The ~~assessment~~Company therefore believes that there is a low likelihood that the use of ~~impairment is~~different assumptions or estimates would result in a material change to the bad debt provision or allowance for bad debts. However, lack of information about the financial deterioration of a major customer could result in a material change in the bad debt provision.

	The combined net sales to the Company’s three largest customers accounted for $428,123,000, $402,061,000 and $342,634,000 of net sales in 2002, 2001 and 2000, respectively. The combined trade accounts receivable balances for these three customers totaled $24,092,000 and $26,101,000 at December 28, 2002 and December 29, 2001, respectively. At December 28, 2002 and December 29, 2001, the Company’s allowance for doubtful accounts totaled $1,586,000 and $1,024,000, respectively. Additions to the bad debt allowance (i.e. provision for bad debts) totaled $884,000, $587,000 and $2,175,000 in 2002, 2001 and 2000, respectively. Write-offs of trade accounts receivable totaled $322,000, $2,174,000 and $5,279,000 in 2002, 2001 and 2000, respectively.


	•	Deferred Tax Assets — The Company records a valuation allowance related to deferred tax assets if, based on the ~~estimated undiscounted~~weight of the available evidence, the Company concludes that it is more likely than not that some portion or all of the deferred tax assets will not be realized. While the Company has considered future ~~cash flows from operating activities compared with~~taxable income and prudent and feasible tax planning strategies in assessing the need for the valuation allowance, if the Company determines that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the carrying value of the ~~assets. If the undiscounted future cash flows of an asset are less than the carrying value, a write-down will~~deferred tax assets would be ~~recorded, measured by the amount of the difference between the carrying value and the fair value of the asset. Assets~~charged to ~~be disposed of are recorded at the lower of carrying value or fair value less costs to sell. Such assets are not depreciated while held for sale.~~ ~~Revenue Recognition~~ ~~Revenue is recognized at the time goods are delivered and title passes to the customer. The Company provides appropriate provisions for uncollectible accounts.~~ ~~Shipping and Handling Costs~~ ~~The Company classifies shipping and handling expenses related to product sales as cost of goods sold.~~ ~~Advertising Costs~~ ~~The Company defers production costs for media advertising and expenses these costs~~income in the period ~~the advertisement~~in which such determination is first run. All other advertising costs are expensed as incurred. Advertising expense, including consumer promotion spending, was $30,139,000, $22,982,000 and $22,451,000 in 2000, 1999 and 1998, respectively. ~~Trade Promotion Costs~~made.

~~Trade promotion costs, including sales discounts and associated retail advertising, are expensed as incurred and are classified as selling, general and administrative expenses.~~


	At the present time, the Company’s deferred tax asset valuation allowances have been established based on fairly objective data (e.g. income tax regulations) and are therefore not subject to a high degree of variability. The Company ~~classifies these incentives (including certain trade promotion expenses and coupon redemption costs) as~~therefore believes there is a selling, general and administrative expense. During 2000, 1999 and 1998, these incentives, as currently defined in this pronouncement, totaled $129,876,000, $99,980,000 and $86,066,000, respectively. The reclassificationlow likelihood that the use of ~~these expenses will~~different assumptions or estimates would result in a ~~decrease in company brand and total sales and gross profit, along with~~material change to the deferred tax asset valuation allowances.

	In fiscal 2002, the Company recorded a ~~corresponding decrease in selling, general and administrative~~valuation allowance of $2,361,000 related to certain potentially nondeductible Merger transaction expenses and ~~will, therefore,~~to the impairment of the Company’s investment in Momentx Corporation.

These estimates and assumptions 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 from these estimates.

The Company reported net income available to common stockholders of $29,060,000, or $.77 per diluted common share, for the 52 weeks ended December 28, 2002, compared to net income available to common stockholders of $8,269,000, or $.24 per diluted common share, for the 52 weeks ended December 29, 2001. Consolidated net sales increased 11 percent over 2001 to $1,345,957,000. The improvement in net income over 2002 reflects increased sales and substantially lower dairy raw material costs, offset in part by merger transaction expenses.

Net sales for 2002 increased $134,712,000 or 11 percent, to $1,345,957,000 from $1,211,245,000 for 2001.

Net sales of the Company’s branded products, including licensed and joint venture products (company brands), increased $44,479,000, or six percent, to $752,352,000 from $707,873,000 for 2001. Company brands represented 56 percent of net sales in 2002 compared with 58 percent in 2001. The increase in dollar net sales of company brands resulted from increased unit sales and increased average wholesale prices. Gallon sales of the Company’s branded products increased 2,000,000 gallons, or two percent, to approximately 114,000,000 gallons. The products that led this volume increase were premium Dreyer’s and Edy’s Grand Ice Cream and Whole Fruit™ Bars. These products contributed approximately 2,600,000 gallons and 900,000 gallons, respectively, to the volume increase, although these increases were partially offset by a net decrease in gallon sales of various other company brands. The average price for the Company’s branded products increased approximately four percent after the effect of increased trade promotion expenses of $39,819,000. This increase in average price was due to a shift in mix to higher-priced products. The Company’s portfolio of branded products held a 19.2 percent dollar share of all packaged ice cream sold in the grocery channel in 2002 compared to 18.6 percent in 2001.

Net sales of products distributed for other manufacturers (partner brands) increased $90,233,000, or 18 percent, to $593,605,000 from $503,372,000 for 2001. Net sales of partner brands represented 44 percent of net sales in 2002 compared with 42 percent in 2001. The increase in dollar sales was primarily attributable to increased sales of distributed novelty products (including increased sales of $49,642,000 of Silhouette Brands,

Inc.) and a 21 percent increase in net sales of Ben & Jerry’s superpremium products (Ben & Jerry’s) over 2001. The Company began distributing Ben & Jerry’s to a larger distribution territory in March 2001 and distributes Ben & Jerry’s for the grocery channel in all of the Company’s company-owned markets across the country. The average price for partner brands increased approximately 13 percent, while unit sales increased 2,000,000 gallons, or four percent.

Cost of goods sold increased $84,629,000, or eight percent, as compared with 2001. Gross profit increased $50,083,000, or 38 percent, to $180,439,000, representing a 13 percent gross margin for 2002 compared with an 11 percent gross margin for 2001. The improvement in gross profit was driven primarily by increased net sales, partially offset by increased distribution expenses of $30,929,000. The Company converted its two quart (half gallon) products to 1.75 quarts in 2002; this conversion contributed approximately $5,000,000 to the gross profit increase. During 2002, the decrease in dairy raw material costs favorably impacted gross profit by approximately $36,500,000 (excluding the results of butter trading activities, which are included in other income, net) as compared to 2001. The Company anticipates that it may incur higher costs for utilities in the future. At January and February 2003 price levels, the Company would incur an increase of approximately $1,600,000 in its gasoline costs in 2003 as compared to 2002. A $.10 change in the price per gallon of gasoline would result in a change in annualized gasoline expense of approximately $600,000.

Selling, general and administrative expenses increased $7,705,000, or seven percent, to $116,050,000 from $108,345,000 for 2001. Selling, general and administrative expenses were nine percent of net sales in 2002 and 2001. The dollar increase in selling, general and administrative expenses primarily reflects an increase in payroll-related administrative expenses of $13,837,000, partially offset by a reduction in amortization expense of $4,326,000 due to the impact of a change in the accounting for amortization of goodwill and by a decrease in marketing expenses of $2,019,000.

Interest expense, net of amounts capitalized, decreased $3,573,000, or 33 percent, as compared with 2001, primarily due to lower interest rates.

Other income, net decreased $1,334,000, or 55 percent, to $1,071,000 from $2,405,000 for the same period last year. Other income, net includes $3,069,000 of losses from butter trading activities and a $1,093,000 impairment charge on an investment in Momentx Corporation (Momentx), an e-market solution provider for the dairy, food and beverage industries. During the second quarter of 2002, the Company determined that Momentx’s shortfalls to its business plan, which plan called for a substantial acceleration of its sales growth which did not occur, negatively impacted the recovery of the Company’s investment. Decreases in Other income, net were partially offset by a $3,099,000 increase in equity earnings from investments accounted for under the equity method, which primarily consist of investments in joint ventures.

Merger transaction expenses totaled $10,561,000 during 2002. The Company currently estimates that it will incur total transaction expenses related to the Merger, including costs to be incurred to close the Merger, of approximately $34,000,000.

The income tax provision increased $13,825,000, or 291 percent, as compared with 2001, due to a correspondingly higher pre-tax income in 2002 and the recording of a valuation allowance related to certain potentially nondeductible transaction expenses related to the Merger. The effective tax rate increased to 39 percent from 35 percent for 2001 due primarily to the establishment of this valuation allowance partially offset by the utilization of income tax credits. The Company’s income tax provisions for 2002 and 2001 differ from tax provisions calculated at the federal statutory tax rate primarily due to the valuation allowance and state income taxes.

Net sales for 2001 increased $170,457,000, or 16 percent, to $1,211,245,000 from $1,040,788,000 for 2000.

Net sales of the Company’s branded products, including licensed and joint venture products (company brands), increased $16,002,000, or two percent, to $707,873,000 from $691,871,000 for 2000. Company brands represented 58 percent of net sales in 2001 compared with 66 percent in 2000. The increase in dollar net sales

of company brands resulted from increased unit sales and increased average wholesale prices. Gallon sales of the Company’s branded products increased 3,000,000 gallons, or three percent, to approximately 112,000,000 gallons. The products that led this volume increase were premium Dreyer’s and Edy’s Grand Ice Cream and Whole Fruit Bars. These products contributed approximately 3,900,000 gallons and 600,000 gallons, respectively, to the volume increase, although these increases were partially offset by a net decrease in gallon sales of various other company brands. The average price for the Company’s branded products decreased approximately one percent after the effect of increased trade promotion expenses of $34,885,000. This decrease in average price was due to a shift in mix to lower-priced products, partially offset by the effect of higher wholesale prices. The Company’s portfolio of branded products held an 18.6 percent dollar share of all packaged ice cream sold in the grocery channel in 2001 and 2000.

Net sales of products distributed for other manufacturers (partner brands) increased $154,455,000, or 44 percent, to $503,372,000 from $348,917,000 for 2000. Net sales of partner brands represented 42 percent of consolidated net sales in 2001 compared with 34 percent in 2000. The increase in dollar sales was primarily attributable to a 91 percent increase in net sales of Ben & Jerry’s superpremium products (Ben & Jerry’s) over 2000. The Company began distributing Ben & Jerry’s to a larger distribution territory in March 2001 and distributes Ben & Jerry’s for the grocery channel in all of the Company’s company-owned markets across the country. In addition, the acquisition of independent distributors in 2000, excluding net sales of Ben & Jerry’s, contributed $41,454,000 to the increase. The average price for partner brands increased approximately eight percent, while unit sales increased 9,400,000 gallons, or 33 percent.

Cost of goods sold increased $194,937,000, or 22 percent, as compared with 2000, while the gross margin decreased to 11 percent from 15 percent. The impact of the increase in dairy raw material costs unfavorably impacted gross profit in 2001 by approximately $30,000,000 as compared to 2000.

Selling, general and administrative expenses increased $2,714,000, or three percent, to $108,345,000 from $105,631,000 for 2000. Selling, general and administrative expenses, as a percentage of consolidated net sales, decreased slightly to nine percent in 2001 compared to 10 percent in 2000. The dollar increase in selling, general and administrative expenses primarily reflects a net increase in administrative expenses of $5,365,000, partially offset by a decrease in marketing spending of $3,556,000.

Interest expense, net of amounts capitalized, decreased $1,519,000, or 12 percent, as compared with 2000, primarily due to lower interest rates.

Other income, net decreased $1,353,000, or 36 percent, to $2,405,000 from $3,758,000 for 2000 primarily due to a $474,000 decrease in brokerage income and a $468,000 decrease in equity earnings from investments accounted for under the equity method, which primarily consist of investments in joint ventures.

The income tax provision decreased $10,479,000, or 69 percent, as compared with 2000, due to a correspondingly lower pre-tax income in 2001 and, to a lesser extent, a lower effective tax rate. The effective tax rate decreased to 35 percent from 37.5 percent for 2000 due primarily to the utilization of income tax credits. The Company’s income tax provisions for 2001 and 2000 differ from tax provisions calculated at the federal statutory tax rate primarily due to tax credits and state income taxes.

The Company typically experiences more demand for its products during the spring and summer than during the fall and winter. The Company’s inventory is maintained at the same general level relative to sales throughout the year by adjusting production and purchasing schedules to meet demand. The ratio of inventory to sales typically does not vary significantly from year to year.

The largest component of the Company’s cost of production is raw materials, principally dairy products and sugar. During 2002, dairy raw material costs decreased which favorably impacted gross profit by approximately $36,500,000 as compared to 2001. During 2001, dairy raw material costs increased which unfavorably impacted gross profit by approximately $30,000,000 as compared to 2000. During 2000, dairy raw

material costs declined which favorably impacted gross profit by approximately $9,300,000 as compared to 1999. Through the year-to-date period ended February 2003, dairy raw material costs have been favorable as compared to the year-to-date period ended February 2002.

In November 2001, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) issued EITF 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)” (EITF 01-9). This pronouncement requires that discounts (off-invoice promotion and coupons), amounts paid to retailers to advertise a company’s products (fixed trade promotion) and fees paid to retailers to obtain shelf space (slotting fees) be recorded as a reduction of revenue.

The Company adopted EITF 01-9 at the beginning of fiscal 2002 and presented the expenses described above of $228,272,000 in accordance with this pronouncement. The Company retroactively reclassified expenses of $188,453,000 and $153,568,000 in 2001 and 2000, respectively. The retroactive reclassification of these expenses resulted in a decrease in total sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses with no effect on net income (loss) as previously reported.

In June 2001, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). This pronouncement requires recognition of goodwill and other identifiable intangible assets with indeterminate lives (“these assets”) as long-term assets. Amortization as previously required by Accounting Principles Board Opinion No. 17, “Intangible Assets”, is no longer permitted. In lieu of amortization, these assets are now tested for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company adopted SFAS No. 142 at the beginning of fiscal 2002 and completed its transitional impairment test during the first quarter of 2002 and its annual impairment test in August 2002. The Company has not recorded any impairment charges under SFAS No. 142.

The following pro forma table illustrates the effect on 2001 and 2000 net income available to common stockholders and the related per share amounts if SFAS No. 142 had been adopted on the first day of fiscal 2000. The pro forma adjustments reversing the effect of amortization on acquisition-related intangibles with indefinite lives (including goodwill, distribution rights and assembled work force) of $4,326,000 and $3,796,000, in 2001 and 2000, respectively, are presented net of their associated income tax benefits of

$1,514,000 and $1,424,000. The corresponding fiscal 2002 period has been presented for comparative purposes.

In accordance with SFAS No. 142, the Company reclassified the long-term deferred income tax liability associated with nondeductible goodwill, resulting in a noncash reduction in goodwill and a corresponding reduction in the deferred income tax liability of $10,166,000. Also in accordance with SFAS No. 142, the Company now presents goodwill separately from other intangibles in the Consolidated Balance Sheet. In addition, the Company reclassified $52,997,000 of acquisition-related intangibles with indefinite lives to goodwill at the beginning of the first quarter of 2002. In accordance with this pronouncement, the corresponding prior year amounts were not retroactively reclassified. The remaining change in goodwill since December 29, 2001 consists of acquisition goodwill.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). This pronouncement clarifies certain issues related to SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” and develops a single accounting model for long-lived assets to be disposed of. The Company implemented SFAS No. 144 in the first quarter of 2002. The adoption of this pronouncement did not impact the Company’s financial position, results of operations or cash flows.

In January 2003, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others” (FIN 45). This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 also incorporates, without change, the guidance in FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others”, which is being superseded. The Company does not currently have any indirect guarantees of the indebtedness of others.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). This interpretation clarifies certain issues related to Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and addresses consolidation by business enterprises of the assets, liabilities and results of the activities of a variable interest entity. The Company will be implementing FIN 46 in the first quarter of 2003. Since the Company does not currently have a controlling financial interest

in a variable interest entity, the implementation of this pronouncement is not expected to impact the Company’s financial position, results of operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (SFAS No. 148) which provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting. SFAS No. 148 also amends the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation” to require more prominent disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results in both annual and interim financial statements. The Company adopted the disclosure provisions of SFAS No. 148 for its annual period ended December 28, 2002.

The Company’s primary cash needs are to fund working capital requirements, to fund capital expenditures, finance acquisitions of distributors, and to distribute dividends to shareholders. In 2002, the cash required to fund the increase in working capital was $1,135,000. This increase is attributable to an increase in prepaid expenses of $15,177,000, primarily due to increased amounts for self-insurance deposits and prepaid insurance premiums, offset by an increase in accrued payroll and employee benefits of $15,459,000, primarily due to an increase in payroll-related administrative expenses not yet paid at December 28, 2002. The cash required to fund the increase in working capital was $14,297,000 and $28,647,000 in 2001 and 2000, respectively.

The Company made capital expenditures of $46,468,000 during 2002. The Company plans to make capital expenditures totaling approximately $47,000,000 during 2003. Capital expenditures were $40,598,000 and $24,513,000 in 2001 and 2000, respectively.

The Company had no significant distributor acquisitions in 2002 or 2001. In 2000, the Company purchased certain assets of Specialty Frozen Products, L.P. (Specialty) for $18,922,000, as well as the common stock of Cherokee Cream Company, Inc. (Cherokee) for $7,651,000 (purchase price of $7,855,000 net of $204,000 cash acquired). Specialty was the leading independent direct-store-delivery ice cream distributor in the Pacific Northwest. Cherokee, the parent of Sunbelt Distributor, Inc., was the leading independent direct-store-delivery ice cream distributor in Texas.

The Company paid a regular quarterly dividend of $.06 per share of common stock for each quarter of 2002 and 2001, and $.03 per share of common stock for each quarter of 2000. Annual dividend distributions were $8,323,000, $7,042,000 and $4,238,000 in 2002, 2001 and 2000, respectively.

The Company’s primary sources of liquidity consist of cash flows from operating activities, financing from the Company’s line of credit and long-term debt, and the issuance of common stock under employee stock plans. Net income was $29,060,000, $8,829,000 and $25,378,000 in 2002, 2001 and 2000, respectively. Factors that may affect liquidity in cash flows from operating activities consist of, but are not limited to, increases in product ingredient costs and increases in competitive pressure, which would result in additional promotional expenditures.

On July 25, 2000, the Company entered into a credit agreement with various banks for a revolving line of credit of $240,000,000 with an expiration date of July 25, 2005. The unused portion of the $240,000,000 revolving line of credit was $147,900,000 at December 28, 2002. Offshore borrowings under the line bear interest at LIBOR plus a margin ranging from 0.75 percent to 2.375 percent. Base borrowings under the line bear interest at PRIME plus a margin ranging from zero percent to 1.375 percent. The interest rate on all borrowings under the revolving line of credit was 2.56 percent at December 28, 2002. Future volatility in the cost of borrowing may affect the interest rate and may increase the cost of borrowing under this credit agreement. Proceeds from the long-term line of credit were $34,600,000 and $29,395,000 in 2001 and 2000. Net repayments of the long-term line of credit were $27,999,000 in 2002. Repayments of long-term debt were

$22,186,000 and $18,721,000 in 2001 and 2000. The Company expects to refinance the line of credit when it matures in 2005.

The Company received proceeds of $11,691,000, $7,465,000, and $6,071,000 from the issuance of common stock under employee stock plans in 2002, 2001 and 2000.

As discussed earlier, the Company currently estimates that it will incur total transaction expenses related to the Merger, including costs to be incurred to close the Merger, of approximately $34,000,000. The Company believes that its credit line, along with its liquid resources, internally-generated cash and financing capacity, are adequate to meet both short-term and long-term operating and capital requirements, including the transaction expenses related to the Merger.

Known contractual obligations and their related due dates at December 28, 2002 are as follows:

The Company does not have any capital lease obligations or other long-term liabilities.


(1)	The Company’s purchase obligations are primarily contracts to purchase ingredients used in the manufacture of the Company’s products. These contractual commitments are not in excess of expected manufacturing requirements over the next 15 months.

If variable interest rates were to increase 10 percent, the Company’s interest expense would increase approximately $235,000. The senior notes have interest and principal payable semiannually through 2008; the revolving line of credit is due in 2005.

The Company does not have short-term or long-term monetary investments. Additionally, the Company does not transact material business in foreign currencies. As such, the Company is not at risk due to fluctuations in foreign exchange rates.

and do not have sufficient liquidity to enable the Company to fully reduce its exposure to the volatility of the market. However, the Company has proactively addressed this price volatility by purchasing either butter or butter futures contracts with the intent of reselling or settling its positions at the Chicago Mercantile Exchange. In spite of these efforts to mitigate this risk, commodity price volatility still has the potential to materially affect the Company’s performance, including, but not limited to, its profitability, cash flow and competitive position.

The information required by Item 8 is incorporated by reference herein from Part IV, Item 15(a)(1) and (2).

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

The information set forth under the captions “Board of Directors — Nominees for Director,” “Board of Directors — Continuing Directors,” “Security Ownership of Certain Beneficial Owners and Management — Section 16(a) Beneficial Ownership Reporting Compliance,” “Executive Compensation — Compensation Committee Interlocks and Insider Participation” and “Matters Submitted to a Vote of Stockholders — Election of Directors” in the Company’s definitive Proxy Statement for the 2003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission, and the information contained in Part I of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant” is incorporated herein by reference.

The information set forth under the captions “Executive Compensation” and “Board of Directors — Remuneration of Directors” in the Company’s definitive Proxy Statement for the 2003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission is incorporated herein by reference.

The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Company’s definitive Proxy Statement for the 2003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission is incorporated herein by reference.

pany’s definitive Proxy Statement for the 2003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission is incorporated herein by reference.

(a) Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), within the 90 day period prior to the filing date of this report. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of that date.

(b) There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.

(a) The following documents are filed as part of this Annual Report on Form 10-K:

~~Income taxes are accounted for using~~


	A Current Report on Form 8-K was filed on October 25, 2002 reporting that the ~~liability method. Under this method, deferred tax assets~~parties to the Agreement and ~~liabilities are recognized~~Plan of Merger and Contribution, dated as of June 16, 2002 (Merger Agreement), by


	and among Dreyer’s Grand Ice Cream, Inc. (Dreyer’s); New Dreyer’s, Inc., December Merger Sub, Inc.; Nestlé Holdings, Inc. and NICC Holdings, Inc. entered into an amendment to the Merger Agreement to change the name of the holding company resulting from the transactions contemplated by the Merger Agreement from “Dreyer’s Grand Ice Cream, Inc.” to “Dreyer’s Grand Ice Cream Holdings, Inc.”

	A Current Report on Form 8-K was filed on November 5, 2002 (as amended on February 4, 2003) to incorporate by reference into the filing of the Registration Statement on Form S-4, the Company’s financial statements that give effect to the adoption of the provisions of EITF 01-9 and the transition provisions of paragraph 61 of SFAS No. 142. As a result, the November 5, 2002 Current Report on Form 8-K (as amended on February 4, 2003) includes the information in Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8-Financial Statements and Supplementary Data appearing in the Company’s Form 10-K for the ~~tax consequences~~fiscal year ended December 29, 2001 giving effect to the adoption of ~~temporary differences between~~ the ~~financial reporting basis~~provisions of EITF 01-9 and ~~tax basis~~the transition provisions of paragraph 61 of SFAS No. 142.

Dreyer’s Grand Ice Cream, Inc. and its subsidiaries (the Company) are engaged primarily in the business of manufacturing and distributing ice cream and other frozen dessert products to grocery and convenience stores, foodservice accounts and independent distributors in the United States.

Aggregated net sales consist of net sales of company branded products, including licensed and joint venture products (company brands), and net sales of products distributed for other manufacturers (partner brands) for management reporting purposes. Net sales of company brands were $752,352,000, $707,873,000 and $691,871,000 in 2002, 2001 and 2000, respectively. Net sales of partner brands were $593,605,000, $503,372,000 and $348,917,000 in 2002, 2001 and 2000, respectively.

The consolidated financial statements include the accounts of Dreyer’s Grand Ice Cream, Inc. and its subsidiaries. All intercompany transactions have been eliminated.

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). This interpretation clarifies certain issues related to Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and addresses consolidation by business enterprises of the assets, liabilities and results of the activities of a variable interest entity. The Company will be implementing FIN 46 in the first quarter of 2003. Since the Company does not currently have a controlling financial interest in a variable interest entity, the implementation of this pronouncement is not expected to impact the Company’s financial position, results of operations or cash flows.

The Company’s fiscal year is a 52-week or 53-week period ending on the last Saturday in December. Fiscal years 2002 and 2001 each consisted of 52 weeks. Fiscal year 2000 consisted of 53 weeks.

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. These estimates include assessing the recoverability of accounts receivable; the adequacy of the valuation allowance for deferred tax assets; the recoverability of goodwill; the adequacy of the Company’s liabilities for self-insured health, workers compensation and vehicle plans; and the adequacy of the Company’s liabilities for employee bonuses and profit-sharing plan contributions, among others. These estimates and assumptions 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 from these estimates.

Certain reclassifications have been made to prior year financial statements to conform to the current year presentation.

The Company classifies financial instruments as cash equivalents if the original maturity of such investments is three months or less.

Under current federal and state regulations and industry practice, the price of cream, a primary ingredient in ice cream, is linked to the price of butter. In an effort to proactively mitigate the effects of butter price volatility, the Company will periodically purchase butter or butter futures contracts with the intent of reselling or settling its positions in order reduce its exposure to the volatility of this market. Since the Company’s investment in butter does not qualify as a hedge for accounting purposes, it “marks to market” its investment at the end of each quarter and records any resulting gain or loss as a decrease or increase in other income (expense), net. The Company first made investments in butter in 2002.

The cost of additions, along with major repairs and improvements, are capitalized, while maintenance and minor repairs are charged to expense as incurred. Property, plant and equipment is depreciated using the straight-line method over the assets’ estimated useful lives, generally ranging from two to 35 years. Interest costs relating to capital assets under construction are capitalized.

The Company reviews long-lived assets and certain identifiable intangibles, including goodwill and distribution rights, for impairment annually or between annual tests if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The assessment of impairment is based on the estimated undiscounted future cash flows from operating activities compared with the carrying value of the assets. If the undiscounted future cash flows of an asset are less than the carrying value, a write-down will be recorded, measured by the amount of the difference between the carrying value and the fair value of the asset. Assets to be disposed of are recorded at the lower of carrying value or fair value less costs to sell. Such assets are not depreciated while held for sale.

In October 2001, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). This pronouncement clarifies certain issues related to SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” and develops a single accounting model for long-lived assets to be disposed of. The Company implemented SFAS No. 144 in the first quarter of 2002. The adoption of this pronouncement did not impact the Company’s financial position, results of operations or cash flows.

In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). This pronouncement requires recognition of goodwill and other identifiable intangible assets with indeterminate lives (“these assets”) as long-term assets. Amortization as previously required by Accounting Principles Board (APB) Opinion No. 17, “Intangible Assets”, is no longer permitted. In lieu of amortization, these assets are now tested for impairment on an annual basis and between annual tests if an event occurs or

circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company performs its impairment test on each of its five reporting units. These reporting units correspond to the Company’s five geographic segments that it uses to manage its operations. Virtually all of the Company’s previous acquisitions (usually regional distributors) were located entirely within a singe reporting unit. Consequently, the Company has been able to specifically assign its goodwill to its reporting units for purposes of impairment testing. The Company estimates the fair market value of its reporting units based on a multiple of their specific pretax earning (after overhead allocations). The Company employs an earning multiple that it believes is the market rate for the valuation of businesses that are equivalent to its reporting units (i.e. size, profitability, cash flow, etc. The Company changed its method of accounting for goodwill and other intangible assets at the beginning of fiscal 2002 and completed its transitional impairment test during the first quarter of 2002 and its annual impairment test in August 2002. The Company has not recorded any impairment charges under SFAS No. 142.

During 2001 and 2000, goodwill and distribution rights were amortized using the straight-line method over their estimated useful lives, ranging from 20 to 36 years. Beginning in 2002, goodwill is no longer amortized. Other intangibles are amortized using the straight-line method over their estimated useful lives, ranging from three to eight years (Note 8).

Revenue is recognized when title and risk of loss have transferred to the customer, the collection of the resulting receivable is reasonably assured, and all significant Company obligations have been satisfied. Revenue from consignment sales is recognized upon purchase of the product by retail customers. The Company provides appropriate provisions for uncollectible accounts.

The Company classifies shipping and handling expenses related to product sales as a cost of goods sold.

The Company defers production costs for media advertising and expenses these costs in the period the advertisement is first run. All other advertising costs are expensed as incurred. At December 28, 2002 and December 29, 2001, deferred advertising spending, including consumer promotion spending, in the Consolidated Balance Sheet totaled $940,000 and $1,388,000, respectively. Advertising spending, including consumer promotion spending, was $27,059,000, $30,113,000 and $30,139,000 in 2002, 2001 and 2000, respectively.

Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)

In November 2001, the Emerging Issues Task Force (EITF) of the FASB issued EITF 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)” (EITF 01-9). This pronouncement requires that discounts (off-invoice promotion and coupons), amounts paid to retailers to advertise a company’s products (fixed trade promotion) and fees paid to retailers to obtain shelf space (slotting fees) be recorded as a reduction of revenue.

Income taxes are accounted for using the liability method. Under this method, deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial reporting basis and tax basis of assets and liabilities. A valuation allowance is recorded if, based on the weight of available evidence, it is more likely than not that a deferred tax asset will not be used in future years to offset taxable income.

The Company accounts for its employee stock option and stock purchase plans (Note 17) using the intrinsic value-based method under APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

The Company used the Black-Scholes option pricing model to estimate the fair value per share of options granted during 2002, 2001 and 2000. The assumptions used to compute compensation expense in the pro forma presentation below and to estimate the weighted-average fair market value per share of options granted are as follows:

The following table illustrates the effect on net income and net income per common share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation rather than the intrinsic value-based method provisions of APB Opinion No. 25:

Total stock-based compensation expense for 2002 was $16,273,000 higher than it would have been had the accelerated vesting of stock options (Note 17) not occurred.

Basic net income ~~(loss)~~ per common share is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net income per common share reflects the additional dilutive effect of the Company’s potentially dilutive securities, which include stock options and the redeemable convertible preferred stock.

Potentially dilutive securities are excluded from the calculations of diluted net income per common share if their inclusion would have an anti-dilutive effect. These anti-dilutive securities, stated in equivalent shares of common stock, consisted of 753,000 and 676,000 stock options at December 29, 2001 and December 30, 2000, respectively. There were no anti-dilutive securities at December 28, 2002.

The redeemable convertible preferred stock was converted to common stock in the second quarter of 2001 (Note 14).

•

prior to the date that New Dreyer’s Class A Callable Puttable Common Stock is redeemed under the call right or prior to the completion of a short form merger of New Dreyer’s with Nestlé or an affiliate of Nestlé S.A., that number of shares of ~~common stock outstanding during~~New Dreyer’s Class A Callable Puttable Common Stock equal to the ~~period. Diluted net income (loss) per common share reflects the additional dilutive effect~~number of shares of the Company’s ~~potentially dilutive securities, which include stock options, stock warrants and redeemable convertible preferred stock.~~

~~Net income (loss) per common share is computed as follows:~~

(In thousands, except per share amounts) Dec. 30, 2000
Dec. 25, 1999
Dec. 26, 1998
  Income (loss) available to common
      stockholders - basic $24,220 $  9,872 $(47,630 )
  Add: preferred dividends and accretion 1,158 1,120
  Net income (loss) available to common
      stockholders - diluted $25,378 $10,992 $(47,630 )
  Weighted-average shares-basic 28,119 27,559 27,189
  Dilutive effect of options 1,370 397
  Dilutive effect of preferred stock 5,800 5,800
  Weighted-average shares-diluted 35,289 33,756 27,189
Net income (loss) per common share:
     Basic $      .86 $      .36 $   (1.75 )
     Diluted $      .72 $      .33 $   (1.75 )

Potentially dilutive securities are excluded from the calculations of diluted net income (loss) per common share if their inclusion would have an anti-dilutive effect. These anti-dilutive securities, stated in equivalent shares of common stock ~~consisted~~subject to the option immediately prior to the completion of the ~~following:~~

(In thousands)
2000
1999
1998
Stock options 676 1,507 4,361
Stock warrants 2,000 2,000
Preferred stock 5,800

~~The Company’s potentially dilutive securities were anti-dilutive during 1998 due~~Merger, at the price or prices per share in effect immediately prior to the ~~Company’s net loss. Accordingly, 1998 basic and diluted net loss per common share are computed using~~completion of the ~~same denominator~~Merger.

•

at or after the date New Dreyer’s Class A Callable Puttable Common Stock is redeemed under the call right or after the completion of ~~27,189,000 shares.~~

~~Pursuant to~~ a ~~1994 equity transaction (See Note 10),~~short form merger of New Dreyer’s with Nestlé or an affiliate of Nestlé ~~USA, Inc. purchased 6,000,000 newly issued~~S.A., the same consideration that the holder of the options would have received had the holder exercised the stock options prior to the redemption or short form merger and received consideration in respect of the shares of ~~common stock, and warrants to purchase 4,000,000 shares~~Class A Callable Puttable Common Stock under the redemption or short form merger at ~~an exercise~~the price ~~of $16 per share. Warrants for 2,000,000 shares expired unexercised on June 14, 1997. Warrants for the remaining 2,000,000 shares expired unexercised on June 14, 1999.~~

Note 3 Inventories

~~Inventories~~or prices in effect at ~~December 30, 2000 and December 25, 1999 consisted of the following:~~

that time.

(In thousands)
2000
1999
Raw materials $ 8,368 $ 6,174
Finished goods 60,433 48,495
$68,801 $54,669

In an effort to address concerns of the FTC arising out of the Merger, on March 3, 2003, the Company and NICC entered into an agreement with Integrated Brands, Inc. (Integrated Brands), a subsidiary of CoolBrands International Inc., for the sale and purchase of certain ice cream assets of Dreyer’s and certain distribution assets of NICC (the Sale Agreement). Under the terms of the Sale Agreement, the Company agreed to sell to Integrated Brands the Dreamery® and Whole Fruit™ Sorbet brands and, subject to the receipt of the required consent by Godiva Chocolatier, Inc. (Godiva), to assign the license for the Godiva® ice cream brand, and NICC agreed to sell to Integrated Brands its distribution assets in the states of Oregon, Washington and Florida and in the metropolitan areas of the San Francisco Bay Area, Southern California (Los Angeles and San Diego), Baltimore/ Washington, D.C., Philadelphia, Delaware Valley Area (PA) and Central/ Southern New Jersey. The Sale Agreement also contemplates that when the sale closes, the parties will enter into other ancillary agreements related to the manufacture and distribution of ice cream products. The sale to Integrated Brands will be completed only if the Merger is completed.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

If the Merger is completed, the Company and NICC will become wholly-owned subsidiaries of New Dreyer’s and New Dreyer’s will be a publicly-held registrant. The Merger will be accounted for as a reverse acquisition under the purchase method of accounting. For this purpose, NICC will be deemed to be the acquirer and the Company will be deemed to be the acquiree. As a result, the Company is charging to expense all costs related to the Merger as incurred. These expenses totaled $10,561,000 in 2002.

Note 4. Significant Customers

Trade accounts receivable, net at December 28, 2002 and December 29, 2001 consisted of the following:


	2002		2001


	(In thousands)
Trade accounts receivable	$	92,854	$	90,745
Allowance for doubtful accounts		1,586		1,024

	$	91,268	$	89,721

Trade accounts receivable balances at December 28, 2002 and December 29, 2001 for significant customers were as follows:


	2002		2001


	(In thousands)
Albertson’s, Inc.	$	6,192	$	5,840
Kroger Co.		6,473		8,209
Safeway, Inc.		11,427		12,052

	$	24,092	$	26,101

Net sales to customers that accounted for 10 percent or more of net sales were as follows:


	2002		2001		2000


	(In thousands)
Albertson’s, Inc.	$	127,468	$	123,085	$	107,395
Kroger Co.		153,071		143,824		118,562
Safeway, Inc.		147,584		135,152		116,677

	$	428,123	$	402,061	$	342,634

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Note 5. Inventories

Inventories at December 28, 2002 and December 29, 2001 consisted of the following:


	2002		2001


	(In thousands)
Raw materials	$	7,706	$	9,099
Finished goods		75,125		72,199

	$	82,831	$	81,298

Note 6. Prepaid Expenses and Other Assets

Prepaid expenses and other assets at December 28, 2002 and December 29, 2001, consisted of the following:


	2002		2001


	(In thousands)
Self-insurance claim deposits and prepaid insurance premiums	$	18,741	$	3,007
Butter investments		1,195
Other		4,090		5,842

	$	24,026	$	8,849

During 2002, the Company recorded losses from butter investments of $3,069,000 which were recorded as Other income, net on the Consolidated Statement of Income. During 2001 and 2000, the Company made no investments in butter.

Note 47. Property, Plant and Equipment

Property, plant and equipment, net at December ~~30, 2000~~28, 2002 and December ~~25, 1999~~29, 2001 consisted of the following:

(In thousands)
2000
1999
Machinery and equipment $237,412 $197,635
Buildings and improvements 89,984 90,030
Capital leased assets 12,216
Office furniture and fixtures 6,463 6,481
333,859 306,362
Less: Accumulated depreciation and amortization 165,472 134,778
168,387 171,584
Land 15,634 15,436
Construction in progress 6,812 10,372
$190,833 $197,392

During 2000, the capital lease agreement covering certain equipment expired and the associated capital lease obligation was repaid. The agreement specified that title to the leased assets passed to the Company at the expiration date. Accordingly, the $12,216,000 of original cost of these assets was reclassified to machinery and equipment. Accumulated amortization under the capital leased assets was $7,748,000 at December 25, 1999.


	2002		2001


	(In thousands)
Machinery and equipment	$	266,844	$	244,620
Buildings and improvements		98,832		90,461
Office furniture and fixtures		6,960		6,414

		372,636		341,495
Less: Accumulated depreciation and amortization		200,544		183,562

		172,092		157,933
Land		15,580		15,698
Construction in progress		21,174		24,934

	$	208,846	$	198,565

Interest capitalized relating to capital assets under construction was $847,000, $821,000 and $527,000 ~~$256,000~~in 2002, 2001 and ~~$1,244,000 in~~ 2000, ~~1999 and 1998,~~ respectively.

Depreciation expense for property, plant and equipment ~~including amortization expense for capital leased assets~~ was $34,028,000, $30,685,000 and $32,204,000 ~~$31,607,000~~in 2002, 2001 and ~~$32,375,000 in~~ 2000, ~~1999 and 1998,~~ respectively.

44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Note 58. Goodwill Distribution Rights and Other Intangibles

~~Goodwill,~~ The Company adopted SFAS No. 142 at the beginning of fiscal 2002. In accordance with SFAS No. 142, the Company reclassified the long-term deferred income tax liability associated with nondeductible goodwill, resulting in a noncash reduction in goodwill and a corresponding reduction in the deferred income tax liability of $10,166,000. Also in accordance with SFAS No. 142, the Company now presents goodwill separately from other intangibles in the Consolidated Balance Sheet. In addition, the Company reclassified $52,997,000 of acquisition-related intangibles with indefinite lives to goodwill at the beginning of the first quarter of 2002. In accordance with this pronouncement, the corresponding prior year amounts were not retroactively reclassified.

The following pro forma table illustrates the effect on 2001 and 2000 net income available to common stockholders and the related per share amounts if SFAS No. 142 had been adopted on the first day of fiscal 2000. The pro forma adjustments reversing the effect of amortization on acquisition-related intangibles with indefinite lives (including goodwill, distribution rights and assembled workforce) of $4,326,000 and $3,796,000, in 2001 and 2000, respectively, are presented net of their associated income tax benefits of $1,514,000 and $1,424,000. The corresponding fiscal 2002 period has been presented for comparative purposes.


		2002		2001		2000


		($ in thousands, except
		per share amounts)
Reported net income		$	29,060	$	8,829	$	25,378
Goodwill amortization, net of tax					2,812		2,372

Adjusted net income		$	29,060	$	11,641	$	27,750

Net income per common share:
	Reported basic	$	.84	$	.26	$	.86
	Goodwill amortization, net of tax				.09		.08

	Adjusted basic	$	.84	$	.35	$	.94

	Reported diluted	$	.77	$	.24	$	.72
	Goodwill amortization, net of tax				.08		.07

	Adjusted diluted	$	.77	$	.32	$	.79

The gross carrying amount and related accumulated amortization of other intangibles at December ~~30, 2000~~28, 2002 and December ~~25, 1999~~29, 2001 consisted of the following:



	2002				2001

	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization


	(In thousands)
Distribution rights	$	2,000	$	728	$	87,814	$	35,216
Product formulation		4,239		4,239		4,239		4,239
Assembled workforce						2,438		369
Covenants not to compete		825		534		825		354
Trademark		618		502		618		402

	$	7,682	$	6,003	$	95,934	$	40,580

(In thousands)
2000
1999
Goodwill and distribution rights $128,154 $ 98,125
Other intangibles 5,682 4,874
133,836 102,999
Less: Accumulated amortization 40,944 35,874
$ 92,892 $ 67,125

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

~~The increase in goodwill and distribution rights during 2000 resulted from acquisitions (Note 13). Other intangibles primarily consist~~Fiscal 2002 amortization expense of ~~trademarks, a product formulation and noncompete covenants. Amortization expense for goodwill, distribution rights, and~~ other intangibles ~~was $5,070,000, $2,994,000~~totaled $679,000. Future estimated amortization expense of other intangibles at December 28, 2002 are as follows:


		(In thousands)
Year ending:
	2003	$	617
	2004		514
	2005		479
	2006		69
	2007

		$	1,679

Goodwill, net at December 28, 2002 and ~~$3,801,000,~~December 29, 2001 consisted of the following:


	(In thousands)
Balance as of December 31, 2000	$	36,551
Goodwill acquired during year		4,512
Amortization expense		(1,949	)

Balance as of December 29, 2001		39,114
Acquisition-related intangibles subsumed into Goodwill		52,997
Deferred income tax liability		(10,166	)
Goodwill acquired during year		2,706

Balance as of December 28, 2002	$	84,651

Note 9. Investment in ~~2000, 1999~~Momentx Corporation

At December 29, 2001, the Company had a $1,093,000 investment in Momentx Corporation (Momentx), included in long-term Other assets. Momentx is an e-market solution provider for the dairy, food and ~~1998, respectively.~~beverage industries. The Company followed the cost method of accounting for this investment since its ownership interest represented less than three percent of the outstanding common stock. During the second quarter of 2002, the Company determined that Momentx’s shortfalls to its business plan, which plan called for a substantial acceleration of its sales growth which did not occur, negatively impacted the recovery of the Company’s investment. The Company therefore recorded a $1,093,000 impairment charge which is included as a component of Other income, net, in the 2002 Consolidated Statement of Income.

Note 610. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at December 28, 2002 and December 29, 2001, consisted of the following:

2002 2001
(In thousands)
Accounts payable $ 18,826 $ 20,366
Accrued liabilities 71,708 71,428

$ 90,534 $ 91,794

46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Note 11. Income Tax Provision (Benefit)

The income tax provision (benefit) consisted of the following:

(In thousands)
2000
1999
1998
Current:
   Federal $  7,691 $   2,601 $(2,147 )
   State 877 226 374
8,568 2,827 (1,773 )
Deferred:
   Federal 6,325 3,762 (24,218 )
   State 340 543 (2,394 )
6,665 4,305 (26,612 )
$15,233 $   7,132 $(28,385 )

The 1999 cumulative effect of change in accounting principle of $595,000 is net of an income tax benefit of $392,000. This income tax benefit is comprised of federal and state income taxes and is not reflected in the above table.


		2002			2001			2000


		(In thousands)
Current:
	Federal	$	12,382		$	4,155		$	7,691
	State		1,892			782			877

			14,274			4,937			8,568

Deferred:
	Federal		4,595			451			6,325
	State		(290	)		(634	)		340

			4,305			(183	)		6,665

		$	18,579		$	4,754		$	15,233

The net deferred income tax liability as of December ~~30, 2000~~28, 2002 and December ~~25, 1999~~29, 2001 consisted of the following:


		2002			2001


		(In thousands)
Net deferred income tax assets – current:
	Net operating loss carryforwards	$	70		$	270
	Accrued employee benefits		1,396			1,479
	Tax credit carryforwards		2,164			3,027
	Merger transaction expenses		2,057
	Other		(2,162	)		(1,229	)
	Valuation allowance for Merger transaction expenses		(2,057	)

			1,468			3,547

Net deferred income tax liabilities — noncurrent:
	Intangible assets and related amortization		(3,011	)		(12,272	)
	Depreciation		(14,398	)		(13,035	)
	Other		1,163			817
	Valuation allowance for Momentex impairment		(304	)

			(16,550	)		(24,490	)

		$	(15,082	)	$	(20,943	)

(In thousands) 2000 1999
Deferred tax assets - current:
   Net operating loss carryforwards $        51 $      168
   Marketing-related expenses 112 515
   Accrued employee benefits 1,486 1,662
   Tax credit carryforwards 3,346 7,449
   Other (411 ) 1,792
4,584 11,586
Deferred tax liabilities - noncurrent:
   Intangible assets and related amortization (12,227 ) (10,781 )
   Depreciation (14,342 ) (14,023 )
   Other 306 1,068
(26,263 ) (23,736 )
$(21,679 ) $(12,150 )

The federal statutory income tax rate is reconciled to the Company’s effective income tax rate as follows:

							��
	2002			2001				2000

Federal statutory income tax rate		35.0	%		35.0	%			35.0	%
State income taxes, net of federal tax benefit		2.2			0.7				2.0
Tax credits		(0.7	)		(2.5	)			(0.7	)
Valuation allowance		4.6
Other		(2.1	)		1.8				1.2

		39.0	%		35.0	%			37.5	%

2000 1999 1998
Federal statutory income tax rate 35.0 % 35.0 % (35.0 )%
Tax credits (0.7 ) (1.6 ) (1.9 )
State income taxes, net of federal tax benefit 2.0 2.7 (1.8 )
Other 1.2 2.0 0.8
37.5 % 38.1 % (37.9 )%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

~~As of~~At December ~~30, 2000,~~28, 2002, the Company had deferred tax assets relating to ~~alternative minimum tax and other tax credit carryforwards. The alternative minimum tax carryforwards totaling $2,283,000 can be carried forward indefinitely, as they do not expire. The other~~ tax credit carryforwards totaling ~~$1,063,000~~$2,164,000 that expire between ~~2013~~2015 and ~~2020.~~2022. Utilization of ~~the alternative minimum tax and other~~these tax credit carryforwards may be limited in the event of a change in ownership of the Company. No valuation allowance for these assets has been recorded because the Company believes that it is more likely than not that these carryforwards will be used in future years to offset taxable income.

In fiscal 2002, the Company recorded a valuation allowance of $2,361,000 related both to certain potentially nondeductible Merger transaction expenses and to the impairment of the Company’s investment in Momentx Corporation. Management believes it is more likely than not that the deferred tax assets associated with these transactions will not be used in future years to offset taxable income.
Note 712. Long-Term Debt

Long-term debt at December ~~30, 2000~~28, 2002 and December ~~25, 1999~~29, 2001 consisted of the following:


	2002		2001


	(In thousands)
Revolving line of credit with banks, due 2005 with interest payable at seven different interest rate options	$	92,100	$	120,100
Senior notes, with principal due through 2008 and interest payable semiannually at rates ranging from 8.06 percent to 8.34 percent		28,572		28,571

		120,672		148,671
Less: Current portion		2,143

	$	118,529	$	148,671

(In thousands) 2000 1999
Revolving line of credit with banks, due 2005 with interest payable at
    three different interest rate options $  85,500
Revolving line of credit with banks, due 2000 with interest
     payable at three different interest rate options $  53,500
Senior notes, with principal due through 2008 and interest payable
     semiannually at rates ranging from 7.68 percent to 8.34 percent 42,857 50,000
Capital lease obligation, with payments due
     through 2000 and interest payable quarterly at a floating rate 7,978
Senior notes, with principal due through 2001 and interest payable semiannually
      at 9.30 percent 3,400 7,000
Industrial revenue bonds, with principal due through 2001 and interest payable
     quarterly at a floating rate based upon a tax-exempt note index 4,500 4,500
136,257 122,978
Less: Current portion 15,043 18,721
$121,214 $104,257

The aggregate annual maturities of long-term debt as of December ~~30, 2000~~28, 2002 are as follows:


		(In thousands)
Year ending:
	2003	$	2,143
	2004		2,143
	2005		94,243
	2006		8,810
	2007		6,666
	Later years		6,667

		$	120,672


	*Revolving Line of Credit*

(In thousands)
Year ending:
       2001 $  15,043
       2002 7,143
       2003 2,143
       2004 2,143
       2005 87,643
       Later years 22,142
$136,257

~~Line of Credit~~

The Company has a credit agreement ~~at December 30, 2000~~ with certain banks for a total revolving line of credit of $240,000,000. ~~Borrowings~~Offshore borrowings under the line bear interest at LIBOR plus a margin ranging from ~~.075~~0.75 percent to ~~1.875~~2.375 percent. Base borrowings under the line bear interest at PRIME plus a margin ranging from zero percent to 1.375 percent. The interest rate on the revolving line of credit was ~~7.85~~2.56 percent at December ~~30, 2000.~~28, 2002. The Company’s revolving line of credit agreement prohibits the declaration and payment of dividends in excess of $10,000,000 and $15,000,000 in 2001 and 2002, respectively, and in excess of $20,000,000 in each of the years 2003, 2004 and 2005. The unused portion of the $240,000,000 revolving line of credit was $147,900,000 at December ~~30, 2000 was $154,500,000.~~

~~Senior Notes~~28, 2002.

During 1996, the Company completed a private placement of $50,000,000 of senior notes, due 2000 through 2008. Proceeds from the senior notes were used to repay a portion of existing bank borrowings under the Company’s line of credit and to fund capital expenditures.

~~Industrial Revenue Bonds~~48

~~The industrial revenue bonds payable in 2001 are collateralized by certain property and equipment.~~

~~Fair Value of Financial Instruments~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)


	*Fair Value of Financial Instruments*

As of December ~~30, 2000~~28, 2002 and December ~~25, 1999,~~29, 2001, the fair value of the Company’s long-term debt was determined to approximate the carrying amount. The fair value was based on quoted market prices for the same or similar issues or on the current rates offered to the Company for a term equal to the same remaining maturities. ~~It is not practicable to estimate the fair value of the redeemable convertible preferred stock due to the unique terms and conditions of these securities.~~

Under its long-term debt obligations, the Company is subject to various financial covenant requirements, including the dividend ~~restrictions.~~restrictions discussed above. The Company is in compliance with its financial covenants.

Note 813. Leasing Arrangements

The Company conducts certain of its operations from leased facilities, which include land and buildings, production equipment, and certain vehicles. All of these leases ~~except one that has 87 years (including renewal options) remaining,~~ expire within a period of ~~22 years.~~nine years (including renewal options) except one that has 85 years remaining (including renewal options). Certain of these leases include non-bargain purchase options.

Future minimum rental payments required under noncancelable operating leases with terms in excess of one year at December ~~30, 2000~~28, 2002 are as follows:


		(In thousands)
Year ending:
	2003	$	10,978
	2004		6,413
	2005		4,577
	2006		3,282
	2007		1,777
Later years			3,292

		$	30,319

(In thousands)
Year ending:
       2001 $  8,674
       2002 4,581
       2003 3,293
       2004 2,774
       2005 1,677
       Later years 4,447
$25,446

Rental expense ~~for~~under all operating leases, both cancelable and noncancelable, was $16,961,000, $15,546,000 and $12,750,000 ~~$12,030,000~~in 2002, 2001 and ~~$12,447,000 in~~ 2000, ~~1999 and 1998,~~ respectively.

Note 914. Redeemable Convertible Preferred Stock

On October 3, 1997, the Series B preferred stock was converted into a total of 1,008,000 shares of redeemable convertible Series A preferred stock (Series A), redeemable on June 30, 2001. The Series A preferred stock ~~is convertible, at the option of~~was converted by the holder into 5,800,000 shares of common stock ~~on or before June 30,~~in the second quarter of 2001. IfUp to the holder does not convert, the Company will redeem the shares by paying $100,752,000 on June 30, 2001. The Company presently anticipates that it would fund such redemption from operating cash flows, borrowings and/or other financing sources.

~~Dividends on the~~conversion date, Series A preferred ~~stock are payable~~stockholders were paid dividends at a ~~dividend~~ rate equal to the amount they would receive as if the shares were converted into comparable shares of common stock. ~~Series A~~Upon conversion, the redeemable convertible preferred ~~stockholders have common stock voting rights equal~~shares were cancelled and returned to the ~~number~~pool of ~~common~~preferred shares ~~into which their preferred stock is convertible. The Company is recording accretion to increase the carrying value~~authorized for issuance.

Pursuant to the ~~redemption value~~terms of ~~$100,752,000 by June 30, 2001.~~the Merger Agreement (Note 3), if the Merger is completed, there will be no shares of, or rights to acquire the Company’s preferred stock.

Note 1015. Common Stock

Dividends

The Company paid a regular quarterly dividend of $.06 per share of common stock for each quarter of 2002 and 2001, and $.03 per share of common stock for each quarter of 2000, 1999 and 1998. On February 14, 2001, the Board of Directors subject to compliance with applicable law, contractual provisions, and future review of the condition of the Company, declared its intention to increase the regular quarterly dividend from $.03 per common share to $.06 per common share starting with the first quarter of 2001.

2000. During 1987, the Board of Directors declared a dividend of one Preferred Stock Purchase Right (the Rights) for each outstanding share

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

of common stock. Under certain conditions, the Rights become exercisable for the purchase of the Company’s preferred or common stock.

~~Nestlé Equity Issuance~~

Pursuant to ~~a 1994 equity transaction (the Nestlé Agreement)~~the terms of the Merger Agreement (Note 3), ~~an affiliate of Nestlé USA, Inc. purchased 6,000,000 newly issued~~if the Merger is completed, there will be no shares of, ~~common stock and warrants~~or rights to ~~purchase an additional 4,000,000 shares at an exercise price of $16 per share. Warrants for 2,000,000 shares expired unexercised on June 14, 1997 and warrants for~~acquire, the remaining 2,000,000 shares expired unexercised on June 14, 1999. In connection with the Nestlé Agreement, the Company entered into a distribution agreement with Nestlé Ice Cream Company to distribute Nestlé’s frozen novelty and ice cream products in certain markets.Company’s preferred stock.

Note 1116. Employee Benefit Plans

The Company maintains a defined contribution retirement plan (pension plan) for employees not covered by collective bargaining agreements. The pension plan provides retirement and other benefits based upon the assets of the plan held by the trustee. The Company contributed five percent of the eligible participants’ annual compensation to the plan during ~~2000, 1999~~2002, 2001 and ~~1998.~~2000. The Company also maintains a salary deferral plan
(401(k) plan) under which it may make a matching contribution of a percentage of each participant’s annual deferred salary amount.

Pension expense and 401(k) matching contributions under these plans were approximately $10,633,000, $8,155,000 and $6,978,000 ~~$6,045,000~~in 2002, 2001 and ~~$5,411,000, in~~ 2000, ~~1999 and 1998,~~ respectively. The Company’s liability for accrued pension contributions and 401(k) matching contributions was ~~$6,733,000~~$10,711,000 and ~~$6,323,000~~$8,237,000 at December ~~30, 2000~~28, 2002 and December ~~25, 1999,~~29, 2001, respectively.

Pension expense for employees covered by multi-employer retirement plans under collective bargaining agreements was $1,119,000, $1,135,000 and $1,031,000 ~~$1,015,000~~in 2002, 2001 and ~~$981,000, in~~ 2000, ~~1999 and 1998,~~ respectively.

Note 1217. Employee Stock Plans

The Company offers ~~to certain employees~~ various stock option plans,a Section 423 Employee Stock Purchase Plan and an ~~employee secured stock purchase plan.~~Employee Secured Stock Purchase Plan to certain employees.

Stock Option Plans

The Company has two stock option plans under which options may be granted for the purchase of the Company’s common stock at a price not less than 100 percent of the fair market value at the date of grant, and a third plan which has expired. The non-qualified stock option plan (the 1992 Plan) provides that options are not exercisable until after two years from the date of grant and expire upon death or termination of employment. ~~In 1994, the stockholders approved an additional~~The qualified stock option plan (the 1993 Plan), under which granted options may be either incentive stock options or non-qualified stock ~~options. This plan~~options, provides that options expire no later than ~~ten~~10 years from the date of grant. This plan also provides that most of the terms of the options, such as vesting, are within the discretion of the compensation committee, comprised of certain members of the Company’s Board of Directors.

The Company’s stock option plans provide for an immediate vesting of all options under the plans in the event of an approval by the Board of Directors of an event which will cause a change in control of the Company. Accordingly, when the Company’s Board of Directors approved the Merger Agreement (Note 3), all unvested stock options under both plans became fully vested. In connection with the Merger, certain officers and employees entered into employment agreements that included a provision that waived their rights to this accelerated vesting of their stock options which were unvested at the time the Board of Directors approved the Merger Agreement (the deferred options). If the Merger is not completed, the employment agreements and waivers will terminate and the deferred options will become immediately exercisable.

In May 1999, the stockholders approved an amendment to the 1993 Plan to increase the number of shares reserved for issuance thereunder from 4,400,000 to 6,400,000. In May 2001, the stockholders approved an additional amendment to the 1993 Plan to increase the number of shares reserved for issuance thereunder by 848,425 shares on the date of each annual meeting of stockholders, beginning with the 2001 annual meeting and ending with the 2005 annual meeting. However, because of the pending Merger, no shares will be reserved for issuance on the date of the 2003 annual meeting. If the Merger is not completed, then the Company will

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

reserve 848,425 shares for issuance annually through 2005 to comply with the terms of the 1993 Plan (as amended). Options available for grant under the incentive stock option plan (the 1982 Plan) expired during 2000.

The Company used the Black-Scholes option pricing model to estimate the fair value of options granted during 2000, 1999 and 1998. The assumptions used to compute compensation expense in the pro forma presentation below and to estimate the weighted-average fair market value of options granted are as follows:

2000 1999 1998
Risk-free interest rate 6 .68% 5 .23% 5 .74%
Dividend yield .68% .96% .53%
Volatility 39 .96% 39 .58% 32 .29%
Expected term(years) 5 .90 5 .90 5 .90
Weighted average fair market value $ 8 .31 $ 5 .32 $ 9 .10

No compensation cost has been recognized for these stock option plans. If compensation cost for these plans had been determined based on the fair value at the grant dates, the Company’s net income (loss) available to common stockholders and net income (loss) per common share on a pro forma basis would have been as follows:

(In thousands, except per share amounts) 2000 1999 1998
Net income (loss) available to common stockholders $     19,644 $     6,314 $    (50,530 )
Net income (loss) per common share:
  Basic .70 .23 (1.86 )
  Diluted .59 .22 (1.86 )

Stock options exercisable were ~~3,001,000, 2,466,000~~5,345,000, 3,427,000 and ~~2,196,000~~3,001,000 at year-end ~~2000, 1999~~2002, 2001 and ~~1998,~~2000, respectively. These stock options were exercisable at weighted-average prices per share of $18.70, $15.10 and $14.84 ~~$13.98~~in 2002, 2001 and ~~$13.69 in~~ 2000, ~~1999 and 1998,~~ respectively.

The activity in the three stock option plans for each of the three years in the period ended December ~~30, 2000~~28, 2002 follows:


		Options						Weighted-
		Available			Options			Average
		for Grant			Outstanding			Price Per Share


		(In thousands, except per share amounts)
Balances at December 25, 1999			1,713			5,073		$	14.91
	Granted		(988	)		988			17.80
	Exercised					(162	)		14.84
	Canceled		118			(118	)		16.01
	Expired		(253	)

Balances at December 30, 2000			590			5,781			15.38
	Authorized		848
	Granted		(780	)		780			31.02
	Exercised					(403	)		13.50
	Canceled		15			(15	)		20.49

Balances at December 29, 2001			673			6,143			17.48
	Authorized		848
	Granted		(695	)		695			39.58
	Exercised					(494	)		18.73
	Canceled		12			(12	)		25.49

Balances at December 28, 2002			838			6,332			19.79

(In thousands, except per share amounts) Options
Available
for Grant Options
Outstanding Weighted- Average
Price Per Share
Balances at December 27, 1997 1,335 3,966 $13.97
   Granted (714 ) 714 22.72
   Exercised (181 ) 11.99
   Canceled 138 (138 ) 16.42
Balances at December 26, 1998 759 4,361 15.41
   Authorized 2,000
   Granted (1,171 ) 1,171 12.47
   Exercised (334 ) 13.18
   Canceled 125 (125 ) 14.31
Balances at December 25, 1999 1,713 5,073 14.91
   Granted (988 ) 988 17.80
   Exercised (162 ) 14.84
   Canceled 118 (118 ) 16.01
   Expired (253 )
Balances at December 30, 2000 590 5,781 15.38

Pursuant to the terms of the Merger Agreement (Note 3), no additional options or awards with respect to the Company’s common stock can be granted under the Company’s stock option plans. If the Merger is completed, the 838,000 options available for grant at December 28, 2002, will not be granted. However, if the Merger is not completed or the Merger Agreement either expires or is terminated, these options will become available for future grant.

Significant option groups outstanding at December ~~30, 2000~~28, 2002 and related weighted-average exercise price per share and life information follows:

							��

		Options Outstanding						Options Outstanding

						Weighted-
Exercise				Weighted-		Average				Weighted-
Price		Options		Average		Remaining		Options		Average
Range		Outstanding		Exercise Price		Life (Years)		Exercisable		Exercise Price


(In thousands, except years and per share amounts)
	$ 9.75-13.75		1,981	$	12.47		4.8		1,785	$	12.48
	14.09-19.75		2,360		16.12		5.1		2,137		15.99
	21.44-31.13		1,332		27.38		6.9		995		26.67
	39.40-46.50		659		39.59		9.1		428		39.69

			6,332						5,345

(In thousands, except
years and per share
amounts) Options Outstanding
Options Exercisable
  Exercise
   Price
  Range Options
Outstanding Weighted-Average
Exercise Price Weighted- Average
Remaining
Life (Years) Options
Exercisable Weighted- Average
Exercise Price
$ 9.75-13.75 2,473 $12.46 5.5 1,413 $12.54
14.09-19.75 2,621 16.11 6.7 1,299 15.48
22.88-25.44 687 23.09 7.4 289 23.20
       5,781 3,001

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Section 423 Employee Stock Purchase Plan

Under the Section 423 Employee Stock Purchase Plan, employees may authorize payroll deductions of up to ~~ten~~10 percent of their compensation for the purpose of acquiring shares of the Company’s common stock at 85 percent of the market price determined at the beginning of a specified 12-month period. Under this plan, employees purchased 72,000 shares at prices ranging from $25.43 to $25.50 per share in 2002, 86,000 shares at prices ranging from $16.89 to $18.81 per share in 2001 and 136,000 shares at prices ranging from $10.36 to $14.50 per share in ~~2000, 67,000 shares at prices ranging from $9.30 to $19.23 per share in 1999 and 34,000 shares at prices ranging from $13.15 to $19.87 per share in 1998.~~2000. Compensation cost based on the fair value of the employees’ purchase rights was not material in ~~2000, 1999~~2002, 2001 and ~~1998.~~2000.

Pursuant to the terms of the Merger Agreement (Note 3), if the Merger is completed, the plan will be terminated according to its terms following the completion of the last offering period. From the date of the Merger Agreement until the date that the Merger is completed, or the date the Merger Agreement either expires or is terminated, no new enrollment period will be offered to the Company’s employees.

Employee Secured Stock Purchase Plan

Under the Employee Secured Stock Purchase Plan, on specified dates employees may purchase shares of the Company’s common stock at fair market value by paying 20 percent of the purchase price in cash and the remaining 80 percent of the purchase price in the form of a non-recourse promissory note with a term of 30 years. These notes have been classified as a reduction of stockholders’ equity. Under this plan, employees purchased 17,000 shares at a price of $38.64 per share in 2002, 61,000 shares at prices ranging from $27.40 to $32.69 per share in 2001 and 125,000 shares at prices ranging from $17.00 to $23.50 per share in ~~2000, 179,000 shares at prices ranging from $11.88~~2000.

Pursuant to ~~$18.38 per share in 1999 and 83,000 shares at prices ranging from $13.38~~the terms of the Merger Agreement (Note 3), if the Merger is completed, this plan will be terminated pursuant to ~~$20.13 per share in 1998.~~its terms. Until that time, no additional opportunities to purchase the Company’s common stock will be offered to the participants thereunder. From the date of the Merger Agreement until the date that the Merger is completed, or the date the Merger Agreement either expires or is terminated, employees will not be permitted to purchase the Company’s common stock under this plan.

Note 1318. Acquisitions
Specialty Frozen Products, L.P.
On September 29, 2000, the Company acquired certain assets of Specialty Frozen Products, L.P. (Specialty), which was the leading independent direct-store-delivery ice cream distributor in the Pacific Northwest. The cost of this acquisition, which was accounted for as a purchase, was $20,182,000, of which $18,922,000 was paid in 2000. The $20,182,000 was comprised of $15,550,000 for the purchase of certain assets and a total of $4,632,000 in legal and other costs. ~~Under certain circumstances, the Company may be required to make a relatively small additional payment.~~ The results of Specialty are included in the Company’s Consolidated Statement of ~~Operations~~Income from the date of acquisition. In connection with this transaction, the Company recorded approximately $13,054,000 of goodwill, distribution rights and other intangibles.
Cherokee Cream Company, Inc.
On February 9, 2000, the Company acquired the remaining 84 percent of the outstanding common stock of Cherokee Cream Company, Inc. (Cherokee), the parent of Sunbelt Distributors, Inc., the leading independent direct-store-delivery ice cream distributor in Texas. The Company paid $7,651,000 (purchase price of $7,855,000 innet of $204,000 cash acquired) in this transaction ~~which~~that has been accounted for as a purchase. The results of Cherokee are included in the Company’s Consolidated Statement of ~~Operations~~Income from the date of acquisition. In connection with this transaction, the Company recorded $15,269,000 of goodwill, distribution rights, and other intangibles.
As more fully discussed in Note 16, during 1998 the Company recorded charges of $10,533,000 related to the impairments of its minority equity investment in Cherokee and its distribution rights associated with the Company’s long-term distribution agreement with Sunbelt. In addition, during 1998, the Company recorded a bad debt provision of $5,000,000 relating to trade accounts receivable from Sunbelt. These charges resulted primarily from Ben & Jerry’s decision to terminate its distribution agreement with Sunbelt. Ben & Jerry’s action placed at significant risk the recoverability of the Company’s equity investment,distribution rights and trade receivables relating to Cherokee and Sunbelt.52
33

During the first quarter of 2000, the Company determined that the outlook for Sunbelt’s business was likely to improve, due to new distribution agreements with other frozen food manufacturers, and due to the prospective impact of the Company’s new products. Therefore, in order to further stabilize its business in Texas, the Company made the decision to acquire full ownership of Cherokee and its wholly-owned subsidiary, Sunbelt. However, because the potential business improvements in Sunbelt are prospective, and because Sunbelt had not significantly reduced its past-due receivable balances with the Company, the Company made the determination that it was not appropriate to reverse any of the bad debt allowance previously established relating to Sunbelt’s trade accounts receivable.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Note 14 Insurance Settlements

During 1998, the Company recorded several gains relating to claims filed under its insurance policies. These claims resulted from accidents that contaminated certain finished goods inventories. Under the Company’s insurance policies, the Company is entitled to receive the value of the affected finished goods inventories at its normal selling price, plus expenses incurred in recovering from these accidents. The claims resulted in a gain $1,300,000 in 1998, which was recorded as a reduction of cost of goods sold. In 1998, insurance claims reduced net loss by $807,000, or $.03 per diluted common share.

~~Note 15~~19. Commitments and Contingencies

The Company is engaged in various legal actions as both plaintiff and defendant. Management believes that the outcome of these actions, either individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Note 16 1998 Restructuring Program and Other Actions

The ~~Strategic Plan and Restructuring Program~~

~~In 1994, the Company adopted a strategic plan~~Company’s purchase obligations are primarily contracts to accelerate the sales of its brand throughout the country (the Strategic Plan). The key elements of this plan are: 1) to build high-margin brands with leading market shares through effective consumer marketing activities, 2) to expand the Company’s direct-store-delivery distribution network to national scale and enhance this capability with sophisticated information and logistics systems and 3) to introduce innovative new products. The potential benefits of the Strategic Plan are increased market share and future earnings above those levels that would be attainedpurchase ingredients used in the ~~absence of the Strategic Plan.~~

Beginning in late 1997 and continuing into 1998, the cost of dairy raw materials, the primary ingredient in ice cream, increased significantly. These costs peaked in 1998 at a rate more than double of that experienced in 1997. This increase reduced the Company’s 1998 gross profit by approximately $22,000,000 when compared with 1997. Aggressive discounting by the Company’s competitors made it difficult to raise prices by an amount sufficient to compensate for these higher dairy raw material costs. During this same period, sales volumesmanufacture of the Company’s ~~“better for you” products continued~~products. These contractual commitments are not in excess of expected manufacturing requirements over the significant decline that began in 1997, consistent with an industry-wide trend. Since these “better for you” products enjoy higher margins than the Company’s classic ice cream, the volume decline had a significant impact on the Company’s profitability in 1998. Finally, in August 1998, Ben & Jerry’s informed the Company of its intention to terminate its distribution agreement. Subsequent negotiations with Ben & Jerry’s revised the original contract terms to allow the Company to distribute Ben & Jerry’s products in a smaller geographic area. Starting September 1, 1999, this was estimated to reduce the Company’s distribution gross profit of Ben & Jerry’s products by approximately 54 percent. The Company estimates that the distribution gross profit in the markets where it stopped distributing Ben & Jerry’s products represented approximately six percent, or $13,000,000, of its gross profit in 1998.

~~Revision of Ben & Jerry’s Distribution Agreement~~

During the third quarter of 1998, Ben & Jerry’s notified the Company of its intention to terminate the distribution agreement between the Company and Ben & Jerry’s. The Company subsequently entered into negotiations with Ben & Jerry’s to resolve issues associated with the pending termination. In the first quarter of 1999, the companies reached a resolution regarding these termination issues by amending the existing distribution agreement and entering into a new distribution agreement. The Company retained the rights to distribute Ben & Jerry’s products in all existing markets, except the New York metropolitan area (discussion follows in the 1998 Restructuring Program and Other Actions of this Note 16), and on terms and conditions different in some respects from those in place prior to the amendment. The Company stopped distributing Ben & Jerry’s products in New York on April 1, 1999. After August 1999, the Company continued to distribute Ben & Jerry’s in selected markets covering a smaller geographic area under the terms of the new distribution agreement. The Company received a reduced margin for distributing Ben & Jerry’s in selected markets in 1999, but was no longer prohibited from competing directly with Ben & Jerry’s in the superpremium ice cream category in all markets after August 1999. In addition to notifying the Company of its intention to terminate the distribution agreement above, Ben & Jerry’s notified the Company of its intention to terminate its separate distribution agreement with the Company’s independent distributor in Texas (discussion follows in the 1998 Restructuring Program and Other Actions of this Note 16).

The distribution gross profit on Ben & Jerry’s products contributed just over 11 percent of the Company’s gross profit in 1998. The Company estimates that the distribution margin received in the markets where the Company stopped distributing Ben & Jerry’s products in 1999 contributed approximately six percent, or $13,000,000, of its total gross profit in 1998.

~~New Ben & Jerry’s Distribution Agreement~~

On October 25, 2000, the Company announced that it signed a new, long-term distribution agreement with Ben & Jerry’sHomemade, Inc., now a Unilever subsidiary. Under this agreement, the Company became the distributor of Ben & Jerry’s productsnext 15 months. Future minimum purchase obligations for the grocery channel in all of its company-operated markets across the country. The Company and Ben & Jerry’s are expanding the Company’s role as a Ben & Jerry’s distributor in other non-grocery channels, such as convenience stores. The agreement will take effect on March 5, 2001, has a term ofnext five years and ~~automatically renews for two additional five-year periods unless terminated by either party at the end of each five-year period.~~

~~1998 Restructuring Program and Other Actions~~

The implementation of the 1998 restructuring program and other actions resulted in a pre-tax charge to earnings of $59,114,000 in 1998. This included $10,590,000 recorded in the third quarter which related primarily to Ben & Jerry’s actions that occurred in September 1998 and to a severance program, which management had already begun in advance of board approval of the remainder of the restructuring program and other actions. The remaining charges totaling $48,524,000 were recorded in the fourth quarter of 1998.

~~The five key elements of the restructuring program and other actions follow:~~

(1) In 1998, the Company decided to exit the equipment manufacturing business associated with its Grand Soft ice cream unit. The Grand Soft business consists of both ice cream sales and equipment manufacturing operations. The Company has remained in the profitable ice cream portion of this business, but has outsourced the unprofitable equipment manufacturing operations.

In the fourth quarter of 1998, the Company recorded $8,696,000 in asset impairment charges and $2,258,000 in estimated closing costs associated with the outsourcing from this business. The $8,696,000 charge is included in impairment of long-lived assets in the 1998 Consolidated Statement of Operations and is comprised of $5,714,000 of goodwill, $1,956,000 of property, plant and equipment and $1,026,000 of inventory and other assets. The remaining assets of Grand Soft totaled $1,762,000thereafter at December 26, 1998 and consisted primarily of trade accounts receivable, which were fully recoverable. The assets were written down to net realizable value based on an estimate of what an independent third party would pay for the assets of the business.

The charge of $2,258,000 for closing costs is included in the provision for restructuring charges in the 1998 Consolidated Statement of Operations and a $2,258,000 liability was included in accounts payable and accrued liabilities in the 1998 Consolidated Balance Sheet, as no closing costs were paid in 1998. The closing costs were based on estimates of legal fees, employee separation payments and expected settlements. The closing costs estimate included $576,000 of severance-related costs for the 23 employees, from all areas of responsibility, who were notified of their pending terminations prior to December 26, 1998. During 1999, the Company paid $811,000 of closing costs.

During 1999, an analysis of purchase offers received on the Grand Soft equipment manufacturing business concluded that an outright sale was not economically feasible. As an alternative, the Company’s Grand Soft unit outsourced its equipment production to an independent sub-manufacturer. As a result, the Company completed the outsourcing of the equipment manufacturing business at a cost less than originally estimated and recorded a $1,315,000 reversal of the excess restructuring accrual in the 1999 Consolidated Statement of Operations. The accrued liability of $132,000 in severance-related costs at December 25, 1999 was paid during 2000.

~~The Grand Soft manufacturing operations generated revenues of $3,093,000 and $3,346,000, and incurred pre-tax operating losses of $(2,335,000) and $(2,274,000) in 1998 and 1997, respectively.~~

(2) The Company implemented a program designed to reduce operating expenses in manufacturing, sales and distribution, and administration. Core pieces of this program included outsourcing of certain non-strategic activities, consolidation of warehouse facilities and selected reductions in sales and distribution staffing. These actions were completed in the fourth quarter of 1998.

As part of this program, the Company reviewed operations at all of its manufacturing facilities in order to identify and dispose of under-utilized assets. As a result of this review, the Company recorded a charge to cost of goods sold of $5,317,000 in the fourth quarter of 1998, related primarily to the write-down of manufacturing assets.

In connection with reducing operating expenses for sales and distribution, the Company recorded $1,042,000 of severance and related charges in the fourth quarter of 1998 that are included in the provision for restructuring charges in the 1998 Consolidated Statement of Operations. A28, 2002 total ~~of 38 sales and distribution employees were to be terminated under this program.~~approximately $96,405,000. Of this ~~total, 16 were terminated~~amount, approximately $88,955,000 is payable in ~~1998~~2003 and ~~paid $153,000~~approximately $7,450,000 is payable in severance benefits. The remaining 22 employees were notified of their pending terminations prior to December 26, 1998. An accrual for severance benefits of $889,000 was outstanding at December 26, 1998. During 1999, the Company paid $632,000 in severance benefits. The remaining accrued liability at December 25, 1999 totaling $257,000 was repaid during 2000.2004.

In addition, in 1998, the Company charged to expense $4,478,000 of previously capitalized costs classified as property, plant and equipment associated with the expansion of its headquarters, as the expansion plan was canceled in an effort to reduce future administration costs. The $4,478,000 charge was based on a third-party independent appraisal of the fair market value of the related real property and is included in impairment of long-lived assets in the 1998 Consolidated Statement of Operations.

(3) The Company, in carrying out its national expansion program, made significant investments to support an aggressive expansion in Texas. These investments, while building sales volume, delivered results below expectations. The Company modified this expansion strategy in order to concentrate on more profitable opportunities. The objective in Texas has been to preserve volumes while seeking margin improvement. As a result of this change in strategy, the Company is expected to realize substantially lower production volumes over the remaining useful life of its Texas manufacturing plant than originally contemplated. The Company therefore concluded that its investment in the Texas plant was non-recoverable and recorded an impairment charge of $16,200,000 in the fourth quarter of 1998 to reduce the net book value of the plant to its estimated fair market value. The $16,200,000 impairment charge was based on a third-party independent appraisal and is included in impairment of long-lived assets in the 1998 Consolidated Statement of Operations.

(4) As previously mentioned, Ben & Jerry’s indicated its intention to terminate its separate distribution agreement with the Company’s independent distributor in Texas, Sunbelt Distributors, Inc. (Sunbelt), in which the Company had a 16 percent minority equity interest. Ben & Jerry’s action placed at significant risk the recoverability of the Company’s equity investment, distribution rights, and trade accounts receivable relating to this distributor. In the third quarter of 1998, the Company recorded a bad debt provision of $5,000,000 relating to the trade accounts receivable, when originally notified of the Ben & Jerry’s decision. The $5,000,000 bad debt provision is included in selling, general and administrative expenses in the 1998 Consolidated Statement of Operations. In light of Ben & Jerry’s plans to terminate its relationship with Sunbelt and the previously noted change in the Company’s Texas strategy, the Company evaluated the recoverability of all assets associated with Sunbelt. Accordingly, in addition to the bad debt allowance recorded in the third quarter of 1998, the Company recorded additional charges of $10,533,000 in the fourth quarter of 1998 related to the impairment of its minority equity investment and distribution rights associated with the Company’s agreement with Sunbelt. The Company concluded that these assets were unrecoverable due to the substantially-reduced profits and cash flow resulting from Ben & Jerry’s decision to terminate Sunbelt’s distribution agreement. The $10,533,000 charge, which is comprised of $9,449,000 of distribution rights and $1,084,000 of the equity investment, is included in impairment of long-lived assets in the 1998 Consolidated Statement of Operations.

~~The following table summarizes the classification of the charges (reversals) in the 1999 and 1998 Consolidated Statement of Operations related to the restructuring program and other actions:~~

~~The following table summarizes the 2000, 1999 and 1998 activity in the restructuring and other accruals included in accounts payable and accrued liabilities in the Consolidated Balance Sheet:~~

Note 1720. Selected Quarterly Financial Data (Unaudited)

(In thousands,
except per share
amounts)
Sales
Gross
Profit
Income (Loss)
Before Cumulative
Effect of Change
in Accounting
Principle(1)
Cumulative Effect
of Change in
Accounting
Principle
Net Income
(Loss)
Available
to Common
Stockholders
2000
1st Quarter $   240,419 $  57,215 $   2,386 $            $   2,386
2nd Quarter 323,820 89,021 12,236 12,236
3rd Quarter 345,017 93,240 10,710 10,710
4th Quarter(2) 285,100 65,468 (1,112 ) (1,112 )
$1,194,356 $304,944 $ 24,220 $           $ 24,220
1999
1st Quarter $   228,386 $  40,465 $  (3,615 ) $    595 $(4,210 )
2nd Quarter 306,861 76,505 7,950 7,950
3rd Quarter 322,410 85,966 8,456 8,456
4th Quarter(2) 242,160 58,974 (2,324 ) (2,324 )
$1,099,817 $261,910 $ 10,467 $    595 $   9,872

Basic Net Income (Loss) Per Common Share
Diluted Net Income (Loss) Per Common Share
Income (Loss)
Before Cumulative
Effect of Change
in Accounting
Principle(3)
Cumulative
Effect of
Change in
Accounting
Principle
Net
Income
(Loss)(3)
Income (Loss)
Before Cumulative
Effect of Change
in Accounting
Principle(3)
Cumulative
Effect of Change
in Accounting
Principle
Net
Income
(Loss)(3)
2000
1st Quarter $        .09 $             $        .09 $       .08 $             $        .08
2nd Quarter .44 .44 .35 .35
3rd Quarter .38 .38 .31 .31
4th Quarter(2) (.04 ) (.04 ) (.04 ) (.04 )

1999
1st Quarter $      (.13 ) $      (.02 ) $      (.15 ) $      (.13 ) $      (.02 ) $      (.15 )
2nd Quarter .29 .29 .24 .24
3rd Quarter .31 .31 .26 .26
4th Quarter(2) (.08 ) (.08 ) (.08 ) (.08 )



						Net Income (Loss) Available to
						Common Stockholders^(1),(2)


									Per Common
									Share⁽⁴⁾
				Gross
		Net sales⁽³⁾		profit⁽³⁾					Basic			Diluted


		(In thousands, except per share data)
2002
	1st Quarter	$	290,414	$	28,253	$	1,310		$	.04		$	.04
	2nd Quarter		376,811		53,946		11,686		$	.34		$	.31
	3rd Quarter		383,598		55,974		10,334		$	.30		$	.27
	4th Quarter		295,134		42,266		5,730		$	.16		$	.15

		$	1,345,957	$	180,439	$	29,060

2001
	1st Quarter	$	239,413	$	22,623	$	(4,886	)	$	(.17	)	$	(.17	)
	2nd Quarter		335,424		42,098		6,935		$	.24		$	.20
	3rd Quarter		361,636		40,616		6,048		$	.18		$	.17
	4th Quarter		274,772		25,019		172		$	.00		$	.00

		$	1,211,245	$	130,356	$	8,269

~~(1)~~ ~~Income~~
(1) Net income (loss) for 2001 has been reduced by preferred stock dividends and accretion of the preferred stock to its redemption value.

~~(2)~~ ~~The fourth quarter of fiscal 2000 and fiscal 1999 contained 14 weeks and 13 weeks, respectively.~~

~~(3)~~ The number of weighted-average shares outstanding used in the computation of net income (loss) per common share increases and decreases as shares are issued and repurchased during the year. For this reason, the sum of net income (loss) per common share for the quarters may not be the same as the net income (loss) per common share for the year.
(2) Fiscal 2002 results include $10,561,000 of Merger transaction expenses. In addition, fiscal 2002 results do not include goodwill amortization because, on January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” which requires that goodwill and other indefinite-lived intangible assets no longer be amortized. Other income, net for fiscal 2002 includes $3,069,000 of losses from butter trading activities and a $1,093,000 impairment charge on an investment in Momentx Corporation.

38

(3) As a result of EITF 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”, certain expenses previously classified as selling, general and administrative expenses are now recorded as a reduction of net sales beginning in the first quarter of 2002. In accordance with this pronouncement, the net sales and gross profit amounts reflect these retroactive reclassifications which had no effect on net income (loss) as previously reported.
(4) The number of weighted-average shares outstanding used in the quarterly computation of net income (loss) per common share increases and decreases as shares are issued and repurchased during the year. In addition, the number of weighted-average shares outstanding can also vary each quarter due to the exclusion of securities that would have an anti-dilutive effect. For these reasons, the sum of net income (loss) per common share for the quarters may not be the same as the net income (loss) per common share for the year.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

Dreyer’s Grand Ice Cream, Inc.

In our opinion, the consolidated financial statements listed in the index appearing under Item ~~14(a)~~15(a)(1) present fairly, in all material respects, the financial position of Dreyer’s Grand Ice Cream, Inc. and its subsidiaries at December ~~30, 2000~~28, 2002 and December ~~25, 1999,~~29, 2001, and the results of their operations and their cash flows for each of the three years in the period ended December ~~30, 2000~~28, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item ~~14(a)~~15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related ~~consolidatedfinancial~~consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.

As discussed in Note 2 of the ~~consolidated~~ financial statements, the Company changed its method of accounting for ~~start-up costs~~goodwill and other intangible assets in the first quarter of ~~1999.~~2002.

/s/ ~~PricewaterhouseCoopers~~PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
San Francisco, California
~~February 14, 2001~~March 28, 2003

3954

SCHEDULE II

DREYER’S GRAND ICE CREAM, INC.

VALUATION AND QUALIFYING ACCOUNTS

(Table in thousands)


					Additions
		Balance at			Charged to						Balance at
		Beginning			Costs and						End of
Description		of Period			Expenses			Deductions			Period

Fiscal year ended December 30, 2000:
	Allowance for doubtful accounts	$	5,715	⁽²⁾	$	2,175	⁽⁴⁾	$	5,279	^(1),(3)	$	2,611	⁽⁴⁾
	Accumulated amortization of goodwill, distribution rights, and other intangibles, and other assets		38,783			5,275			—			44,058
	Restructuring and other accruals		389			—			389			—

		$	44,887		$	7,450		$	5,668		$	46,669

Fiscal year ended December 29, 2001:
	Allowance for doubtful accounts	$	2,611	⁽⁴⁾	$	587		$	2,174	^(1),(5)	$	1,024
	Accumulated amortization of goodwill, distribution rights, and other intangibles, and other assets		44,058			5,289			—			49,347

		$	46,669		$	5,876		$	2,174		$	50,371

Fiscal year ended December 28, 2002:
	Allowance for doubtful accounts	$	1,024		$	884		$	322	⁽¹⁾	$	1,586
	Accumulated amortization of goodwill, distribution rights, and other intangibles, and other assets		49,347			1,036			42,661	⁽⁶⁾		7,722

		$	50,371		$	1,920		$	42,983		$	9,308

⁽¹⁾ Write-off of receivables considered uncollectible.
⁽²⁾ Includes a bad debt allowance of $5,000,000 for trade accounts receivable from an independent distributor in Texas.
⁽³⁾ Includes the write-off of trade accounts receivable from an independent distributor in Texas referred to in (2) above.
⁽⁴⁾ Includes a bad debt provision of $1,602,000 for uncollectible receivables from the bankruptcy of a major grocery retailer in the Northeast.
⁽⁵⁾ Includes the write-off of trade accounts receivable from a major grocery retailer in the Northeast referred to in (4) above.
⁽⁶⁾ Includes acquisition-related intangibles subsumed into Goodwill.

(c) Exhibits

EXHIBIT INDEX

Exhibit

~~Exhibit~~
~~Number~~

~~Description~~

		~~2.1~~	~~Securities Purchase Agreement dated June 24, 1993 by and among~~
Number			Description

	2.1		Stock and Warrant Purchase Agreement dated as of May 6, 1994 by and between Dreyer’s Grand Ice Cream, Inc. and Nestlé Holdings, Inc.~~, Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation (Exhibit 2.1(8)).~~

~~2.2~~

Amendment to Securities Purchase Agreement dated May 6, 1994 by and among Dreyer’s Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation, amending Exhibit 2.1 (Exhibit 2.1(11)).

		~~2.3~~		~~Stock and Warrant Purchase Agreement dated as of May 6, 1994 by and between Dreyer’s Grand Ice Cream, Inc. and Nestle~~
	2.2			First Amendment to Stock and Warrant Purchase Agreement dated as of June 14, 1994 by and between Dreyer’s Grand Ice Cream, Inc. and Nestlé Holdings, Inc., amending Exhibit 2.1 (Exhibit 2.1(12)).

	~~2.4~~	~~First Amendment to Stock and Warrant Purchase Agreement dated as of June 14, 1994 by and between Dreyer’s Grand Ice Cream, Inc. and Nestle Holdings, Inc., amending Exhibit 2.3 (Exhibit 2.1(13)~~
2.3		Agreement and Plan of Merger and Contribution, dated as of June 16, 2002, Amendment No. 1 thereto, dated as of October 25, 2002, and Amendment No. 2 thereto, dated as of February 5, 2003 (attached as Annex A to the definitive proxy statement filed by Dreyer’s Grand Ice Cream, Inc. on February 18, 2003) (25).
3.1		Certificate of Incorporation of Dreyer’s Grand Ice Cream, Inc., as amended, including the Certificate of Designation of Series A Convertible Preferred Stock, as amended, setting forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of such series of Preferred Stock and the Certificate of Designation of Series B Convertible Preferred Stock, as amended, setting forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of such series of Preferred Stock (Exhibit 3.1(12)).

~~2.5~~

Second Amendment to Securities Purchase Agreement dated July 28, 1995 and effective as of June 1, 1995 by and among Dreyer’s Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation, amending Exhibit 2.1 (Exhibit 10.2(15)).

~~2.6~~

Third Amendment to Securities Purchase Agreement dated October 30, 1995 and effective as of September 30, 1995 by and among Dreyer’s Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation, amending Exhibit 2.1 (Exhibit 10.1(16)).

~~2.7~~

Amended and Restated Fourth Amendment to Securities Purchase Agreement dated March 12, 1996 and effective as of October 1, 1995 by and among Dreyer’s Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation, amending Exhibit 2.1 (Exhibit 2.8(17)).

~~3.1~~

Certificate of Incorporation of Dreyer’s Grand Ice Cream, Inc., as amended, including the Certificate of Designation of Series A Convertible Preferred Stock, as amended, setting forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of such series of Preferred Stock and the Certificate of Designation of Series B Convertible Preferred Stock, as amended, setting forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of such series of Preferred Stock (Exhibit 3.1(13)).

3.2

Certificate of Designation, Preferences and Rights of Series A Participating Preference Stock ~~(Exhibit 3.2(14)).~~

~~3.3~~

~~By-laws of Dreyer’s Grand Ice Cream, Inc., as last amended May 2, 1994~~ (Exhibit 3.2(13)).

		~~4.1~~		~~Amended and Restated Rights Agreement dated March 4, 1991 between Dreyer’s Grand Ice Cream, Inc. and Bank of America, NT & SA (Exhibit 10.1(5)~~
	3.3			By-laws of Dreyer’s Grand Ice Cream, Inc., as last amended May 2, 1994 (Exhibit 3.2(12)).

		~~4.2~~		Registration Rights Agreement dated as of June 30, 1993 among Dreyer’s Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, and GE Investment Private Placement Partners, I and General Electric Capital Corporation (Exhibit 4.1(9)
	4.1			Amended and Restated Rights Agreement dated March 4, 1991 between Dreyer’s Grand Ice Cream, Inc. and Bank of America, NT & SA (Exhibit 10.1(4)).

		~~4.3~~		Amendment to Registration Rights Agreement dated May 6, 1994 by and among Dreyer’s Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation, amending Exhibit 4.2 (Exhibit 4.1(11)
	4.2			Registration Rights Agreement dated as of June 30, 1993 among Dreyer’s Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, and GE Investment Private Placement Partners, I and General Electric Capital Corporation (Exhibit 4.1(8)).

		~~4.4~~		First Amendment to Amended and Restated Rights Agreement dated as of June 14, 1994 between Dreyer’s Grand Ice Cream, Inc. and First Interstate Bank of California (as successor Rights Agent to Bank of America NT & SA), amending Exhibit 4.1 (Exhibit 4.1(13)
	4.3			Amendment to Registration Rights Agreement dated May 6, 1994 by and among Dreyer’s Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation, amending Exhibit 4.2 (Exhibit 4.1(10)).

		~~4.5~~		~~Registration Rights Agreement dated as of June 14, 1994 between Dreyer’s Grand Ice Cream, Inc. and Nestle Holdings, Inc. (Exhibit 4.2(13)~~
	4.4			First Amendment to Amended and Restated Rights Agreement dated as of June 14, 1994 between Dreyer’s Grand Ice Cream, Inc. and First Interstate Bank of California (as successor Rights Agent to Bank of America NT & SA), amending Exhibit 4.1 (Exhibit 4.1(12)).

		~~4.6~~		~~Warrant Agreement dated as of June 14, 1994 between Dreyer’s Grand Ice Cream, Inc. and Nestle Holdings, Inc. (Exhibit 4.3(13)~~
	4.5			Registration Rights Agreement dated as of June 14, 1994 between Dreyer’s Grand Ice Cream, Inc. and Nestlé Holdings, Inc. (Exhibit 4.2(12)).

	~~4.7~~
4.6		Second Amendment to Amended and Restated Rights Agreement dated March 17, 1997 between Dreyer’s Grand Ice Cream, Inc. and ChaseMellon Shareholder Services, LLC, (as successor Rights Agent to Bank of California), amending Exhibit 4.1 (Exhibit 10.1 (16)).
4.7		Third Amendment to Amended and Restated Rights Agreement dated May 15, 1997 between Dreyer’s Grand Ice Cream, Inc. and ChaseMellon Shareholder Services, LLC, as Rights Agent, amending Exhibit 4.1 (Exhibit 10.1 (18)).
10.1		Agreement dated September 18, 1978 between Dreyer’s Grand Ice Cream, Inc. and Kraft, Inc. (Exhibit 10.8 (1)).
10.2		Agreement and Lease dated as of January 1, 1982 and Amendment to Agreement and Lease dated as of January 27, 1982 between Jack and Tillie Marantz and Dreyer’s Grand Ice Cream, Inc., (Exhibit 10.2 (13)).
10.3*		Form of Indemnification Agreement between Dreyer’s Grand Ice Cream, Inc. and each officer and director of Dreyer’s Grand Ice Cream, Inc. (Exhibit 10.47(2)).
10.4		Assignment of Lease dated as of March 31, 1989 among Dreyer’s Grand Ice Cream, Inc., Smithway Associates, Inc. and Wilsey Foods, Inc. (Exhibit 10.52(3)).


Exhibit
Number		Description

	10.5	Amendment of Lease dated as of March 31, 1989 between Dreyer’s Grand Ice Cream, Inc. and Smithway Associates, Inc., as amended by letter dated April 17, 1989 between Dreyer’s Grand Ice Cream, Inc. and Wilsey Foods, Inc., amending Exhibit 10.4 (Exhibit 10.53(3)).
	10.6*	Dreyer’s Grand Ice Cream, Inc. Stock Option Plan (1992) (Exhibit 10.35(9)).
	10.7*	Description of Dreyer’s Grand Ice Cream, Inc. Incentive Bonus Plan (Exhibit 10.57(6)).
	10.8*	Dreyer’s Grand Ice Cream, Inc. Income Swap Plan (Exhibit 10.38(9)).
	10.9	Letter Agreement dated August 4, 1995 between Dreyer’s Grand Ice Cream, Inc. and Smithway Associates, Inc., amending Exhibits 10.2 and 10.4 (Exhibit 10.29(14)).
	10.10	April 1996 Amendment to Commerce Lease dated April 23, 1996 between Dreyer’s Grand Ice Cream, Inc. and Smithway Associates, Inc., amending Exhibits 10.2 and 10.4 (Exhibit 10.29(17)).
	10.11	Letter Agreement dated April 23, 1996 between Dreyer’s Grand Ice Cream, Inc. and Smithway Associates, Inc., amending Exhibits 10.2 and 10.4 (Exhibit 10.30(17)).
	10.12	$15,000,000 7.68% Series A Senior Notes Due 2002, $15,000,000 8.06% Series B Senior Notes Due 2006 and $20,000,000 8.34% Series C Senior Notes Due 2008: Form of Note Agreement dated as of June 6, 1996 between Dreyer’s Grand Ice Cream, Inc. and each of The Prudential Insurance Company of America, Pruco Life Insurance Company, and Transamerica Life Insurance and Annuity Company (Exhibit 10.1(15)).
	10.13	First Amendment dated as of November 17, 1998 to Note Purchase Agreements dated as of June 6, 1996 between Dreyer’s Grand Ice Cream, Inc. and each of The Prudential Insurance Company of America, Pruco Life Insurance Company, and Transamerica Life Insurance and Annuity Company, amending Exhibit 10.12. (Exhibit 10.37 (19)).
	10.14	Credit Agreement dated as of July 25, 2000 among Dreyer’s Grand Ice Cream, Inc., or the Banks party to the agreement, Bank of America, N.A. as Agent for the Banks, as Swing Line Bank and as Letter of Credit Issuing Bank; Union Bank of California, N.A. as Syndication Agent and Banc of America Securities LLC as Lead Arranger and Book Manager (Exhibit 10.1 (20)).

	~~4.8~~	~~Third Amendment to Amended and Restated Rights Agreement dated May 15, 1997 between Dreyer’s Grand Ice Cream, Inc. and ChaseMellon Shareholder Services, LLC, as Rights Agent, amending Exhibit 4.1~~
10.15**		Distribution Agreement dated as of October 10, 2000 by and between Dreyer’s Grand Ice Cream, Inc. and Ben & Jerry’s Homemade, Inc. and First Amendment to 2000 Distribution Agreement dated as of January 19, 2001 (Exhibit 10.22(23)).
10.16*		Dreyer’s Grand Ice Cream, Inc. Stock Option Plan (1993), as amended (Exhibit 10.23 (23)).
10.17		First Amendment dated April 19, 2001 to Credit Agreement dated as of July 25, 2000 among Dreyer’s Grand Ice Cream, Inc., the banks party to this agreement, Bank of America, N.A. as Agent for the Banks, as Swing Line Bank and as Letter of Credit Issuing Bank; Union Bank of California, N.A. as Syndication Agent and Banc of America Securities LLC as Lead Arranger and Book Manager, amending Exhibit 10.14 (Exhibit 10.1 (21)).

10.18

Second Amendment dated as of September 26, 2001 to Note Purchase Agreements dated as of June 6, 1996 between Dreyer’s Grand Ice Cream, Inc. and each of the Prudential Insurance Company of America, Pruco Life Insurance Company, and Transamerica Life Insurance and Annuity Company, amending Exhibit 10.16 to the 2000 Annual Report on Form 10-K, amending Exhibit 10.13 (Exhibit 10.1

~~Agreement dated September 18, 1978 between Dreyer’s Grand Ice Cream, Inc. and Kraft, Inc. (Exhibit 10.8(1)).~~

~~10.2~~

Agreement and Lease dated as of January 1, 1982 and Amendment to Agreement and Lease dated as of January 27, 1982 between Jack and Tillie Marantz and Dreyer’s Grand Ice Cream, Inc., as amended (Exhibit 10.2(14)).

~~Exhibit~~
~~Number~~

~~Description~~

~~10.3~~

Loan Agreement between Edy’s and City of Fort Wayne, Indiana dated September 1, 1985 and related Letter of Credit, Letter of Credit Agreement, Mortgage, Security Agreement, Pledge and Security Agreement and General Continuing Guaranty of Dreyer’s Grand Ice Cream, Inc. (Exhibit 10.33(2)).

~~10.4~~

Amendment and Waiver dated July 17, 1987 between Dreyer’s Grand Ice Cream, Inc. and Security Pacific National Bank, amending the General Continuing Guaranty referenced in Exhibit 10.3 (Exhibit 10.44(6)).

~~10.5~~

Amendment and Waiver dated December 24, 1987 between Dreyer’s Grand Ice Cream, Inc. and Security Pacific National Bank, amending the General Continuing Guaranty referenced in Exhibit 10.3 (Exhibit 10.45(6)).

10.6*

~~Form of Indemnification Agreement between Dreyer’s Grand Ice Cream, Inc. and each officer and director of Dreyer’s Grand Ice Cream, Inc. (Exhibit 10.47(3)).~~

~~10.7~~

~~Assignment of Lease dated as of March 31, 1989 among Dreyer’s Grand Ice Cream, Inc., Smithway Associates, Inc. and Wilsey Foods, Inc. (Exhibit 10.52(4)).~~

~~10.8~~

Amendment of Lease dated as of March 31, 1989 between Dreyer’s Grand Ice Cream, Inc. and Smithway Associates, Inc., as amended by letter dated April 17, 1989 between Dreyer’s Grand Ice Cream, Inc. and Wilsey Foods, Inc., amending Exhibit 10.7 (Exhibit 10.53(4)).

~~10.9~~

Third Amendment to General Continuing Guaranty and Waiver dated January 29, 1991 between Dreyer’s Grand Ice Cream, Inc. and Security Pacific National Bank, amending the General Continuing Guaranty referenced in Exhibit 10.3 (Exhibit 10.46(6)).

10.10*

~~Dreyer’s Grand Ice Cream, Inc. Stock Option Plan (1992) (Exhibit 10.35(10)).~~

10.11*

~~Description of Dreyer’s Grand Ice Cream, Inc. Incentive Bonus Plan (Exhibit 10.57(7)).~~

10.12*

~~Dreyer’s Grand Ice Cream, Inc. Income Swap Plan (Exhibit 10.38(10)).~~

~~10.13~~

~~Letter Agreement dated August 4, 1995 between Dreyer’s Grand Ice Cream, Inc. and Smithway Associates, Inc., amending Exhibits 10.2 and 10.7 (Exhibit 10.29(17)).~~

~~10.14~~

~~April 1996 Amendment to Commerce Lease dated April 23, 1996 between Dreyer’s Grand Ice Cream, Inc. and Smithway Associates, Inc., amending Exhibits 10.2 and 10.7 (Exhibit 10.29(19)).~~

~~10.15~~

~~Letter Agreement dated April 23, 1996 between Dreyer’s Grand Ice Cream, Inc. and Smithway Associates, Inc., amending Exhibits 10.2 and 10.7 (Exhibit 10.30(19)).~~

~~10.16~~

$15,000,000 7.68% Series A Senior Notes Due 2002, $15,000,000 8.06% Series B Senior Notes Due 2006 and $20,000,000 8.34% Series C Senior Notes Due 2008: Form of Note Agreement dated as of June 6, 1996 between Dreyer’s Grand Ice Cream, Inc. and each of The Prudential Insurance Company of America, Pruco Life Insurance Company, and Transamerica Life Insurance and Annuity Company (Exhibit 10.1(18)).

~~10.17~~

Fourth Amendment to General Continuing Guaranty and Waiver dated November 12, 1998, between Dreyer’s Grand Ice Cream, Inc. and Bank of America National Trust and Savings Association, amending the General Continuing Guaranty referenced in Exhibit 10.3. (Exhibit 10.36 (22)).

		~~10.18~~		First Amendment dated as of November 17, 1998 to Note Purchase Agreements dated as of June 6, 1996 between Dreyer’s Grand Ice Cream, Inc. and each of The Prudential Insurance Company of America, Pruco Life Insurance Company, and Transamerica Life Insurance and Annuity Company amending Exhibit 10.16. (Exhibit 10.37 (22)
	10.19			Second Amendment dated October 18, 2002 to Credit Agreement dated as of July 25, 2000 among Dreyer’s Grand Ice Cream, Inc., the banks party to this agreement, Bank of America, N.A. as Agent for the Banks, as Swing Line Bank and as Letter of Credit Issuing Bank; Union Bank of California, N.A. as Syndication Agent and Banc of America Securities LLC as Lead Arranger and Book Manager. (Exhibit 10.1 (24)).

10.19*

Secured Promissory Notes dated October 5, 1998 and December 18, 1998 in the principal sums of $95,000 and $186,000, respectively, with Thomas M. Delaplane as Maker and Dreyer’s Grand Ice Cream, Inc. as Payee, and related Pledge Agreement dated October 5, 1998 by and between Thomas Miller Delaplane, as Trustee of the Delaplane Family Trust UAD 6/22/95 and Dreyer’s Grand Ice Cream, Inc. (Exhibit 10.41 (22)).

~~10.20~~

Credit Agreement dated as of July 25, 2000 among Dreyer’s Grand Ice Cream, Inc., or the Banks party to the agreement, Bank of America, N.A. as Agent for the Banks, as Swing Line Bank and as Letter of Credit Issuing Bank; Union Bank of California, N.A. as Syndication Agent and Banc of America Securities LLC as Lead Arranger and Book Manager (Exhibit 10.1 (23)).

10.21*

Amendment dated as of October 3, 2000 to Secured Promissory Notes dated October 5, 1998 and December 18, 1998 in the principal sums of $95,000 and $186,000, respectively, with Thomas M. Delaplane as Maker and Dreyer’s Grand Ice Cream, Inc. as Payee, amending Exhibit 10.19.

10.22**

Distribution Agreement dated as of October 10, 2000 by and between Dreyer’s Grand Ice Cream, Inc. and Ben & Jerry’s Homemade, Inc. and First Amendment to 2000 Distribution Agreement dated as of January 19, 2001.

10.23*

~~Dreyer’s Grand Ice Cream, Inc. Stock Option Plan (1993), as amended.~~

10.24*

Amendment dated as of March 19, 2001 to Secured Promissory Notes dated October 5, 1998 and December 18, 1998 in the principal sums of $95,000 and $186,000, respectively, with Thomas M. Delaplane as Maker and Dreyer’s Grand Ice Cream, Inc. as Payee, amending Exhibit 10.19.

~~Exhibit~~
~~Number~~

~~Description~~

Subsidiaries of Registrant.

Consent of Independent Accountants.

*
	99.1			Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


Exhibit
Number		Description

	99.2	Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Indicates a management contract or compensatory plan or arrangement, as required by Item 14(a)(3).

** Confidential treatment requested and pending as to certain portions of this exhibit. The term “confidential treatment” and the mark “*” used throughout the indicated exhibit means that material has been omitted and separately filed with the Commission.

		~~(1)~~
	**	Confidential treatment requested and granted as to certain portions of this exhibit. The term “confidential treatment” and the mark “*” used throughout the indicated exhibit means that material has been omitted and separately filed with the Commission.

(1) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Registration Statement on Form S-1 and Amendment No. 1 thereto, filed under Commission File No. 2-71841 on April 16, 1981 and June 11, 1981, respectively.

~~(2)~~ Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K and Amendment No. 1 thereto for the year ended December 28, 1985 on March 28, 1986 and April 14, 1986, respectively.

~~(3)~~
(2) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1988 filed on March 31, 1989.

~~(4)~~
(3) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K for the year ended December 30, 1989 filed on March 30, 1990.

~~(5)~~
(4) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Current Report on Form 8-K filed on March 20, 1991.

~~(6)~~
(5) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K for the year ended December 29, 1990 filed on March 29, 1991.

~~(7)~~
(6) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K for the year ended December 26, 1992 filed on March 26, 1993.

~~(8)~~
(7) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Current Report on Form 8-K filed on June 25, 1993.

~~(9)~~
(8) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended on June 26, 1993 filed on August 10, 1993.

~~(10)~~ ~~Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K for the year ended December 25, 1993 filed on March 25, 1994.~~

~~(11)~~
(9) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K for the year ended December 25, 1993 filed on March 25, 1994.

(10) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 26, 1994 filed on May 10, 1994.

~~(12)~~
(11) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Current Report on Form 8-K filed on May 9, 1994.

~~(13)~~
(12) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 25, 1994 filed on August 9, 1994.

~~(14)~~
(13) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1994 filed on March 30, 1995.

~~(15)~~ ~~Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended July 1, 1995 filed on August 15, 1995.~~

~~(16)~~ ~~Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995 filed on November 14, 1995.~~

42

~~(17)~~ (14) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K for the year ended December 30, 1995 filed on March 29, 1996.

~~(18)~~
(15) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 29, 1996 filed on August 13, 1996.

~~(19)~~ ~~Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K for the year ended December 28, 1996 filed on March 28, 1997.~~

~~(20)~~ (16) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Current Report on Form 8-K/A filed on March 21, 1997.

~~(21)~~
(17) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K for the year ended December 28, 1996 filed on March 28, 1997.

(18) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Current Report on Form 8-K filed on May 19, 1997.

~~(22)~~
(19) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K for the year ended December 26, 1998 filed on March 26, 1999.

~~(23)~~
(20) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 23, 2000 filed on November 7, 2000.

43

(21) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2001 filed on May 15, 2001.
(22) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 filed on November 13, 2001.
(23) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Annual Report on Form 10-K for the year ended December 30, 2000 filed on March 30, 2001.
(24) Incorporated by reference to the designated exhibit to Dreyer’s Grand Ice Cream, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 29, 2002 filed on November 13, 2002.
(25) Incorporated by reference to Annex A to the definitive proxy statement filed by Dreyer’s Grand Ice Cream, Inc. on February 18, 2003.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~DREYER’S GRAND ICE CREAM, INC.~~

~~By:    /s/ T. GARY ROGERS~~
~~——————————————~~
               ~~(T. Gary Rogers)~~
       ~~Chairman of the Board and~~
  ~~Chief Executive Officer and Director~~
          ~~(Principal Executive Officer)~~


	DREYER’S GRAND ICE CREAM, INC.

	BY: /s/ T. GARY ROGERS

	(T. GARY ROGERS)
	Chairman of the Board and
	Chief Executive Officer and Director
	(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Delaware		~~Delaware~~No. 94-2967523
(State or other jurisdiction of incorporation or organization)		~~No. 94-2967523~~ (I.R.S. Employer Identification No.)


		High		Low

2002
	First Quarter	$	44.20	$	37.70
	Second Quarter		69.07		40.86
	Third Quarter		70.00		66.75
	Fourth Quarter		70.98		69.72

2001
	First Quarter	$	36.75	$	23.38
	Second Quarter		31.35		23.94
	Third Quarter		30.85		26.50
	Fourth Quarter		40.05		27.68


		Page

(1)	Financial Statements:
	Consolidated Statement of Income for each of the three years in the period ended December 28, 2002		32
	Consolidated Balance Sheet at December 28, 2002 and December 29, 2001		33
	Consolidated Statement of Changes in Stockholders’ Equity for each of the three years in the period ended December 28, 2002		34
	Consolidated Statement of Cash Flows for each of the three years in the period ended December 28, 2002		35
	Notes to Consolidated Financial Statements		36
	Report of Independent Accountants		54
	Financial statements of any other 50 percent or less owned company have been omitted because the Company’s proportionate share of income (loss) ~~as previously reported. The Company will implement EITF 00-14 as~~from continuing operations before income tax provision (benefit) and cumulative effect of change in accounting principle is less than 20 percent of the respective consolidated amounts, and the investment in and advances to any such company is less than 20 percent of consolidated total assets.

(2)	Financial Statement Schedule:
	Schedule II. Valuation and Qualifying Accounts		55
	All other schedules are omitted because they are not applicable or the required information is shown in the ~~second quarter of 2001. Reclassification of prior period~~ financial statements ~~is required.~~ or notes thereto.

~~Income Taxes~~(3)	Exhibits:
	The exhibits listed in the accompanying exhibit index are filed herein or incorporated by reference to exhibits previously filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K.		56


	2002			2001			2000

Risk-free interest rate		4.70	%		5.11	%		6.68	%
Dividend yield		.61	%		.77	%		.68	%
Volatility		44.28	%		44.36	%		39.96	%
Expected term(years)		5.90			5.90			5.90
Weighted average fair market value	$	18.35		$	14.39		$	8.31


Signature	Title	Date


/s/ T. GARY ROGERS (T. Gary Rogers)	Chairman of the Board and Chief Executive Officer and Director (Principal Executive Officer)	March 28, 2003

/s/ WILLIAM F. CRONK, III (William F. Cronk, III)	President and Director	March 28, 2003

/s/ EDMUND R. MANWELL (Edmund R. Manwell)	Secretary and Director	March 28, 2003

/s/ TIMOTHY F. KAHN (Timothy F. Kahn)	Vice President — Finance and Administration and Chief Financial Officer (Principal Financial Officer)	March 28, 2003

/s/ JEFFREY P. PORTER (Jeffrey P. Porter)	Corporate Controller (Principal Accounting Officer)	March 28, 2003

/s/ JAN L. BOOTH (Jan L. Booth)	Director	March 28, 2003

/s/ ROBERT A. HELMAN (Robert A. Helman)	Director	March 28, 2003

/s/ M. STEVEN LANGMAN (M. Steven Langman)	Director	March 28, 2003

/s/ JOHN W. LARSON (John W. Larson)	Director	March 28, 2003

/s/ TIMOTHY P. SMUCKER (Timothy P. Smucker)	Director	March 28, 2003


or

~~[ ]~~o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		For the transition period from ~~____________~~ to ~~____________~~ ~~Commission file number: 0-14190~~ ~~DREYER’S GRAND ICE CREAM, INC.~~ ~~(Exact name of registrant as specified in its charter)~~

Title of Each Class		Name of Each Exchange on Which Registered

Not applicable		Not applicable

The Company owns a manufacturing plant with an adjoining cold storage warehouse in Fort Wayne, Indiana. This facility has approximately 58,000 square feet of manufacturing and office space and 104,000 square feet of dry and cold storage space. The plant has estimated capacity of 64,000,000 gallons per year. During 2000, the facility produced approximately 54,000,000 gallons of ice cream and related products. The Company’s original purchase and development of the Fort Wayne facility was financed by industrial development bonds and the property is pledged as collateral to secure payment of the Company’s obligations to the issuer of the irrevocable letter of credit established for the benefit of the bondholders. The Company owns a manufacturing and distribution facility in Houston, Texas. This facility has approximately 50,000 square feet of manufacturing, dry storage and office space and 80,000 square feet of cold storage warehouse space. The plant has estimated capacity of 36,000,000 gallons per year. During 2000, this facility produced approximately 22,000,000 gallons of ice cream and related products. As discussed under the caption, “1998 Restructuring Program and Other Actions” of “Management’s Discussion and Analysis” under Item 7 of this Annual Report on Form 10-K, the Company expects to realize substantially lower production volumes over the remaining useful life of its Houston, Texas manufacturing plant than originally contemplated. However, the Company anticipates that the production levels at the Texas manufacturing plant may increase for the next several years pending the addition of more manufacturing capacity in the eastern half of the United States. The Company owns a manufacturing and distribution facility in Salt Lake City, Utah. This facility has approximately 13,000 square feet of manufacturing, dry storage and office space and 13,000 square feet of cold storage space. Another 18,000 square feet of cold storage space and 4,000 square feet of office space is leased. The plant has estimated capacity of 12,000,000 gallons per year. During 2000, the facility produced approximately 7,000,000 gallons of ice cream and related products. The Company intentionally acquires, designs and constructs its manufacturing and distribution facilities with a capacity greater than current needs require. This is done to facilitate growth and expansion and minimize future capital outlays. The cost of carrying this excess capacity is not significant. The estimated plant productive capacities discussed above will be heavily influenced by seasonal demand fluctuations, internal or external inventory storage availability and costs, and the type of product or package produced. The Company leases or rents various local distribution and office facilities with leases expiring through the year 2022, including options to renew, except for one that has 87 years remaining under the lease.	Item 3. Legal Proceedings. ~~Not applicable.~~
	Item 4. Submission of Matters to a Vote of Security Holders. ~~Not applicable.~~ ~~THIS SPACE INTENTIONALLY LEFT BLANK~~ 6
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.
	Item 6. Selected Financial Data.
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
	Item 8. Financial Statements and Supplementary Data.
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
PART III
	Item 11. Executive Compensation.
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
	Item 13. Certain Relationships and Related Transactions.
	Item 14. Controls and Procedures.
PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
CONSOLIDATED STATEMENT OF INCOME
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
SCHEDULE II
EXHIBIT INDEX
SIGNATURES
CERTIFICATIONS
Exhibit 21
Exhibit 23
Exhibit 99.1
Exhibit 99.2


	*Premium and Superpremium Products and Channel Development*


Item 4.	*Submission of Matters to a Vote of Security Holders.*


Name				Age			Position
	~~Age~~
T. Gary Rogers			60			Chairman of the Board and Chief Executive Officer	58
William F. Cronk, III		~~President~~	60		58	President
Edmund R. Manwell		~~Secretary~~	60		58	Secretary
Thomas M. Delaplane			58			Vice President — Sales	56
J. Tyler Johnston			49			Vice President — Marketing	47
Timothy F. Kahn		~~Vice President — Finance and Administration and~~	49
		~~Chief Financial Officer~~		47
~~William R. Oldenburg~~		~~Vice President — Operations~~		54



			Year Ended December⁽¹⁾

			2002		2001		2000		1999		1998


			($ in thousands, except per share amounts)
Operations:
	Net sales⁽²⁾		$	1,345,957	$	1,211,245	$	1,040,788	$	961,111	$	902,109
	Income (loss) before cumulative effect of change in accounting principle^(3),(4)			29,060		8,829		25,378		11,587		(46,510	)
	Net income (loss)^(3),(4)			29,060		8,829		25,378		10,992		(46,510	)
	Net income (loss) available to common stockholders^(3),(4)			29,060		8,269		24,220		9,872		(47,630	)
Per Common Share:
	Basic:
		Income (loss) before cumulative effect of change in accounting principle^(3),(4)		.84		.26		.86		.38		(1.75	)
		Net income (loss)^(3),(4)		.84		.26		.86		.36		(1.75	)
	Diluted:
		Income (loss) before cumulative effect of change in accounting principle^(3),(4)		.77		.24		.72		.35		(1.75	)
		Net income (loss)^(3),(4)		.77		.24		.72		.33		(1.75	)
	Dividends declared⁽⁵⁾			.24		.24		.12		.12		.12
Balance Sheet:
	Total assets			512,572		498,689		468,451		441,065		461,721
	Working capital⁽⁶⁾			80,368		84,018		58,006		29,513		61,059
	Long-term debt⁽⁷⁾			118,529		148,671		121,214		104,257		169,781
	Redeemable convertible preferred stock⁽⁸⁾							100,540		100,078		99,654
	Stockholders’ equity⁽⁸⁾			243,988		208,365		100,372		73,694		61,174

	High	Low
Fiscal 2000:
First Quarter	$25.125	$14.438
Second Quarter	26.125	21.000
Third Quarter	25.047	20.500
Fourth Quarter	33.563	20.469

Fiscal 1999:
First Quarter	$15.875	$11.750
Second Quarter	17.125	11.500
Third Quarter	19.688	15.125
Fourth Quarter	18.281	15.125

	1998			1999
(In thousands)	Third Quarter	Fourth Quarter	Full Year	Full Year
(Reversal of) provision for
restructuring charges:
Grand Soft	$	$ 2,258	$ 2,258	$(1,315	)
Sales and distribution severance		1,042	1,042

		3,300	3,300	(1,315	)

Impairment of long-lived assets:
Grand Soft		8,696	8,696
Texas plant		16,200	16,200
Texas independent distributor		10,533	10,533
Ben & Jerry’s revision	4,657		4,657
Headquarters’ expansion		4,478	4,478

	4,657	39,907	44,564

Other charges:
Texas independent distributor	5,000		5,000
Sales and distribution severance	933		933
Asset disposals		5,317	5,317

	5,933	5,317	11,250

	$10,590	$48,524	$59,114	$(1,315	)


Item 1.	*Business.*


	*Marketing*


	*Direct-Store-Distribution Network*


	*Aggregated Segments*

	Restructuring Accruals						Other Accruals
(In thousands)	Grand Soft		Sales and Distribution Severance		Subtotal		Sales and Distribution Severance		Total
Balances at December 27, 1997	$		$		$		$		$
Additions	2,258		1,042		3,300		933		4,233
Payments			(153	)	(153	)	(514	)	(667	)
Reversals

Balances at December 26, 1998	2,258		889		3,147		419		3,566
Additions
Payments	(811	)	(632	)	(1,443	)	(419	)	(1,862	)
Reversals	(1,315	)			(1,315	)			(1,315	)

Balances at December 25, 1999	132		257		389				389
Additions
Payments	(132	)	(257	)	(389	)			(389	)
Reversals

Balances at December 30, 2000	$		$		$		$		$

($ in thousands)	Long-Term Debt	Interest Rates
Fixed Interest Rates:
Senior notes	$42,857	7.68-8.34	%
Senior notes	3,400	9.30	%
Variable Interest Rates:
Revolving line of credit	85,500	7.85	%
Industrial revenue bonds	4,500	5.20	%

	$136,257

	Year Ended
($ in thousands, except per share amounts)	Dec. 30, 2000	Dec. 25, 1999		Dec. 26, 1998

Revenues:
Sales	$ 1,194,356	$1,099,817		$ 1,022,335
Other income	3,758	2,090		3,653

	1,198,114	1,101,907		1,025,988

Costs and expenses:
Cost of goods sold	889,412	837,907		827,862
Selling, general and administrative	255,739	235,146		212,151
Impairment of long-lived assets				44,564
(Reversal of) provision for restructuring charges		(1,315	)	3,300
Interest, net of amounts capitalized	12,352	11,450		13,006

	1,157,503	1,083,188		1,100,883

Income (loss) before income tax provision (benefit) and
cumulative effect of change in accounting principle	40,611	18,719		(74,895	)
Income tax provision (benefit)	15,233	7,132		(28,385	)

Income (loss) before cumulative effect of change in
accounting principle	25,378	11,587		(46,510	)
Cumulative effect of change in accounting principle		595

Net income (loss)	25,378	10,992		(46,510	)
Accretion of preferred stock to redemption value	462	424		424
Preferred stock dividends	696	696		696

Net income (loss) available to common stockholders	$ 24,220	$ 9,872		$ (47,630	)



Per common share-basic:
Income (loss) available to common stockholders before
cumulative effect of change in accounting principle	$ .86	$ .38		$ (1.75	)
Cumulative effect of change in accounting principle		.02

Net income (loss)	$ .86	$ .36		$ (1.75	)

Per common share-diluted:
Income (loss) available to common stockholders before
cumulative effect of change in accounting principle	$ .72	$ .35		$ (1.75	)
Cumulative effect of change in accounting principle		.02

Net income (loss)	$ .72	$ .33		$ (1.75	)

($ in thousands, except per share amounts)	Dec. 30, 2000	Dec. 25, 1999
Assets
Current Assets:
Cash and cash equivalents	$ 2,721		$ 3,158
Trade accounts receivable, net of allowance for doubtful accounts of
$2,611 in 2000 and $5,715 in 1999	77,310		79,251
Other accounts receivable	18,810		13,528
Inventories	68,801		54,669
Deferred income taxes	4,584		11,586
Prepaid expenses and other	6,950		6,621

Total current assets	179,176		168,813

Property, plant and equipment, net	190,833		197,392
Goodwill, distribution rights and other intangibles, net	92,892		67,125
Other assets	5,550		7,735

Total assets	$ 468,451		$ 441,065



Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued liabilities	$ 80,260		$ 90,666
Accrued payroll and employee benefits	24,759		29,913
Current portion of long-term debt	15,043		18,721

Total current liabilities	120,062		139,300

Long-term debt, less current portion	121,214		104,257
Deferred income taxes	26,263		23,736

Total liabilities	267,539		267,293

Commitments and contingencies
Redeemable convertible preferred stock, $1 par value - 1,008,000 shares
authorized; 1,008,000 shares issued and outstanding in 2000 and 1999	100,540		100,078

Stockholders’ Equity:
Preferred stock, $1 par value - 8,992,000 shares authorized,
no shares issued or outstanding in 2000 and 1999
Common stock, $1 par value - 60,000,000 shares authorized; 28,268,000 shares
and 27,871,000 shares issued and outstanding in 2000 and 1999, respectively	28,268		27,871
Capital in excess of par	58,396		53,172
Notes receivable from stockholders	(2,284	)	(2,501	)
Retained earnings (Accumulated deficit)	15,992		(4,848	)

Total stockholders’ equity	100,372		73,694

Total liabilities and stockholders’ equity	$ 468,451		$ 441,065

	Common Stock				Capital in Excess		Notes Receivable from		(Accumulated Deficit) Retained
(In thousands)	Shares		Amount		of Par		Stockholders		Earnings		Total

Balances at December 27, 1997	27,020		$27,020		$42,822		$(652	)	$ 39,498		$ 108,688
Net loss for 1998									(46,510	)	(46,510	)
Accretion of preferred stock to
redemption value									(424	)	(424	)
Preferred stock dividends declared									(696	)	(696	)
Common stock dividends declared									(3,269	)	(3,269	)
Issuance of common stock under
employee stock plans, net	298		298		4,038		(807	)			3,529
Repurchases and retirements of common
stock	(6	)	(6	)	(138	)					(144	)

Balances at December 26, 1998	27,312		27,312		46,722		(1,459	)	(11,401	)	61,174
Net income for 1999									10,992		10,992
Accretion of preferred stock to
redemption value									(424	)	(424	)
Preferred stock dividends declared									(696	)	(696	)
Common stock dividends declared									(3,319	)	(3,319	)
Issuance of common stock under
employee stock plans, net	579		579		6,671		(1,042	)			6,208
Repurchases and retirements of common
stock	(20	)	(20	)	(221	)					(241	)

Balances at December 25, 1999	27,871		27,871		53,172		(2,501	)	(4,848	)	73,694
Net income for 2000									25,378		25,378
Accretion of preferred stock to
redemption value									(462	)	(462	)
Preferred stock dividends declared									(696	)	(696	)
Common stock dividends declared									(3,380	)	(3,380	)
Issuance of common stock under
employee stock plans, net	457		457		5,785		(171	)			6,071
Repurchases and retirements of common
stock	(60	)	(60	)	(1,485	)	388				(1,157	)
Tax benefits from employee stock
option plans					924						924

Balances at December 30, 2000	28,268		$28,268		$58,396		$(2,284	)	$ 15,992		$ 100,372

	Year Ended
($ in thousands)	Dec. 30, 2000		Dec. 25, 1999		Dec. 26, 1998

Cash flows from operating activities:
Net income (loss)	$ 25,378		$ 10,992		$(46,510	)
Adjustments to reconcile net income (loss) to cash flows
from operations:
Depreciation and amortization	37,479		35,515		36,176
Deferred income taxes	6,665		4,305		(26,612	)
Impairment of long-lived assets					44,564
Loss on disposal of property, plant and equipment	1,360		1,803		5,317
Tax benefits from employee stock option plans	924
Provision for losses on trade accounts receivable	1,602				5,000
(Reversal of) provision for restructuring charges			(1,315	)	3,147
Cumulative effect of change in accounting principle			595
Changes in assets and liabilities, net of amounts acquired:
Trade accounts receivable	6,607		3,802		(6,042	)
Other accounts receivable	(5,071	)	15,637		(12,783	)
Inventories	(11,044	)	(5,197	)	(1,137	)
Prepaid expenses and other	(236	)	(2,113	)	3,192
Accounts payable and accrued liabilities	(14,832	)	4,731		27,662
Accrued payroll and employee benefits	(5,179	)	10,368		(2,778	)

	43,653		79,123		29,196

Cash flows from investing activities:
Acquisition of property, plant and equipment	(24,513	)	(23,756	)	(35,078	)
Retirement of property, plant and equipment	515		726		284
Purchase of certain assets of Specialty Frozen Products, L.P.	(18,922	)
Purchase of common stock of Cherokee Cream Company, Inc.	(7,651	)
Purchase of independent distributors	(1,564	)	(1,000	)	(311	)
(Increase) decrease in other assets	(3,305	)	(18	)	260

	(55,440	)	(24,048	)	(34,845	)

Cash flows from financing activities:
Proceeds from long-term debt, net	141,374				12,400
Repayments of long-term debt	(130,700	)	(55,058	)	(8,641	)
Issuance of common stock under employee stock plans, net	6,071		6,208		3,529
Repurchases and retirements of common stock	(1,157	)	(241	)	(144	)
Cash dividends paid	(4,238	)	(3,997	)	(3,950	)

	11,350		(53,088	)	3,194

(Decrease) increase in cash and cash equivalents	(437	)	1,987		(2,455	)
Cash and cash equivalents, beginning of year	3,158		1,171		3,626

Cash and cash equivalents, end of year	$ 2,721		$ 3,158		$ 1,171

Supplemental cash flow information:
Cash paid during the year for:
Interest (net of amounts capitalized)	$ 12,326		$ 11,566		$ 12,785

Income taxes (net of refunds)	$ 6,400		$ 843		$ 881

Supplemental acquisition information:
Fair value of assets acquired	$ 39,934
Cash paid in connection with acquisitions	(26,777	)

Liabilities assumed	$ 13,157


	Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)


	Guarantor’s Accounting and Disclosure Requirements for Guarantees Including the Indirect Guarantees of Indebtedness of Others


Contractual Obligations	Total		2003		2004		2005		2006		2007		Thereafter


	(In thousands)
Long-term debt	$	120,672	$	2,143	$	2,143	$	94,243	$	8,810	$	6,666	$	6,667
Operating leases		30,319		10,978		6,413		4,577		3,282		1,777		3,292
Purchase obligations⁽¹⁾		96,405		88,955		7,450

Total	$	247,396	$	102,076	$	16,006	$	98,820	$	12,092	$	8,443	$	9,959


		Long-Term Debt		Interest Rates


		($ in thousands)
Fixed Interest Rates:
	Senior notes	$	28,572		8.06–8.34	%
Variable Interest Rates:
	Revolving line of credit		92,100		2.56	%

		$	120,672

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

OR

Commission file number: 0-14190

5929 College Avenue, Oakland, California 94618(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (510) 652-8187

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:Common Stock, $1.00 Par ValuePreferred Stock Purchase Rights

DOCUMENTS INCORPORATED BY REFERENCE

Forward-Looking Statements.

PART I

Item 1. Business.

General

Markets

Products

Marketing, Sales and Distribution

Manufacturing

Competition

Employees

Item 2. Properties.

Item 3. Legal Proceedings.

THIS SPACE INTENTIONALLY LEFT BLANK

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

Item 6. Selected Financial Data.

RESULTS OF OPERATIONS

FINANCIAL CONDITION

Item 7A.Quantitative and Qualitative Disclosures about Market Risk.

THIS SPACE INTENTIONALLY LEFT BLANK

Item 8. Financial Statements and Supplementary Data.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

PART III

Item 10. Directors and Executive Officers of the Registrant.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Item 13. Certain Relationships and Related Transactions.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) The following documents are filed as part of this Annual Report on Form 10-K:

(b) Reports on Form 8-K

CONSOLIDATED STATEMENT OF OPERATIONS

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Operations

Note 2 Summary of Significant Accounting Policies

Note 3 Inventories

Note 47. Property, Plant and Equipment

44NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)Note 58. Goodwill Distribution Rights and Other Intangibles

Note 813. Leasing Arrangements

Note 914. Redeemable Convertible Preferred Stock

Note 1015. Common Stock

Note 1116. Employee Benefit Plans

Note 1217. Employee Stock Plans

Note 1318. Acquisitions

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)Note 14 Insurance Settlements

Note 1519. Commitments and Contingencies

Note 16 1998 Restructuring Program and Other Actions

Note 1720. Selected Quarterly Financial Data (Unaudited)

DREYER’S GRAND ICE CREAM, INC.CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

5929 College Avenue, Oakland, California 94618
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (510) 652-8187

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
Preferred Stock Purchase Rights

44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Note 58. Goodwill Distribution Rights and Other Intangibles

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Note 14 Insurance Settlements


Item 10.	*Directors and Executive Officers of the Registrant.*


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.*


Item 13.	*Certain Relationships and Related Transactions.*


Item 15.	*Exhibits, Financial Statement Schedules and Reports on Form 8-K.*



			Year Ended

			Dec. 28, 2002			Dec. 29, 2001			Dec. 30, 2000


			($ in thousands, except per share amounts)
Net sales			$	1,345,957		$	1,211,245		$	1,040,788

Costs and expenses:
	Cost of goods sold			1,165,518			1,080,889			885,952
	Selling, general and administrative			116,050			108,345			105,631
	Interest, net of amounts capitalized			7,260			10,833			12,352
	Other income, net			(1,071	)		(2,405	)		(3,758	)
	Merger transaction expenses			10,561

				1,298,318			1,197,662			1,000,177

Income before income tax provision				47,639			13,583			40,611
Income tax provision				18,579			4,754			15,233

Net income				29,060			8,829			25,378
Accretion of preferred stock to redemption value							212			462
Preferred stock dividends							348			696

Net income available to common stockholders			$	29,060		$	8,269		$	24,220


Net income per common share:
		Basic	$	.84		$	.26		$	.86

		Diluted	$	.77		$	.24		$	.72


			Dec. 28, 2002			Dec. 29, 2001


			($ in thousands, except per
			share amounts)
ASSETS
Current Assets:
	Cash and cash equivalents		$	1,119		$	1,650
	Trade accounts receivable, net			91,268			89,721
	Other accounts receivable			13,161			16,116
	Inventories			82,831			81,298
	Deferred income taxes			1,468			3,547
	Prepaid expenses and other			24,026			8,849

		Total current assets		213,873			201,181
Property, plant and equipment, net				208,846			198,565
Goodwill, net				84,651			39,114
Other intangibles, net				1,679			55,354
Other assets				3,523			4,475

		Total assets	$	512,572		$	498,689

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable and accrued liabilities		$	90,534		$	91,794
	Accrued payroll and employee benefits			40,828			25,369
	Current portion of long-term debt			2,143

		Total current liabilities		133,505			117,163
Long-term debt, less current portion				118,529			148,671
Deferred income taxes				16,550			24,490

		Total liabilities		268,584			290,324


Commitments and contingencies

Stockholders’ Equity:
	Preferred stock, $1 par value – 10,000,000 shares authorized; no shares issued or outstanding in 2002 and 2001, respectively
	Common stock, $1 par value – 60,000,000 shares authorized; 34,989,000 shares and 34,461,000 shares issued and outstanding in 2002 and 2001, respectively			34,989			34,461
	Capital in excess of par			174,126			160,103
	Notes receivable from stockholders			(2,179	)		(2,546	)
	Retained earnings			37,052			16,347

		Total stockholders’ equity		243,988			208,365

		Total liabilities and stockholders’ equity	$	512,572		$	498,689


											Notes			(Accumulated
		Common Stock						Capital in			Receivable			Deficit)
								Excess			from			Retained
		Shares			Amount			of Par			Stockholders			Earnings			Total


		(In thousands)
Balances at December 25, 1999			27,871		$	27,871		$	53,172		$	(2,501	)	$	(4,848	)	$	73,694
	Net income for 2000														25,378			25,378
	Accretion of preferred stock to redemption value														(462	)		(462	)
	Preferred stock dividends declared														(696	)		(696	)
	Common stock dividends declared														(3,380	)		(3,380	)
	Issuance of common stock under employee stock plans, net		457			457			5,785			(171	)					6,071
	Repurchases and retirements of common stock		(60	)		(60	)		(1,485	)		388						(1,157	)
	Tax benefits from employee stock option plans								924									924

Balances at December 30, 2000			28,268			28,268			58,396			(2,284	)		15,992			100,372
	Net income for 2001														8,829			8,829
	Accretion of preferred stock to redemption value														(212	)		(212	)
	Preferred stock dividends declared														(348	)		(348	)
	Common stock dividends declared														(7,914	)		(7,914	)
	Conversion of redeemable convertible preferred stock		5,800			5,800			94,952									100,752
	Issuance of common stock under employee stock plans, net		550			550			8,207			(1,292	)					7,465
	Repurchases and retirements of common stock		(157	)		(157	)		(3,801	)		1,030						(2,928	)
	Tax benefits from employee stock option plans								2,349									2,349

Balances at December 29, 2001			34,461			34,461			160,103			(2,546	)		16,347			208,365
	Net income for 2002														29,060			29,060
	Common stock dividends declared														(8,355	)		(8,355	)
	Issuance of common stock under employee stock plans, net		583			583			11,137			(29	)					11,691
	Repurchases and retirements of common stock		(55	)		(55	)		(2,093	)		396						(1,752	)
	Tax benefits from employee stock option plans								4,979									4,979

Balances at December 28, 2002			34,989		$	34,989		$	174,126		$	(2,179	)	$	37,052		$	243,988


	*Significant Accounting Assumptions and ~~liabilities.~~Estimates*


	*Guarantor’s Accounting and Disclosure Requirements for Guarantees Including the Indirect Guarantees of Indebtedness of Others*

(In thousands)	2000	1999	1998
Stock options	676	1,507	4,361
Stock warrants		2,000	2,000
Preferred stock			5,800