UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORMForm 10-K

(Mark one)

  
[X](Mark One)
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 29, 200128, 2002

or

 
[   ]or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from____________to____________from           to
Commission file number: 0-14190

DREYER’S GRAND ICE CREAM, INC.Commission file number: 0-14190


Dreyer’s Grand Ice Cream, Inc.

(Exact name of registrant as specified in its charter)
   
Delaware
Delaware
No. 94-2967523
(State or other jurisdiction of
incorporation or organization)
 No. 94-2967523
(I.R.S. Employer
Identification No.)

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

   
Title of Each Class
Name of Each Exchange
on Which Registered


Not applicable Not applicable

Securities registered pursuantRegistered Pursuant to Section 12(g) of the Act:

Common Stock, $1.00 Par Value
Preferred Stock Purchase Rights

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes [X]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. [X]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 March 22,June 28, 2002, as reported by Nasdaq) of the Common Stock held by non-affiliates was approximately $1,283,180,564. Such amount$1,436,500,563. The aggregate market value calculation excludes the aggregate market value of shares beneficially owned by the executive officers and members of the Board of Directorsdirectors of the registrant and this calculation doesholders affiliated with them. This determination of affiliate status is not reflectnecessarily a conclusive determination that such persons are affiliates for any other purposes.

     As of March 22, 2002,20, 2003, the latest practicable date, 34,588,39535,036,152 shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Dreyer’s Grand Ice Cream, Inc. definitive Proxy Statement for the 20022003 Annual Meeting of Stockholders to be held on May 8, 2002,21, 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 20022003 Annual Meeting of Stockholders is not to be deemed filed as part of this Annual Report.




TABLE OF CONTENTS

Forward-Looking Statements.
PART I
Item 1. Business.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
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 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions.
Item 14. Controls and Procedures.
PART IV
Item 14.15. 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
EXHIBIT 10.16CERTIFICATIONS
EXHIBITExhibit 21
EXHIBITExhibit 23
Exhibit 99.1
Exhibit 99.2


Forward-Looking Statements.

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 CompanyPrivate 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 time to time make written or oral forward-looking statements. Written or oral forward-looking statements may appear inother documents filed with the Securities and Exchange Commission and in press releases, conference calls and webcasts (whether live(SEC) by the Company. You can find many of these statements by looking for words including, for example, “believes”, “expects”, “anticipates”, “estimates” or recorded) 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 determined that forward-looking statements are containedsimilar expressions in this Annual Report on Form 10-K. Also,10-K or in connection withdocuments incorporated by reference in this “safe harbor” provision,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, identifies important factors thatand could cause the Company’s actual results to differ materially from those containedexpressed in anythese forward-looking statement made by orstatements, including, but not limited to:

• 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 Company’s marketing and 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 behalfthese statements, which speak only as of the Company. Those factors include, but are not limited to, those discussed in the “Risks and Uncertainties” section in Item 7date of this Annual Report on Form 10-K. Any such statement is qualified10-K or, in the case of documents incorporated by reference to the cautionary statements set forth in Item 7 below and in this and other filings withAnnual Report on Form 10-K, the Securities and Exchange Commission.dates of those documents. The Company undertakes no obligation to publicly update or revise theseany forward-looking statements, to reflect subsequent eventswhether as a result of new information or circumstances. Such forward-looking statements involve known and unknown risks and uncertainties, which may causefuture events.

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The following discussion should be read together with the Company’s actual actionsconsolidated 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”.

Website Access to Reports.

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 results to differ materially from those containedby following the links provided under “Financial Information” or “SEC Edgar Filings” in any forward-looking statement made by or on behalfthe Investors section of the Company.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.

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PART I

Item 1.     Business.

Item 1.Recent EventsBusiness.

     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.

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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.

     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 current Strategic Plan discussed below will not necessarily be the strategic plan of New Dreyer’s. In addition, if any of the

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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.

General

     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”. 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 premium and superpremium 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’sEdy’s® brand names in approximately 92 percent of the retail outlets serving more than 91 percent of the households in the United States. The Dreyer’s line of products are available in the thirteen13 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 andand/or distributes branded ice cream and frozen dessert products of other companies.

Markets

     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. Theplants resulting reduction in theless demand for milk and the “regular” ice cream brands producedsupplied by the independent dairies has caused many such dairies to withdraw from the market. Manufacturing and formulation complexities, broader flavor requirements, consumer preference and brand identity, however, make it more difficult for the chains’ private label brands to compete effectively in the premium market segment.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 also thoseothers 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.

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Products

     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

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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 GrandGrand® Ice Cream®,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;Yogurt, Grand Light®;Light, No Sugar Added and Fat Free ice creams. The Company believes these “betterbetter for you”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™Dreamery Ice Cream, Whole Fruit™Fruit Sorbet, Starbucks® Ice Cream and Godiva®Godiva Ice Cream. The Company manufactures and distributes Starbucks®Starbucks Ice Cream products under a joint venture with Starbucks Corporation (Starbucks), and Godiva®Godiva Ice Cream under a long-term license with Godiva Chocolatier, Inc.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 Whole Fruit™ Bars,and Sundae Cones and Starbucks® Frappuccino® Bars.Cones.

     The Company’s product lines now include approximately 139151 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, have beenare those with Unilever (Ben & Jerry’s and Good Humor®-Breyers® products), ConAgra Foods, Inc. (Healthy Choice™Choice® products), NestléSilhouette Brands, Inc. (distributed novelty products) and NICC (Häagen-Dazs® and Nestlé products), and Unilever United States, Inc. (Ben & Jerry’s® and Good Humor®-Breyers® products). See “Recent Events” for additional information regarding the Company’s arrangements with manufacturers of partner brands.

Marketing, Aggregated Segments, Sales and Distribution

Marketing

     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 Strategic Plan

     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 this planthe 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

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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.

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     WhileAlthough 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., NestléSilhouette Brands, Inc. and Unilever United States, Inc. As discussed above,NICC. In 1999, Ben & Jerry’s, is one of the Company’s more significant partner brands. In 1999, Ben & Jerry’sbrands, 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 such a differenceshortfall 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,sales; the cost of dairy raw materials and other commodities used in the Company’s products,products; competitors’ marketing and promotion responses,responses; market conditions affecting the priceprices of the Company’s products,products; the Company’s ability to increase sales of its own branded products,products; and responsiveness of both the trade and consumers to the Company’s new products and increased marketing and trade promotion expenses.

Salesprograms. See “Recent Events” above for additional information regarding facts that may affect the Strategic Plan.

Marketing

     Three customers, Kroger Co., Safeway, Inc. and Albertson’s, Inc., each accounted for ten percent or more of 2001 sales. The Company’s export sales were about one percentmarketing strategy is based upon management’s belief that a significant number of 2001 sales. The Company experiencespeople prefer a seasonal fluctuationquality product and quality image in sales, with more demand for its products duringice 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 springproduct’s quality and summer than duringimage are strictly maintained, a brand can develop a clearly defined and loyal consumer following. It is the fall and winter.

Premium and Superpremium Products and Channel DevelopmentCompany’s goal to develop such a consumer following in each major market in which it does business.

Premium and Superpremium Products and Channel Development

     The packaged ice cream category, which is the Company’s primary market, may be characterized as composed of three main segments:categories: low-priced brands,brands; premium brandsbrands; and superpremium brands. These segmentscategories 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, and in its direct-store-distribution network, which is the only one in this industry with national scope.line.

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

7


label brands. The Company’s original brands were in the premium segment.category. As part of the Strategic Plan, the Company has expanded the number of brands it offers in the premium segment,category, and has made a significant entry into the superpremium segment,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 with M&M/Mars, as well as a license agreement with Godiva Chocolatier, Inc.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”.

     While the Company’s primary business is with grocery stores, the Company is committed to aggressive expansion of its sales to other nongrocery channels, such as mass merchandisers, convenience stores and foodservice outlets.

Direct-Store-Distribution Networkcompany brands.

Direct-Store-Distribution Network

     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

4


Company believes this service ensures superior product handling, quality control, flavor selection and retail display. 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 approximately 91 percent of 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 has made, and continuesrefers to make, substantial investments in information technology, other business systems, and staffing in order to ensure that its distribution system remains a source of competitive advantage. Increasingly, the Company highlights this advantage by referring to its 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 entered intoacquired various distributor acquisitions.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 WestWestern United States now includes 12 warehouses operated by the Company10 distribution centers in large metropolitan areas such as Los Angeles, the San Francisco Bay Area, Phoenix, San Diego,Portland, Salt Lake City, Houston, Seattle and Denver. The Company also has independent distributors handling the Company’s products in various areas of the thirteen13 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 warehouses,distribution centers, including centers in the New York/New Jersey metropolitan area, Chicago, the Washington/Baltimore metropolitan area, Atlanta, Tampa, Miami and Kansas City.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.

8


     Taken together, independent distributors accounted for approximately 1617 percent of the Company’s consolidatednet sales in fiscal 2001.2002. 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.

Aggregated Segments

     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.

Significant Customers

     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.

Manufacturing

     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 2001,2002, approximately 15,000,00022,000,000 dozens (86(97 percent of total novelty production) of Whole Fruit Bars, Starbucks Frappuccino Bars, Dreyer’s and Edy’s Ice Cream Bars and Whole Fruit™ Bars and Starbucks® Frappuccino® BarsGodiva bars were produced under these agreements. In addition, the Company has agreements to produce products for other manufacturers. In 2001,2002, the Company manufactured approximately 13,000,00012,000,000 gallons of product under these partner brand agreements. Total company production, including both company brands and other manufacturers’partner brands, was 125,000,000124,000,000 gallons during 2001.2002.

     The largest component of the Company’s cost of production is raw materials, principally dairy products and sugar. During 1999, dairy raw material costs declined which favorably impacted gross profit by approximately $15,000,000 as compared to 1998 (a year of extremely high dairy costs). 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. DairyDuring 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 thus far during 2002 as compared to 2001.the year-to-date period ended February 2002.

     The primary factor causing volatility in the Company’s dairy costs is the price of butter.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. While, over a long period of time,Over the averagelast 10 years, the price of butter in the United States has tended to remain below $1.20averaged

9


$1.15 per pound,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 offor butter are

5


still in the early stages of development, and do not have sufficient liquidity to provide a hedge for any more than a very limited amountenable the Company to fully reduce its exposure to the volatility of the Company’s requirements.

     These constraints prevent themarket. The Company from effectively hedging a large portion of its cream costs. However, the Company will from time to time purchasehas proactively addressed this price volatility by purchasing either butter or butter futures contracts with the intent of reselling or settling its positions in order to lower its cream cost and its overall exposure toat the volatility of the market.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 ofthat the Company’s capabilityCompany will be able to achieve such compensationincrease 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.

     Other cost increases, such as labor and general and administrative costs, have in the past been partially offset by productivity gains and other operating efficiencies.

     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.

Competition

     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.

10


     The Company distributes products as “partner brands” for several key competitors such as ConAgra Foods, Inc. (Healthy Choice™Choice products), NestléNICC (Häagen-Dazs®agen-Dazs and Nestlé products), and Unilever United States, Inc. (Ben & Jerry’s®Jerry’s and Good Humor®-Breyers®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.

Employees

     On December 29, 2001,28, 2002, the Company had approximately 4,7004,600 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;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 expiredexpires in June 2001 and has remained in effect by mutual agreement while the parties negotiate a new contract.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.

6


Item 2.Properties.

Item 2.     Properties.

     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 51,000,00043,000,000 gallons per year. During 2001,2002, 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 89,00072,000 square feet of manufacturing, dry storage and office space and 9,00018,000 square feet of cold storage space. The lease on this property, including renewal options, expires in 2022.2011. The plant has an estimated maximum capacity of 32,000,00037,000,000 gallons per year. During 2001,2002, 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 55,00092,000 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 104,000102,000 square feet of dry and cold storage space. The plant has an estimated maximum capacity of 64,000,00069,000,000 gallons per year. During 2001,2002, the facility produced approximately 58,000,00056,000,000 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, thatwhich 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 2001,2002, this facility produced approximately 21,000,00022,000,000 gallons of ice cream and related products.

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     The Company owns a manufacturing and distribution facility in Salt Lake City, Utah. This facility has approximately 13,00026,000 square feet of manufacturing, dry storage and office space and 13,00015,000 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 colddry storage space and 4,000 square feet of officecold storage space is leased. The plant has an estimated maximum capacity of 12,000,00011,000,000 gallons per year. During 2001,2002, 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 2022,2011, including options to renew, except for one that has 8685 years remaining under the lease.

Item 3.     Legal Proceedings.

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 3.Legal Proceedings.

Not applicable.1. To date, the Company is not aware of a complaint having been filed by the FTC seeking to enjoin the Merger.

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

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

Not applicable.

7


Executive Officers of the Registrant

The Company’s executive officers and their ages are as follows:

       
NameAgePositionAge



T. Gary Rogers60 Chairman of the Board and Chief Executive Officer59
William F. Cronk, III President60  59President
Edmund R. Manwell Secretary60  59Secretary
Thomas M. Delaplane Vice President — Sales58  57Vice President — Sales
J. Tyler Johnston Vice President — Marketing49  48Vice President — Marketing
Timothy F. Kahn49 Vice President — Finance and Administration and Chief Financial Officer48
William R. Oldenburg Vice President — Operations56  55Vice President — Operations

     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.

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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.

8


PART II

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

     (a)     Market information.

The Company’s Common Stock has been traded on the Nasdaq National Market under the symbol “DRYR” since 1981. On March 22, 2002, the number of holders of record of the Company’s common stock was approximately 5,839. 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 
  
  
 
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 
 
2000
        
First Quarter 25.13  14.44 
Second Quarter  26.13   21.00 
Third Quarter  25.05   20.50 
Fourth Quarter  33.56   20.47 
          
HighLow


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 

     (b)     Holders.

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

     (c)     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 and 1999.2000. 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.

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Item 6.Selected Financial Data.

                       
    Year Ended December(1) 
    
 
($ in thousands, except per share amounts) 2001  2000  1999  1998  1997 

Operations:
                    
 
Sales and other income(2)
 $1,402,103  $1,198,114  $1,101,907  $1,025,988  $973,091 
 Income (loss) before cumulative effect of change in accounting principle  8,829   25,378   11,587   (46,510)  8,774 
 Net income (loss)  8,829   25,378   10,992   (46,510)  8,028 
 Net income (loss) available to common stockholders  8,269   24,220   9,872   (47,630)  3,968 

Per Common Share:
                    
Basic:                    
  Income (loss) before cumulative effect of change in accounting principle  .26   .86   .38   (1.75)  .18 
  Net income (loss)  .26   .86   .36   (1.75)  .15 
 
Diluted:                    
  Income (loss) before cumulative effect of change in accounting principle  .24   .72   .35   (1.75)  .17 
  Net income (loss)  .24   .72   .33   (1.75)  .14 
 
Dividends declared(3)
  .24   .12   .12   .12   .12 

Balance Sheet:
                    
 Total assets  498,689   468,451   441,065   461,721   502,146 
 
Working capital(4)
  84,018   58,006   29,513   61,059   78,576 
 
Long-term debt(5)
  148,671   121,214   104,257   169,781   165,913 
 
Redeemable convertible preferred stock(6)
      100,540   100,078   99,654   99,230 
 
Stockholders’ equity(6)
  208,365   100,372   73,694   61,174   108,688 

                       
Year Ended December(1)

20022001200019991998





($ 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 


(1)
(1) The Company’s fiscal year is a 52-week or a 53-week period ending on the last Saturday in December. Fiscal years 2002, 2001, 1999, 1998 and 19971998 consisted of 52 weeks, while fiscal year 2000 consisted of 53 weeks.
(2) 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 presentlypreviously classified as selling, general and administrative expenses will beare now recorded as a reduction of net sales beginning in the first quarter of 2002. In accordance with this pronouncement, all prior periods will be reclassified on a retroactive basis. Thisthese amounts reflect this retroactive reclassification will havewhich had no effect on net income (loss) as previously reported.
(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)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 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)(8) The Company’s redeemable convertible preferred stock was converted to common stock in the second quarter of 2001.

1014


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.

Forward-Looking Statements

     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 CompanyPrivate 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 time to time make written or oral forward-looking statements. Written or oral forward-looking statements may appear inother documents filed with the Securities and Exchange Commission and in press releases, conference calls and webcasts (whether live(SEC) by the Company. You can find many of these statements by looking for words including, for example, “believes”, “expects”, “anticipates”, “estimates” or recorded), 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 determined that forward-looking statements are containedsimilar expressions in this Annual Report on Form 10-K. Also,10-K or in connection withdocuments incorporated by reference in this “safe harbor” provision,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, identifies important factors thatand could cause the Company’s actual results to differ materially from those containedexpressed in anythese forward-looking statement made by orstatements, including, but not limited to:

• risk factors described under the “Risks and Uncertainties” section below;
• 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 Company’s marketing and 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 as described under “Recent Events” below.

You are cautioned not to place undue reliance on behalfthese statements, which speak only as of the Company. Those factors include, but are not limited to, those discusseddate of this Annual Report on Form 10-K or, in the “Risks and Uncertainties” section below. Any such statement is qualifiedcase of documents incorporated by reference to the cautionary statements set forth below and in this and other filings withAnnual Report on Form 10-K, the Securities and Exchange Commission.dates of those documents. The Company undertakes no obligation to publicly update or revise theseany forward-looking statements, whether as a result of new information or future events.

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Recent Events

     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 reflect subsequent eventscombine 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 circumstances. Such forward-looking statements involve knownall of their shares to New Dreyer’s for $83.00 per share during two periods, the first beginning on December 1, 2005 and unknown risksending on January 13, 2006, and uncertainties, whichthe 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

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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 Company’s actual actions or resultsparties to differ materially from those contained in any forward-looking statement made by or on behalfthe 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.

     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.

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     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.

The Strategic Plan

     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 this planthe 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.

     WhileAlthough 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, is one of the Company’s more significant partner brands. In 1999, Ben & Jerry’sbrands, 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.

     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.

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.realized. Specific factors that might cause such a differenceshortfall 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,sales; the cost of dairy raw materials and other commodities used in the Company’s products,products; competitors’ marketing and promotion responses,responses; market conditions affecting the priceprices of the Company’s products,products; the Company’s ability to increase sales of its own branded products,products; and responsiveness of both the trade and consumers to the Company’s new products and increased marketing and trade promotion expenses.programs. See “Recent Events” above for additional information regarding factors that may affect the Strategic Plan.

Risks and Uncertainties

     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.

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     The Company distributes products as “partner brands” for several key competitors such as ConAgra Foods, Inc. (Healthy Coice™Choice™ products), NestléNICC (Häagen-Dazs® and Nestlé products), and Unilever United States, Inc. (Ben & Jerry’s®Jerry’s and Good Humor®-Breyers® Products)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.

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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. TheNonetheless, 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 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 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.

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     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.

Application of Critical Accounting Policies

     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 liabilities for employee bonuses and profit sharing plan contributions are based primarily on estimated full year profitability as compared to the Company’s annual plan. The Company accrues for these expenses on a pro rata basis at the end of each 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 actually paid are usually less significant.
  The 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 Company’s self-insurance liabilities at each balance sheet date. In addition, the Company maintains individual claim and aggregated stop-loss policies with third-party insurance carriers. These policies effectively limit the range of potential claim losses. As a result of the historic reliability of its valuation assumptions and its stop-loss insurance policies, the Company believes that there is a 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 claims are charged to expense 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 a reporting unit below its carrying value. If the fair value of a reporting unit is less than its carrying value, then an impairment loss would be recognized equal to the excess of the carrying value of the reporting unit goodwill over the fair value of that goodwill. 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 single 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 pre-tax

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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 its reporting units. However, the estimated earnings multiple, together with other inputs to the impairment test, are based upon estimates that carry a degree of uncertainty.

The Company’s business has grown at a fairly rapid pace since its inception. As a result, the estimated fair market value of its reporting units has increased with this growth. This has created a surplus of estimated fair market value over the carrying value of each of its reporting units. The Company believes that each of its reporting unit’s surplus is sufficient to cover a moderate decline in estimated fair market value, making the probability of an impairment unlikely in most situations. However, a severe or extraordinary decline in the fair market value of an individual reporting unit could result in a material impairment charge.
Goodwill, net at December 28, 2002 and December 29, 2001 totaled $84,651,000 and $39,114,000, respectively.

• Property, Plant and Equipment, net — The cost of additions to property, plant and equipment, along with major repairs and improvements, 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.

The Company has been using the 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, 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 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 the inability of customers to make required payments. The Company’s estimates are based on the aging of accounts receivable balances and historical write-off experience, net of recoveries. The Company reviews trade accounts receivable for recoverability regularly and whenever events or circumstances, such as deterioration in the financial condition of a customer, indicate that additional allowancesa change in the allowance might be required.

Historically this methodology has been a fairly reliable means of assessing the recoverability of trade accounts receivable at each balance sheet date. The Company therefore believes that there is a low likelihood that the use of 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.

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 • Deferred Tax Assets — The Company records a valuation allowance related to deferred tax assets whenif, based on the weight of the available evidence, the Company concludes that it is determinedmore likely than not that some portion or all of the deferred tax assets will not be utilized to offsetrealized. While the Company has considered future taxable income.
Theincome and prudent and feasible tax planning strategies in assessing the need for the valuation allowance, if the Company has goodwill and distribution rights related to business acquisitions. The Company reviews these assets for impairment whenever events or changes in circumstances, such as poor operating performance, indicatedetermines that the carrying amount of the assets mayit would not be recoverable. The assessmentable to realize all or part of impairment is based onits net deferred tax assets in the estimated undiscounted future, cash flows from operating activities compared withan adjustment to the carrying value of the assets. Ifdeferred tax assets would be charged to income in the undiscounted future cash flowsperiod in which such determination is made.

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 less thantherefore not subject to a high degree of variability. The Company therefore believes there is a low likelihood that the carrying value,use of different assumptions or estimates would result in a write-down is recorded, measured bymaterial change to the amount of the difference between the carrying value and the fair value of the asset.deferred tax asset valuation allowances.
 
TheIn fiscal 2002, the Company recorded a valuation allowance of $2,361,000 related to certain potentially nondeductible Merger transaction expenses and to the impairment of the Company’s liabilities for self-insured health, workers compensation and vehicle plans are developed from actuarial valuations that rely on various key assumptions. Changesinvestment in key assumptions may occur in the future, which would result in changes to related self-insurance costs.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 thosethese estimates.

Results of Operations

Financial Summary

     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 compared to $1,345,957,000. The improvement in net income available to common stockholders of $24,220,000, or $.72 per diluted common share, for the 53 weeks ended December 30, 2000. Consolidatedover 2002 reflects increased sales increased 17 percent over 2000 to $1,399,698,000. The results for 2001 primarily reflect strong growth in sales, largely offset by the impact of unfavorableand substantially lower dairy raw material costs.costs, offset in part by merger transaction expenses.

RESULTS OF OPERATIONS

52 Weeks Ended 2002 Compared with 52 Weeks Ended 2001 Compared With 53 Weeks Ended 2000

     ConsolidatedNet sales for 20012002 increased $205,342,000,$134,712,000 or 1711 percent, to $1,399,698,000$1,345,957,000 from $1,194,356,000$1,211,245,000 for 2000.2001.

     SalesNet sales of the Company’s branded products, including licensed and joint venture products (company brands), increased $48,216,000,$44,479,000, or six percent, to $888,572,000$752,352,000 from $840,356,000$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,

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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.

52 Weeks Ended 2001 Compared with 53 Weeks Ended 2000

     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 6358 percent of consolidatednet sales in 2001 compared with 7066 percent in 2000. The increase in dollar net sales

23


of company brands resulted from higherincreased unit sales and higherincreased 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™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 increaseddecreased approximately threeone percent beforeafter the effect of increased trade promotion expenses which are presently classified as selling, general and administrative expenses.of $34,885,000. This increasedecrease in average price was due to the effect of higher wholesale prices, partially offset by a shift in mix to lower-priced products.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 compared to 18.6 percent inand 2000.

     SalesNet sales of products distributed for other manufacturers (partner brands) increased $157,126,000,$154,455,000, or 44 percent, to $511,126,000$503,372,000 from $354,000,000$348,917,000 for 2000. SalesNet sales of partner brands represented 3742 percent of consolidated net sales in 2001 compared with 3034 percent in

12


2000. ThisThe increase is driven largely by the acquisition of independent distributors in 2000 along with increaseddollar sales was primarily attributable to a 91 percent increase in net sales of Ben & Jerry’s® superpremium products.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 nineeight percent, while unit sales increased 9,400,000 gallons, or 33 percent.

     Cost of goods sold increased $194,262,000,$194,937,000, or 22 percent, as compared with 2000, while the gross margin decreased to 2311 percent from 2615 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 joint venturesinvestments accounted for under the equity method.

     Selling, general and administrative expenses increased $38,274,000, or 15 percent, to $294,013,000 from $255,739,000 for 2000. Selling, general and administrative expenses, as a percentagemethod, which primarily consist of consolidated sales, remained relatively unchanged at 21 percent for both 2001 and 2000. The dollar increaseinvestments in selling, general and administrative expenses primarily reflects increased trade and consumer promotion spending and, to a lesser extent, increases in administrative expenses. Increases in promotion spending reflect both growth in the Company’s core brands and the impact of acquisitions made in 2000.

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

53 Weeks Ended 2000 Compared with 52 Weeks Ended 1999Seasonality

     Consolidated sales for 2000 increased $94,539,000, or nine percent, to $1,194,356,000 from $1,099,817,000 for 1999.

     Sales of the Company’s branded products, including licensed and joint venture products (company brands), increased $110,836,000, or 15 percent, 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 of company brands resulted from higher unit sales, particularly sales of higher-priced products, and from higher average wholesale prices. Gallon sales of the Company’s branded products increased 9,000,000 gallons, or nine percent, to approximately 109,000,000 gallons. The products that led this volume increase were the co-branded M&M/Mars line, superpremium Dreamery™ Ice Cream, premium Dreyer’s and Edy’s Grand Ice Cream® and Whole Fruit™ Bars. The average price for the Company’s branded products increased approximately six percent, before the effect of increased trade promotion expenses which are presently classified as selling general and administrative expenses. This increase in average price was due to the combined effect of higher wholesale prices and a shift in mix to higher-priced products. 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 2000 compared to 17.1 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. Average 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, as compared with 1999, while the gross margin increased to 26 percent from 24 percent. This gross margin improvement was primarily the result of increased sales of higher-margin products, comparatively lower dairy raw material costs, higher average 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 “The Strategic Plan” above). The impact of the decrease in dairy raw material costs favorably impacted gross profit in 2000 by approximately $9,300,000 as compared to 1999.

     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. Selling, general and administrative expenses as a percentage of consolidated sales remained relatively unchanged at 21 percent for both 2000 and 1999. This dollar increase primarily reflects marketing spending, including trade promotion expenses 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

13


administrative expenses. Costs associated with the Company’s earlier bid to acquire Ben & Jerry’s Homemade, Inc. and the subsequent negotiations of the national distribution agreement also contributed to the increase.

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

     The income tax provision increased $8,101,000, or 114 percent, over 1999, 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 state income taxes and tax credits.

Seasonality

     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.

Effects of Inflation and Changing Prices

     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

24


material costs declined which favorably impacted gross profit by approximately $9,300,000 as compared to 1999. During 1999,Through the year-to-date period ended February 2003, dairy raw material costs declined which favorably impacted gross profit by approximately $15,000,000 as compared to 1998 (a year of extremely high dairy costs). Dairy raw material costs have been favorable thus far during 2002 as compared to 2001.the year-to-date period ended February 2002.

     Other cost increases, such as labor and general and administrative costs, have in the past been partially offset by productivity gains and other operating efficiencies.

New Accounting Pronouncements

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 Financial Accounting Standards Board (EITF)(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) codifying certain other previously issued EITF pronouncements.. 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. At the present time, the Company classifies these expenses as selling, general and administrative expenses.

     The expenses defined inCompany adopted EITF 01-9 totaled approximately $188,500,000, $153,600,000at the beginning of fiscal 2002 and $138,700,000presented 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, and 1999, respectively. In accordance with EITF 01-9, all prior periods presented will be reclassified on a retroactive basis. The retroactive reclassification of these expenses will resultresulted in a decrease in total sales, company brand sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses and will, therefore, havewith no effect on net income (loss) as previously reported. The Company will be implementing EITF 01-9 in the first quarter of 2002.

Accounting for Goodwill and Other Intangible Assets

     In June 2001, the Financial Accounting Standards BoardFASB issued Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). This pronouncement continues to requirerequires recognition of goodwill and other unidentifiableidentifiable intangible assets with indeterminate lives (“these assets”) as long-term assets, but amortizationassets. Amortization as currentlypreviously required by Accounting Principles Board Opinion No. 17, “Intangible Assets”, is no longer permitted. In lieu of amortization, these assets must beare now tested for impairment usingon 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 fair value-based approach.reporting unit below its carrying amount. The Company is currently assessing the impact that this new pronouncement will have on the recorded amounts of these assets. Amortization of these assets totaled approximately $4,300,000, $3,800,000 and $2,500,000 in 2001, 2000 and 1999, respectively. The Company will be implementingadopted SFAS No. 142 inat 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

25


$1,514,000 and $1,424,000. The corresponding fiscal 2002 period has been presented for comparative purposes.
              
200220012000



($ 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 
   
   
   
 

     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.

Accounting for the Impairment or Disposal of Long-Lived Assets

     In October 2001, the Financial Accounting Standards BoardFASB 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 will be implementingimplemented SFAS No. 144 in the first quarter of 2002. The Company expects that the implementationadoption of this pronouncement willdid not have a significant impact on itsthe Company’s financial position, results of operations or cash flows.

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

14     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.

Consolidation of Variable Interest Entities

     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

26


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.

FINANCIAL CONDITIONAccounting for Stock-Based Compensation

     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.

Financial Condition

Liquidity and Capital Resources

     Cash flows from operating activitiesThe Company’s primary cash needs are to fund working capital requirements, to fund capital expenditures, finance acquisitions of $32,672,000 for 2001 consisted primarily of net income of $8,829,000distributors, and depreciation and amortization of $35,974,000 which were partially offset by a $14,297,000 increase into distribute dividends to shareholders. In 2002, the amount of cash required to fund the increase in working capital. Cash flows from operating activitiescapital was $1,135,000. This increase is attributable to an increase in prepaid expenses of $44,761,000$15,177,000, primarily due to increased amounts for 2000 consisted primarily of net income of $25,378,000self-insurance deposits and depreciation and amortization of $37,479,000 which were partiallyprepaid insurance premiums, offset by a $28,647,000an increase in the amountaccrued 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. Cash flows from operating activities of $77,302,000 for 1999 consisted primarily of net income of $10,992,000, depreciationcapital was $14,297,000 and amortization of $35,515,000$28,647,000 in 2001 and a $25,407,000 decrease in the amount of cash required to fund working capital.2000, respectively.

     Cash outflows from investing activitiesThe Company made capital expenditures of $43,652,000 for 2001 primarily consisted of$46,468,000 during 2002. The Company plans to make capital expenditures totaling $40,598,000. Cash outflows from investing activities of $56,548,000 forapproximately $47,000,000 during 2003. Capital expenditures were $40,598,000 and $24,513,000 in 2001 and 2000, primarily consisted of capital expenditures totaling $24,513,000,respectively.

     The Company had no significant distributor acquisitions in 2002 or 2001. In 2000, the purchase ofCompany purchased certain assets of Specialty Frozen Products, L.P. (Specialty) for $18,922,000, and the purchase ofas 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 Distributors,Distributor, Inc., was the leading independent direct-store-delivery ice cream distributor in Texas. Cash

     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 investingoperating activities, financing from the Company’s line of $22,227,000 for 1999 primarily consisted of capital expenditures of $23,756,000.

     Cash provided by financing activities of $9,909,000 for 2001 primarily consisted of proceeds fromcredit and long-term debt, totaling $34,600,000, partially offset by repaymentsand the issuance of $22,186,000. Cash provided by financingcommon 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, $11,350,000 for 2000 primarily consisted of proceeds from long-term debt totaling $160,095,000, partially offset by repayments of $149,421,000 under the former revolving line of credit.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 new 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 3.852.56 percent at December 29, 2001. Cash used28, 2002. Future volatility in financing activitiesthe cost of $53,088,000 for 1999 primarily reflectedborrowing 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

27


$22,186,000 and $18,721,000 in 2001 and 2000. The Company expects to refinance the line of $55,058,000.

     Working capital increased by $26,012,000 from 2000 to 2001. This increase was primarily caused by increasescredit when it matures in trade accounts receivable and inventories and a decrease in the current portion of long-term debt, partially offset by increases in accounts payable and accrued liabilities. Excluding the change in the current portion of long-term debt, the working capital changes are primarily the result of the additional Ben & Jerry’s® business and on-going growth in company brand sales.

     During 2002, the Company plans to make capital expenditures totaling approximately $41,000,000. It is anticipated that these expenditures will be largely financed through internally-generated funds and borrowings.2005.

     The Company paid a regular quarterly dividendreceived proceeds of $.06 per share$11,691,000, $7,465,000, and $6,071,000 from the issuance of common stock for each quarter ofunder employee stock plans in 2002, 2001 and $.03 per share of common stock for each quarter of 2000 and 1999.2000.

     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 was converted by the holder into 5,800,000 shares of common stock during the second quarter of 2001.

     At December 29, 2001,As discussed earlier, the Company had $1,650,000 in cash and cash equivalents, and an unused revolving linecurrently estimates that it will incur total transaction expenses related to the Merger, including costs to be incurred to close the Merger, of credit of $119,900,000.approximately $34,000,000. The Company believes that its revolvingcredit line, of credit, along with its liquid resources, internally-generated cash and financing capacity, will beare adequate to meet both short-term and long-term operating and capital requirements.requirements, including the transaction expenses related to the Merger.

15Known Contractual Obligations


Known contractual obligations and their related due dates at December 28, 2002 are as follows:
                             
Contractual ObligationsTotal20032004200520062007Thereafter








(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 
   
   
   
   
   
   
   
 

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.

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 29, 2001:28, 2002:

                       
 Long-Term Debt Interest Rates Long-Term DebtInterest Rates
($ in thousands) 
 
 


($ in thousands)
Fixed Interest Rates:Fixed Interest Rates: Fixed Interest Rates: 
Senior notes $28,571  8.06 - 8.34%
Senior notes $28,572 8.06–8.34%
Variable Interest Rates:Variable Interest Rates: Variable Interest Rates: 
Revolving line of credit 120,100  3.85%Revolving line of credit 92,100 2.56%
 
   
 
 $148,671   $120,672 
 
   
 

     If variable interest rates increased tenwere to increase 10 percent, the Company’s interest expense would increase approximately $463,000.$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.

     The primary factor causing volatility in the Company’s dairy costs is the price of butter.cream. Under current Federalfederal and Statestate regulations and industry practice, the price of cream, a primary ingredient in ice cream, is linked to the price of butter as traded onbutter. Over the Chicago Mercantile Exchange. While, over a long period of time,last 10 years, the average price of butter in the United States has tended to remain below $1.20averaged $1.15 per pound,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 offor butter are still in the early stages of development,

28


and do not have sufficient liquidity to provide a hedge for any more than a very limited amountenable the Company to fully reduce its exposure to the volatility of the Company’s requirements.

     These constraints prevent the Company from effectively hedging a large portion of its cream costs.market. However, the Company will from time to time purchasehas proactively addressed this price volatility by purchasing either butter or butter futures contracts with the intent of reselling or settling its positions in order to lower its cream cost and its overall exposure toat the volatility of the market.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 Company anticipates that it is likely to incur higher costs for electricityenergy at its California facilities in 2002. These California facilities account for approximately 30 percent of the Company’s total production.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.

Item 8.Financial Statements and Supplementary Data.

The information required by Item 8 is incorporated by reference herein from Part IV, Item 14(a)15(a)(1) and (2).

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

     Not applicable.

16


PART III

Item 10.PART IIIDirectors and Executive Officers of the Registrant.

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” in the Company’s definitive Proxy Statement for the 20022003 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.

Item 11.     Executive Compensation.

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 20022003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission is incorporated herein by reference.

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

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 20022003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission is incorporated herein by reference.

Item 13.Certain Relationships and Related Transactions.

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’sCom-

29


pany’s definitive Proxy Statement for the 20022003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission is incorporated herein by reference.

17


Item 14.     Controls and Procedures.

     (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.

PART IV(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.

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

Item 15.     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:

     
    Page
    
(1)
 
Financial Statements:
 
  Consolidated Statement of Income for each of the three years in the period ended December 29, 2001 19
  Consolidated Balance Sheet at December 29, 2001 and December 30, 2000 20
  Consolidated Statement of Changes in Stockholders’ Equity for each of the three years in the period  
     ended December 29, 2001 21
  Consolidated Statement of Cash Flows for each of the three years in the period ended December 29,  
     2001 22
  Notes to Consolidated Financial Statements 23
  Report of Independent Accountants 34
 
  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) 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 35
 
  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 are filed or incorporated by reference to exhibits  
     previously filed with the Commission as part of this Annual Report on Form 10-K. 36
Page

(1)
Financial Statements:
Consolidated Statement of Income for each of the three years in the period ended December 28, 200232
Consolidated Balance Sheet at December 28, 2002 and December 29, 200133
Consolidated Statement of Changes in Stockholders’ Equity for each of the three years in the period ended December 28, 200234
Consolidated Statement of Cash Flows for each of the three years in the period ended December 28, 200235
Notes to Consolidated Financial Statements36
Report of Independent Accountants54
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) 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 Accounts55
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 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

(b) Reports on Form 8-K

     No reports on Form 8-K were filed by the Company during the quarter ended December 29, 2001. A report on Form 8-K was filed on January 30, 2002 reporting a letter agreement dated January 28, 2002, between the Company and General Electric Pension Trust, GE Investment Private Placement Partners I, Limited Partnership, and General Electric Capital Corporation (collectively the “GE Entities”), which among other things confirms certain understandings between the parties with respect to registration rights held by the GE Entities and removal of restrictive legends from stock owned by the GE Entities. Concurrently therewith, Jack O. Peiffer resigned from the Company’s board of directors.
     A Current Report on Form 8-K was filed on October 25, 2002 reporting that the parties to the Agreement and Plan of Merger and Contribution, dated as of June 16, 2002 (Merger Agreement), by

1830


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 fiscal year ended December 29, 2001 giving effect to the adoption of the provisions of EITF 01-9 and the transition provisions of paragraph 61 of SFAS No. 142.

31


CONSOLIDATED STATEMENT OF INCOME

               
    Year Ended 
    
 
($ in thousands, except per share amounts) Dec. 29, 2001  Dec. 30, 2000  Dec. 25, 1999 

Revenues:
            
 Sales $1,399,698  $1,194,356  $1,099,817 
 Other income  2,405   3,758   2,090 
  
  
  
 
   1,402,103   1,198,114   1,101,907 
  
  
  
 
Costs and expenses:
            
 Cost of goods sold  1,083,674   889,412   837,907 
 Selling, general and administrative  294,013   255,739   235,146 
 Reversal of restructuring charges          (1,315)
 Interest, net of amounts capitalized  10,833   12,352   11,450 
  
  
  
 
   1,388,520   1,157,503   1,083,188 
  
  
  
 
Income before income tax provision and cumulative effect of change in accounting principle  13,583   40,611   18,719 
 
Income tax provision  4,754   15,233   7,132 
  
  
  
 
Income before cumulative effect of change in accounting principle  8,829   25,378   11,587 
Cumulative effect of change in accounting principle          595 
  
  
  
 
Net income  8,829   25,378   10,992 
 
Accretion of preferred stock to redemption value  212   462   424 
Preferred stock dividends  348   696   696 
  
  
  
 
Net income available to common stockholders $8,269  $24,220  $9,872 
  
  
  
 
 
 
Per common share-basic:
            
 Income available to common stockholders before cumulative effect of change in accounting principle $.26  $.86  $.38 
 Cumulative effect of change in accounting principle          .02 
  
  
  
 
 Net income available to common stockholders $.26  $.86  $.36 
  
  
  
 
Per common share-diluted:
            
 Income available to common stockholders before cumulative effect of change in accounting principle $.24  $.72  $.35 
 Cumulative effect of change in accounting principle          .02 
  
  
  
 
 Net income available to common stockholders $.24  $.72  $.33 
  
  
  
 
               
Year Ended

Dec. 28, 2002Dec. 29, 2001Dec. 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 
   
   
   
 

See accompanying Notes to Consolidated Financial Statements.

1932


CONSOLIDATED BALANCE SHEET

           
($ in thousands, except per share amounts) Dec. 29, 2001  Dec. 30, 2000 

Assets
        
Current Assets:
        
  Cash and cash equivalents $1,650  $2,721 
  Trade accounts receivable, net of allowance for doubtful accounts of $1,024 in 2001
and $2,611 in 2000
  89,721   77,310 
  Other accounts receivable  16,116   17,702 
  Inventories  81,298   68,801 
  Deferred income taxes  3,547   4,584 
  Prepaid expenses and other  8,849   6,950 
  
  
 
  
Total current assets
  201,181   178,068 
 
Property, plant and equipment, net  198,565   190,833 
Goodwill, distribution rights and other intangibles, net  94,468   92,892 
Other assets  4,475   6,658 
  
  
 
Total assets
 $498,689  $468,451 
  
  
 
Liabilities and Stockholders’ Equity
        
Current Liabilities:
        
  Accounts payable and accrued liabilities $91,794  $80,260 
  Accrued payroll and employee benefits  25,369   24,759 
  Current portion of long-term debt      15,043 
  
  
 
 
Total current liabilities
  117,163   120,062 
 
Long-term debt, less current portion  148,671   121,214 
Deferred income taxes  24,490   26,263 
  
  
 
Total liabilities
  290,324   267,539 
  
  
 
Commitments and contingencies        
 
Redeemable convertible preferred stock, $1 par value — no shares and 1,008,000 shares authorized, issued and outstanding in 2001 and 2000, respectively      100,540 
  
  
 
Stockholders’ Equity:
        
  Preferred stock, $1 par value — 10,000,000 shares and 8,992,000 shares authorized,
no shares issued or outstanding in 2001 and 2000, respectively
        
  Common stock, $1 par value — 60,000,000 shares authorized; 34,461,000 shares and 28,268,000 shares issued and outstanding in 2001 and 2000, respectively  34,461   28,268 
  Capital in excess of par  160,103   58,396 
  Notes receivable from stockholders  (2,546)  (2,284)
  Retained earnings  16,347   15,992 
  
  
 
Total stockholders’ equity
  208,365   100,372 
  
  
 
Total liabilities and stockholders’ equity
 $498,689  $468,451 
  
  
 
           
Dec. 28, 2002Dec. 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 
   
   
 

See accompanying Notes to Consolidated Financial Statements.

2033


CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

                                           
 Notes (Accumulated 
 Common Stock Capital Receivable Deficit) 
 
 in Excess from Retained 
 Shares Amount of Par Stockholders Earnings Total
(In thousands) 
 
 
 
 
 
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 Notes(Accumulated
Accretion of preferred stock to redemption value  (424)  (424)Common StockCapital inReceivableDeficit)
Preferred stock dividends declared  (696)  (696)
ExcessfromRetained
Common stock dividends declared  (3,319)  (3,319)SharesAmountof ParStockholdersEarningsTotal
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)
 
 
 
 
 
 
 (In thousands)
Balances at December 25, 1999
Balances at December 25, 1999
 27,871 27,871 53,172  (2,501)  (4,848) 73,694 
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 Net income for 2000 25,378 25,378 
Accretion of preferred stock to redemption value  (462)  (462)Accretion of preferred stock to redemption value (462) (462)
Preferred stock dividends declared  (696)  (696)Preferred stock dividends declared (696) (696)
Common stock dividends declared  (3,380)  (3,380)Common stock dividends declared (3,380) (3,380)
Issuance of common stock under employee stock plans, net 457 457 5,785  (171) 6,071 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)Repurchases and retirements of common stock (60) (60) (1,485) 388 (1,157)
Tax benefits from employee stock option plans 924 924 Tax benefits from employee stock option plans 924 924 
 
 
 
 
 
 
   
 
 
 
 
 
 
Balances at December 30, 2000
Balances at December 30, 2000
 28,268 28,268 58,396  (2,284) 15,992 100,372 
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 Net income for 2001 8,829 8,829 
Accretion of preferred stock to redemption value  (212)  (212)Accretion of preferred stock to redemption value (212) (212)
Preferred stock dividends declared  (348)  (348)Preferred stock dividends declared (348) (348)
Common stock dividends declared  (7,914)  (7,914)Common stock dividends declared (7,914) (7,914)
Conversion of redeemable convertible preferred stock 5,800 5,800 94,952 100,752 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 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)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 Tax benefits from employee stock option plans 2,349 2,349 
 
 
 
 
 
 
   
 
 
 
 
 
 
Balances at December 29, 2001
Balances at December 29, 2001
 34,461 34,461 160,103 $(2,546) $16,347 208,365 
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
Balances at December 28, 2002
 34,989 $34,989 $174,126 $(2,179) $37,052 $243,988 
 
 
 
 
 
 
 

See accompanying Notes to Consolidated Financial Statements.

2134


CONSOLIDATED STATEMENT OF CASH FLOWS

                          
 Year Ended 
 
 Year Ended
 Dec. 29, 2001 Dec. 30, 2000 Dec. 25, 1999 
($ in thousands) 
 
 
 
Dec. 28, 2002Dec. 29, 2001Dec. 30, 2000



($ in thousands)
Cash flows from operating activities:
Cash flows from operating activities:
 
Cash flows from operating activities:
 
Net income $8,829 $25,378 $10,992 
Adjustments to reconcile net income to cash flows from operations: Net income $29,060 $8,829 $25,378 
 Depreciation and amortization 35,974 37,479 35,515 Adjustments to reconcile net income to cash flows from operations: 
 Deferred income taxes  (183) 6,665 4,305  Depreciation and amortization 35,064 35,974 37,479 
 Loss on disposal of property, plant and equipment 1,360 1,803  Deferred income taxes 4,305 (183) 6,665 
 Tax benefits from employee stock option plans 2,349 924  Impairment of investment in Momentx Corporation 1,093 
 Provision for losses on trade accounts receivable 1,602  Loss on disposal of property, plant and equipment 1,360 
 Reversal of restructuring charges  (1,315) Tax benefits from employee stock option plans 4,979 2,349 924 
 Cumulative effect of change in accounting principle 595  Provision for bad debts on trade accounts receivable 1,602 
 Changes in assets and liabilities, net of amounts acquired:  Changes in assets and liabilities, net of amounts acquired: 
 Trade accounts receivable  (12,411) 6,607 3,802  Trade accounts receivable, net (1,547) (12,411) 6,607 
 Other accounts receivable 1,586  (3,963) 15,637  Other accounts receivable 2,955 1,586 (3,963)
 Inventories  (12,497)  (11,044)  (5,197) Inventories (1,533) (12,497) (11,044)
 Prepaid expenses and other  (1,899)  (236)  (2,113) Prepaid expenses and other (15,177) (1,899) (236)
 Accounts payable and accrued liabilities 10,314  (14,832) 2,910  Accounts payable and accrued liabilities (1,292) 10,314 (14,832)
 Accrued payroll and employee benefits 610  (5,179) 10,368  Accrued payroll and employee benefits 15,459 610 (5,179)
 
 
 
   
 
 
 
 32,672 44,761 77,302   73,366 32,672 44,761 
 
 
 
   
 
 
 
Cash flows from investing activities:
Cash flows from investing activities:
 
Cash flows from investing activities:
 
Acquisition of property, plant and equipment  (40,598)  (24,513)  (23,756)Purchases of property, plant and equipment (46,468) (40,598) (24,513)
Retirement of property, plant and equipment 2,181 515 726 Retirement of property, plant and equipment 2,159 2,181 515 
Purchase of certain assets of Specialty Frozen Products, L.P.  (18,922) 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 common stock of Cherokee Cream Company, Inc. (7,651)
Purchase of independent distributors and distribution rights  (7,067)  (1,564)  (1,000)Purchase of other independent distributors and other intangibles (2,708) (7,067) (1,564)
Decrease (increase) in other assets 1,832  (4,413) 1,803 (Increase) Decrease in other assets (497) 1,832 (4,413)
 
 
 
   
 
 
 
  (43,652)  (56,548)  (22,227)  (47,514) (43,652) (56,548)
 
 
 
   
 
 
 
Cash flows from financing activities:
Cash flows from financing activities:
 
Cash flows from financing activities:
 
Proceeds from long-term debt 34,600 160,095 (Repayments of) Proceeds from long-term line of credit, net (27,999) 34,600 29,395 
Repayments of long-term debt  (22,186)  (149,421)  (55,058)Repayments of other long-term debt (22,186) (18,721)
Issuance of common stock under employee stock plans, net 7,465 6,071 6,208 Issuance of common stock under employee stock plans, net 11,691 7,465 6,071 
Repurchases and retirements of common stock  (2,928)  (1,157)  (241)Repurchases and retirements of common stock (1,752) (2,928) (1,157)
Cash dividends paid  (7,042)  (4,238)  (3,997)Cash dividends paid (8,323) (7,042) (4,238)
 
 
 
   
 
 
 
 9,909 11,350  (53,088)  (26,383) 9,909 11,350 
 
 
 
   
 
 
 
(Decrease) increase in cash and cash equivalents
  (1,071)  (437) 1,987 
Decrease in cash and cash equivalentsDecrease in cash and cash equivalents (531) (1,071) (437)
Cash and cash equivalents, beginning of yearCash and cash equivalents, beginning of year 2,721 3,158 1,171 Cash and cash equivalents, beginning of year 1,650 2,721 3,158 
 
 
 
   
 
 
 
Cash and cash equivalents, end of year
Cash and cash equivalents, end of year
 $1,650 $2,721 $3,158 Cash and cash equivalents, end of year $1,119 $1,650 $2,721 
 
 
 
   
 
 
 
Supplemental cash flow information:
Supplemental cash flow information:
 
Supplemental cash flow information:
 
Cash paid during the year for: 
Cash paid during the year for:  Interest (net of amounts capitalized) $7,757 $11,407 $12,853 
 Interest (net of amounts capitalized) $11,407 $12,853 $11,346   
 
 
 
 
 
 
  Income taxes (net of refunds) $11,050 $1,925 $6,400 
 Income taxes (net of refunds) $1,925 $6,400 $843   
 
 
 
 
 
 
 
Supplemental schedule of noncash investing and financing activities:
Supplemental schedule of noncash investing and financing activities:
 
Supplemental schedule of noncash investing and financing activities:
 
Fair value of assets acquired $39,934 Fair value of assets acquired $39,934 
Cash paid in connection with acquisitions  (26,777) Cash paid in connection with acquisitions (26,777)
 
   
 
Liabilities assumed $13,157 Liabilities assumed $13,157 
 
   
 
Conversion of redeemable convertible preferred stock to common stock $100,752 Conversion of redeemable convertible preferred stock to common stock $100,752 
 
   
 

See accompanying Notes to Consolidated Financial Statements.

2235


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11.     Description of Business

     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.

Segment Information

     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.

     The Company’s products are also segregated betweenAggregated net sales consist of net sales of company branded products, including our licensed and joint venture products (company brands), and net sales of products distributed for other manufacturers (partner brands) for management reporting purposes. SalesNet sales of company brands were $888,572,000, $840,356,000$752,352,000, $707,873,000 and $729,520,000$691,871,000 in 2002, 2001 and 2000, and 1999, respectively. SalesNet sales of partner brands were $511,126,000, $354,000,000$593,605,000, $503,372,000 and $370,297,000$348,917,000 in 2002, 2001 2000 and 1999,2000, respectively.

     Three customers each accounted for ten percent or more of 2001 sales. Sales to each of these three customers were $167,052,000, $159,941,000, and $150,060,000. Accounts receivable balances for each of these three customers were $8,209,000, $12,052,000 and $5,840,000, respectively, at December 29, 2001. 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. Accounts receivable balances for each of these three customers were $13,315,000, $10,948,000 and $5,960,000, respectively, at December 30, 2000. 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.

Note 22.     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 YearIn 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.

Fiscal Year

     The Company’s fiscal year is a 52-week or 53-week period ending on the last Saturday in December. Fiscal years 20012002 and 19992001 each consisted of 52 weeks. Fiscal year 2000 consisted of 53 weeks.

Significant Accounting Assumptions and Estimates

Significant Accounting Assumptions and 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 include assessing the recoverability of accounts receivable,receivable; the adequacy of the valuation allowance for deferred tax assets,assets; the recoverability of goodwill and distribution rights, andgoodwill; the adequacy of the Company’s liabilities for self-insured health, workers compensation and vehicle plans,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 thosethese estimates.

Financial Statement Presentation

Financial Statement Presentation

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

36


Cash EquivalentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Cash Equivalents

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

Inventories

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.

Butter Investments

Butter Investments

     Under current Federalfederal and Statestate 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 to lowerreduce its cream cost and overall exposure to the volatility of

23


this market. The Company has elected to not treat itsSince the Company’s investment in butter does not qualify as a hedge for accounting purposes. Consequently,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 cost of goods sold. During 2001, theother income (expense), net. The Company first made no investments in butter.

Property, Plant and Equipmentbutter in 2002.

Property, Plant and Equipment

     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.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

     The Company reviews long-lived assets and certain identifiable intangibles, including goodwill and distribution rights, for impairment wheneverannually 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.

Accounting for the Impairment or Disposal of Long-Lived Assets

     In October 2001, the Financial Accounting Standards BoardFASB 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 will be implementingimplemented SFAS No. 144 in the first quarter of 2002. The Company expects that the implementationadoption of this pronouncement willdid not have a significant impact on itsthe Company’s financial position, results of operations or cash flows.

Goodwill Distribution Rights and Other IntangiblesIntangible Assets

     GoodwillIn 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

37


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

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 arewere 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.years (Note 8).

Revenue Recognition

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 continues to require recognition of goodwill and other unidentifiable intangible assets with indeterminate lives (“these assets”) as long-term assets, but amortization as currently required by Accounting Principles Board Opinion No. 17, “Intangible Assets”, is no longer permitted. In lieu of amortization, these assets must be tested for impairment using a fair value-based approach. Amortization of these assets totaled approximately $4,300,000, $3,800,000 and $2,500,000 in 2001, 2000 and 1999, respectively. The Company will be implementing SFAS No. 142 in the first quarter of 2002 (Note 5). The Company is currently assessing the impact that this new pronouncement will have on the recorded amounts of these assets.

Revenue Recognition

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.

Shipping and Handling Costs

Shipping and Handling Costs

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

Advertising Costs

Advertising Costs

     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, and December 30, 2000, deferred advertising spending, including consumer promotion spending, in the Consolidated Balance Sheet totaled $1,388,000$940,000 and $1,076,000,$1,388,000, respectively. Advertising expense,spending, including consumer promotion spending, was $27,059,000, $30,113,000 and $30,139,000 in 2002, 2001 and $22,982,000 in 2001, 2000, and 1999, respectively.

Trade Promotion Costs

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

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 Financial Accounting Standards Board (EITF)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) codifying certain other previously issued EITF pronouncements.. This pronouncement requires that discounts (off-invoice promotion

24


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. At the present time, the Company classifies these expenses as selling, general and administrative expenses.

     The expenses defined inCompany adopted EITF 01-9 totaled approximately $188,500,000, $153,600,000at the beginning of fiscal 2002 and $138,700,000presented 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, and 1999, respectively. In accordance with EITF 01-9, all prior periods presented will be reclassified on a retroactive basis. The retroactive reclassification of these expenses will resultresulted in a decrease in total sales, company brand sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses and will, therefore, havewith no effect on net income (loss) as previously reported. The Company will be implementing EITF 01-9 in the first quarter of 2002.

38


Income TaxesNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Income Taxes

     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.

Accounting for Stock-Based Compensation

Accounting     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based CompensationCompensation-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 accounts for its employee stock option and stock purchase plans (Note 17) using the intrinsic value-based method.

Cumulative Effectmethod 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 Change in Accounting Principle

     In the first quarter of 1999, the Company adopted the American Institute of Certified Public Accountant’s Statement of Position 98-5, “Reportingunderlying common stock on the Costsdate of Start-Up Activities” (SOP 98-5). SOP 98-5 requires thatgrant.

The Company used the costsBlack-Scholes option pricing model to estimate the fair value per share of start-up activities, including preoperating costs, be expensedoptions 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 incurredfollows:

             
200220012000



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 

39


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

The following table illustrates the effect on net income 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 $.02net income per common share inif the first quarterCompany had applied the fair value recognition provisions of 1999.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:

              
200220012000



(In thousands, except per share
amounts)
Net income-as reported $29,060  $8,829  $25,378 
Deduct: total stock-based employee compensation expense determined under the fair value-based method for all awards, net of related tax effects  23,264   6,208   4,576 
   
   
   
 
Pro forma net income under the fair value-based method $5,796  $2,621  $20,802 
   
   
   
 
 
Net income per common share:            
 Basic-as reported using the intrinsic value-based method $.84  $.26  $.86 
   
   
   
 
 Basic-pro forma using the fair value-based method $.17  $.07  $.70 
   
   
   
 
 Diluted-as reported using the intrinsic value-based method $.77  $.24  $.72 
   
   
   
 
 Diluted-pro forma using the fair value-based method $.15  $.07  $.59 
   
   
   
 

     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.

Net Income Per Common Share

     Basic net income 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 stock warrants and the redeemable convertible preferred stock.

Net income per common share is computed as follows:

                          
 Dec. 29, 2001 Dec. 30, 2000 Dec. 25, 1999 Dec. 28, 2002Dec. 29, 2001Dec. 30, 2000
(In thousands, except per share amounts) 
 
 
 



Income available to common stockholders — basic $8,269 $24,220 $9,872 
(In thousands, except per share amounts)
Income available to common stockholders – basicIncome available to common stockholders – basic $29,060 $8,269 $24,220 
Add: preferred dividends and accretionAdd: preferred dividends and accretion 560 1,158 1,120 Add: preferred dividends and accretion 560 1,158 
 
 
 
   
 
 
 
Net income available to common stockholders — diluted $8,829 $25,378 $10,992 
Net income available to common stockholders – dilutedNet income available to common stockholders – diluted $29,060 $8,829 $25,378 
 
 
 
   
 
 
 
Weighted-average shares-basicWeighted-average shares-basic 31,633 28,119 27,559 Weighted-average shares-basic 34,737 31,633 28,119 
Dilutive effect of optionsDilutive effect of options 2,023 1,370 397 Dilutive effect of options 3,031 2,023 1,370 
Dilutive effect of preferred stockDilutive effect of preferred stock 2,725 5,800 5,800 Dilutive effect of preferred stock 2,725 5,800 
 
 
 
   
 
 
 
Weighted-average shares-dilutedWeighted-average shares-diluted 36,381 35,289 33,756 Weighted-average shares-diluted 37,768 36,381 35,289 
 
 
 
   
 
 
 
Net income per common share:Net income per common share: Net income per common share: 
Basic $.26 $.86 $.36 Basic $.84 $.26 $.86 
 
 
 
   
 
 
 
Diluted $.24 $.72 $.33 Diluted $.77 $.24 $.72 
 
 
 
   
 
 
 

40


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

     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 the following:

             
              2001                          2000                         1999            
(In thousands) 
  
  
 
Stock options  753   676   1,507 
Stock warrants          2,000 
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 9)14).

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

     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.

Note 3.     Merger and Contribution Agreement

     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).

25     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.

41


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

     PursuantIn addition, if the Merger is completed, each outstanding option to a 1994 equity transaction (Note 10), an affiliate of Nestlé USA, Inc. purchased 6,000,000 newly issued shares ofpurchase 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 warrantsconditions applicable to the original options to purchase 4,000,000 shares atthe 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 exercise priceintent 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 $16 per share. Warrants for 2,000,000 shares expired unexercisedthe FTC arising out of the Merger, on June 14, 1997. WarrantsMarch 3, 2003, the Company and NICC entered into an agreement with Integrated Brands, Inc. (Integrated Brands), a subsidiary of CoolBrands International Inc., for the remaining 2,000,000 shares expired unexercisedsale 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 June 14, 1999.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.

42


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

     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.

     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 3 Inventories4.     Significant Customers

InventoriesTrade accounts receivable, net at December 29, 200128, 2002 and December 30, 200029, 2001 consisted of the following:

         
  2001  2000 
(In thousands) 
  
 
 
Raw materials $9,099  $8,368 
Finished goods  72,199   60,433 
  
  
 
  $81,298  $68,801 
  
  
 
         
20022001


(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:

         
20022001


(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:

             
200220012000



(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 
   
   
   
 

43


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Note 5.     Inventories

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

         
20022001


(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:

         
20022001


(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 28, 2002 and December 29, 2001 and December 30, 2000 consisted of the following:

                
 2001 2000 20022001
(In thousands) 
 
 


(In thousands)
Machinery and equipment $244,620 $237,412  $266,844 $244,620 
Buildings and improvements 90,461 89,984  98,832 90,461 
Office furniture and fixtures 6,414 6,463  6,960 6,414 
 
 
  
 
 
 341,495 333,859  372,636 341,495 
Less: Accumulated depreciation and amortization 183,562 165,472  200,544 183,562 
 
 
  
 
 
 157,933 168,387  172,092 157,933 
Land 15,698 15,634  15,580 15,698 
Construction in progress 24,934 6,812  21,174 24,934 
 
 
  
 
 
 $198,565 $190,833  $208,846 $198,565 
 
 
  
 
 

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

Depreciation expense for property, plant and equipment was $34,028,000, $30,685,000 and $32,204,000 in 2002, 2001 and $31,607,000 in 2001, 2000, and 1999, respectively.

44


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Note 58.     Goodwill Distribution Rights and Other Intangibles

     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.

Goodwill,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.

              
200220012000



($ 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 29, 200128, 2002 and December 30, 200029, 2001 consisted of the following:

         
  2001  2000 
(In thousands) 
  
 
 
Goodwill and distribution rights $134,666  $128,154 
Other intangibles  5,682   5,682 
  
  
 
   140,348   133,836 
Less: Accumulated amortization  45,880   40,944 
  
  
 
  $94,468  $92,892 
  
  
 
                 
20022001


GrossGross
CarryingAccumulatedCarryingAccumulated
AmountAmortizationAmountAmortization




(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 
   
   
   
   
 

     The increase in goodwill and distribution rights during 2001 resulted from the purchase of independent distributors and distribution rights (Note 13). Other intangibles primarily consist of trademarks, a product formulation and noncompete covenants. Amortization expense for goodwill, distribution rights, and other intangibles was $4,936,000, $5,070,000 and $2,994,000 in 2001, 2000 and 1999, respectively.

2645


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Fiscal 2002 amortization expense of other intangibles 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 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 69.     Investment in 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 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 10.     Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities at December 28, 2002 and December 29, 2001, consisted of the following:

         
20022001


(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:

                      
 2001 2000 1999 200220012000
 
 
 
 


(In thousands) 
(In thousands)
Current:Current: Current: 
Federal $4,155 $7,691 $2,601 Federal $12,382 $4,155 $7,691 
State 782 877 226 State 1,892 782 877 
 
 
 
   
 
 
 
 4,937 8,568 2,827   14,274 4,937 8,568 
 
 
 
   
 
 
 
Deferred:Deferred: Deferred: 
Federal 451 6,325 3,762 Federal 4,595 451 6,325 
State  (634) 340 543 State (290) (634) 340 
 
 
 
   
 
 
 
  (183) 6,665 4,305   4,305 (183) 6,665 
 
 
 
   
 
 
 
 $4,754 $15,233 $7,132   $18,579 $4,754 $15,233 
 
 
 
   
 
 
 

     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.

The net deferred income tax liability as of December 29, 200128, 2002 and December 30, 200029, 2001 consisted of the following:

          
   2001  2000 
(In thousands) 
  
 
 
Net deferred income tax assets — current:        
 Net operating loss carryforwards $270  $51 
 Accrued employee benefits  1,479   1,486 
 Tax credit carryforwards  3,027   3,346 
 Other  (1,229)  (299)
  
  
 
   3,547   4,584 
  
  
 
Net deferred income tax liabilities — noncurrent:        
 Intangible assets and related amortization  (12,272)  (12,227)
 Depreciation  (13,035)  (14,342)
 Other  817   306 
  
  
 
   (24,490)  (26,263)
  
  
 
  $(20,943) $(21,679)
  
  
 
          
20022001


(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)
   
   
 

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

                  ��   
 2001 2000 1999 200220012000
 
 
 
 


Federal statutory income tax rate  35.0%  35.0%  35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 0.7 2.0 2.7  2.2 0.7 2.0 
Tax credits  (2.5)  (0.7)  (1.6) (0.7) (2.5) (0.7)
Valuation allowance 4.6 
Other 1.8 1.2 2.0  (2.1) 1.8 1.2 
 
 
 
  
 
 
 
  35.0%  37.5%  38.1% 39.0% 35.0% 37.5%
 
 
 
  
 
 
 

     As of47


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

     At December 29, 2001,28, 2002, the Company had deferred tax assets relating to alternative minimum tax and other tax credit carryforwards. The alternative minimum tax carryforwards totaling $1,492,000 can be carried forward indefinitely, as they do not expire. The other tax credit carryforwards totaling $1,535,000$2,164,000 that expire between 20142015 and 2021.2022. Utilization of the alternative minimum tax and otherthese 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.

27     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 29, 200128, 2002 and December 30, 200029, 2001 consisted of the following:

         
  2001  2000 
(In thousands) 
  
 
 
Revolving line of credit with banks, due 2005 with interest payable at seven different interest rate options $120,100  $85,500 
Senior notes, with principal due through 2008 and interest payable semiannually at rates ranging from 7.68 percent to 8.34 percent  28,571   42,857 
Senior notes, with principal due through 2001 and interest payable semiannually at 9.30 percent      3,400 
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 
  
  
 
   148,671   136,257 
Less: Current portion      15,043 
  
  
 
  $148,671  $121,214 
  
  
 
         
20022001


(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 
   
   
 

The aggregate annual maturities of long-term debt as of December 29, 200128, 2002 are as follows:

      
Year ending:(In thousands)
 2002 $  
 2003  2,143 
 2004  2,143 
 2005  122,243 
 2006  8,810 
 Later years  13,332 
  
 
  $148,671 
  
 
      
(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

     The Company has a line of credit agreement with certain banks for a total revolving line of credit of $240,000,000. 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 3.852.56 percent at December 29, 2001.28, 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 29, 2001 was $119,900,000.28, 2002.

48


Fair Value of Financial InstrumentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Fair Value of Financial Instruments

     As of December 29, 200128, 2002 and December 30, 2000,29, 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.

     Under its long-term debt obligations, the Company is subject to various financial covenant requirements, including the dividend 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 expire within a period of 20nine years (including renewal options) except one that has 8685 years remaining (including renewal options). Certain of these leases include non-bargain purchase options.

28


Future minimum rental payments required under noncancelable operating leases with terms in excess of one year at December 29, 200128, 2002 are as follows:

      
Year ending:(In thousands)
 2002 $10,980 
 2003  7,299 
 2004  5,459 
 2005  3,827 
 2006  2,837 
 Later years  4,801 
  
 
  $35,203 
  
 
      
(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 
   
 

     Rental expense under all operating leases, both cancelable and noncancelable, was $16,961,000, $15,546,000 and $12,750,000 in 2002, 2001 and $12,030,000 in 2001, 2000, and 1999, 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 was converted by the holder into 5,800,000 shares of common stock in the second quarter of 2001. Up to the conversion date, Series A preferred stockholders were paid dividends at a rate equal to the amount they would receive as if the shares were converted into comparable shares of common stock. Upon conversion, the redeemable convertible preferred shares were cancelled and returned to the pool of preferred shares authorized for issuance.

     Pursuant to the terms of 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 and 1999.2000. During 1987, the Board of Directors declared a dividend of one Preferred Stock Purchase Right (the Rights) for each outstanding share

49


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 issuedif the Merger is completed, there will be no shares of, common stock and warrantsor 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 foracquire, the remaining 2,000,000 shares expired unexercised on June 14, 1999.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 2002, 2001 2000 and 1999.2000. 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 in 2002, 2001 and $6,045,000 in 2001, 2000, and 1999, respectively. The Company’s liability for accrued pension contributions and 401(k) matching contributions was $8,237,000$10,711,000 and $6,733,000$8,237,000 at December 29, 200128, 2002 and December 30, 2000,29, 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 in 2002, 2001 and $1,015,000 in 2001, 2000, and 1999, respectively.

29


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.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 additionalThe qualified stock option plan (the 1993 Plan), under which granted options may be either incentive stock options or non-qualified stock options. This planoptions, provides that options expire no later than ten10 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 inwith 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

50


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 per share of options granted during 2001, 2000 and 1999. 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:

             
  2001  2000  1999 
  
  
  
 
Risk-free interest rate  5.11%  6.68%  5.23%
Dividend yield  .77%  .68%  .96%
Volatility  44.36%  39.96%  39.58%
Expected term(years)
  5.90   5.90   5.90 
Weighted average fair market value $14.39  $8.31  $5.32 

     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 available to common stockholders and net income per common share on a pro forma basis would have been as follows:

              
   2001  2000  1999 
(In thousands, except per share amounts) 
  
  
 
Net income available to common stockholders $2,061  $19,644  $6,314 
Net income per common share:            
 Basic  .07   .70   .23 
 Diluted  .07   .59   .22 

     Stock options exercisable were 5,345,000, 3,427,000 3,001,000 and 2,466,0003,001,000 at year-end 2002, 2001 2000 and 1999,2000, respectively. These stock options were exercisable at weighted-average prices per share of $18.70, $15.10 and $14.84 in 2002, 2001 and $13.98 in 2001, 2000, and 1999, respectively.

30


The activity in the three stock option plans for each of the three years in the period ended December 29, 200128, 2002 follows:

                       
 Options OptionsWeighted-
 Available  Options Weighted- Average 
 for Grant Outstanding Price Per Share 
(In thousands, except per share amounts) 
 
 
 
Balances at December 26, 1998
 759 4,361  $15.41 
Authorized 2,000 AvailableOptionsAverage
Granted  (1,171) 1,171 12.47 for GrantOutstandingPrice Per Share
Exercised  (334) 13.18 


Canceled 125  (125) 14.31 
 
 
 (In thousands, except per share amounts)
Balances at December 25, 1999
Balances at December 25, 1999
 1,713 5,073 14.91 
Balances at December 25, 1999
 1,713 5,073 $14.91 
Granted  (988) 988 17.80 Granted (988) 988 17.80 
Exercised  (162) 14.84 Exercised (162) 14.84 
Canceled 118  (118) 16.01 Canceled 118 (118) 16.01 
Expired  (253) Expired (253) 
 
 
   
 
 
 
Balances at December 30, 2000
Balances at December 30, 2000
 590 5,781 15.38 
Balances at December 30, 2000
 590 5,781 15.38 
Authorized 848 Authorized 848 
Granted  (780) 780 31.02 Granted (780) 780 31.02 
Exercised  (403) 13.50 Exercised (403) 13.50 
Canceled 15  (15) 20.49 Canceled 15 (15) 20.49 
 
 
   
 
 
 
Balances at December 29, 2001
Balances at December 29, 2001
 673 6,143 17.48 
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
Balances at December 28, 2002
 838 6,332 19.79 
 
 
 
 

     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 29, 200128, 2002 and related weighted-average exercise price per share and life information follows:

(In thousands, except years and per share amounts)

            ��         
                Options OutstandingOptions Outstanding
 Options Outstanding Options Exercisable 

 
 
 Weighted-
Exercise Weighted- Average ExerciseWeighted-AverageWeighted-
Price Weighted-Average Remaining Options Weighted- Average PriceOptionsAverageRemainingOptionsAverage
Range Options Outstanding Exercise Price Life (Years) Exercisable Exercise Price RangeOutstandingExercise PriceLife (Years)ExercisableExercise Price

 
 
 
 
 
 





$9.75-13.75 2,162 $12.48 5.8 1,528 $12.52 
14.09-19.75 2,537 16.12 6.1 1,490 15.48 
21.44-31.13 1,444 27.36 7.9 409 23.36 
(In thousands, except years and per share amounts)(In thousands, except years and per share amounts)
 
 
 $ 9.75-13.75 1,981 $12.47 4.8 1,785 $12.48 
 6,143 3,427  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 
 
 
 

51


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 ten10 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 and 67,000 shares at prices ranging from $9.30 to $19.23 per share in 1999.2000. Compensation cost based on the fair value of the employees’ purchase rights was not material in 2002, 2001 2000 and 1999.2000.

     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 and 179,000 shares at prices ranging from $11.882000.

     Pursuant to $18.38 per share in 1999.the terms of the Merger Agreement (Note 3), if the Merger is completed, this plan will be terminated pursuant to 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.

31


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. The results of Specialty are included in the Company’s Consolidated Statement of 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 net of $204,000 cash acquired) in this transaction that has been accounted for as a purchase. The results of Cherokee are included in the Company’s Consolidated Statement of Income from the date of acquisition. In connection with this transaction, the Company recorded $15,269,000 of goodwill, distribution rights, and other intangibles.

52


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Note 14 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., a subsidiary of Unilever United States, Inc. 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 as of March 5, 2001. The Company19.     Commitments and Ben & Jerry’s continue to expand the Company’s role as a Ben & Jerry’s® distributor in other non-grocery channels, such as convenience stores. The agreement has a term of five years and automatically renews for two additional five-year terms unless terminated by either party at the end of each five-year term.

Note 15 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.

32     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. Future minimum purchase obligations for the next five years and thereafter at December 28, 2002 total approximately $96,405,000. Of this amount, approximately $88,955,000 is payable in 2003 and approximately $7,450,000 is payable in 2004.


Note 1620.     Selected Quarterly Financial Data (Unaudited)

                     
          Net Income (Loss)(1) 
          
 
          Available to  Per Common Share(3) 
          Common  
 
  Sales  Gross Profit  Stockholders  Basic  Diluted 
  
  
  
  
  
 
2001                    
1st Quarter $272,029  $54,652  $(4,886) $(.17) $(.17)
2nd Quarter  384,833   90,881   6,935  $.24  $.20 
3rd Quarter  419,911   98,744   6,048  $.18  $.17 
4th Quarter  322,925   71,747   172  $.00  $.00 
  
  
  
         
  $1,399,698  $316,024  $8,269         
  
  
  
         
2000                    
1st Quarter $240,419  $57,215  $2,386  $.09  $.08 
2nd Quarter  323,820   89,021   12,236  $.44  $.35 
3rd Quarter  345,017   93,240   10,710  $.38  $.31 
4th Quarter(2)
  285,100   65,468   (1,112) $(.04) $(.04)
  
  
  
         
  $1,194,356  $304,944  $24,220         
  
  
  
         
                      
Net Income (Loss) Available to
Common Stockholders(1),(2)

Per Common
Share(4)
Gross
Net sales(3)profit(3)BasicDiluted




(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)
(1) Net income (loss) for 2001 has been reduced by preferred stock dividends and accretion of the preferred stock to its redemption value.
(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.
(2) 
The fourth(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 fiscal 2000 contained 14 weeks. All other quarterly periods presented contained 13 weeks.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.
(3)(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 quarters may not be the same as the net income (loss) per common share for the year.

3353


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 29, 200128, 2002 and December 30, 2000,29, 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 200128, 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 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 costsgoodwill and other intangible assets in the first quarter of 1999.2002.

/s/ PricewaterhouseCoopersPRICEWATERHOUSECOOPERS LLP


PricewaterhouseCoopers LLP
San Francisco, California
February 13, 2002March 28, 2003

3454


SCHEDULE II

DREYER’S GRAND ICE CREAM, INC.

VALUATION AND QUALIFYING ACCOUNTS

(table and footnotesTable in thousands)
                                                
 Additions Additions
 Balance at Charged to Balance at Balance atCharged toBalance at
 Beginning Costs and End BeginningCosts andEnd of
DescriptionDescription of Period Expenses Deductions of Period Descriptionof PeriodExpensesDeductionsPeriod

 
 
 
 
 
Fiscal year ended December 25, 1999: 
Allowance for doubtful accounts $5,710(3) $857 $852(1) $5,715(3)
Accumulated amortization of goodwill, distribution rights, and other intangibles, and other assets 36,073 3,908  1,198(2) 38,783 
Restructuring and other accruals 3,566    3,177(4) 389 
 
 
 
 
 
 $45,349 $4,765 $5,227 $44,887 
 
 
 
 
 




Fiscal year ended December 30, 2000:Fiscal year ended December 30, 2000: Fiscal year ended December 30, 2000: 
Allowance for doubtful accounts $5,715(3) $2,175(6) $5,279(5) $2,611(6)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 Accumulated amortization of goodwill, distribution rights, and other intangibles, and other assets 38,783 5,275  44,058 
Restructuring and other accruals 389   389   Restructuring and other accruals 389  389  
 
 
 
 
   
 
 
 
 
 $44,887 $7,450 $5,668 $46,669   $44,887 $7,450 $5,668 $46,669 
 
 
 
 
   
 
 
 
 
Fiscal year ended December 29, 2001:Fiscal year ended December 29, 2001: Fiscal year ended December 29, 2001: 
Allowance for doubtful accounts $2,611(6) $587 $2,174(1) $1,024 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 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   $46,669 $5,876 $2,174 $50,371 
 
 
 
 
   
 
 
 
 
Fiscal year ended December 28, 2002: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)
(1) Write-off of receivables considered uncollectible.
(2)Removal of fully-amortized assets.
(3)(2) Includes a bad debt allowance of $5,000$5,000,000 for trade accounts receivable from an independent distributor in Texas.
(4)Includes a $1,315 reversal of the 1998 restructuring provision of $2,258 related to the outsourcing of the Grand Soft equipment manufacturing business.
(5)(3) Includes the write-off of trade accounts receivable from an independent distributor in Texas referred to in (3)(2) above.
(6)(4) Includes a bad debt provision of $1,602$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.

3555


(c) Exhibits

(c) Exhibits

EXHIBIT INDEX

     
Exhibit
Exhibit
NumberDescription


 2.1 
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. (Exhibit 2.1(11)).
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)).
2.3Agreement 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)).
3.2 Certificate of Designation, Preferences and Rights of Series A Participating Preference Stock (Exhibit 3.2(13)).
3.3 By-laws of Dreyer’s Grand Ice Cream, Inc., as last amended May 2, 1994 (Exhibit 3.2(12)).
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)).
4.2 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)).
4.3 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)).
4.4 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)).
4.5 Registration Rights Agreement dated as of June 14, 1994 between Dreyer’s Grand Ice Cream, Inc. and Nestlé Holdings, Inc. (Exhibit 4.2(12)).
4.6 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)).

56


Exhibit
NumberDescription


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.,

36


Exhibit
NumberDescription


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)).
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 (22)).
10.19Second 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)).
21 Subsidiaries of Registrant.
23 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.

57


*
Exhibit
NumberDescription


99.2Chief 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 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)
(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 for the year ended December 31, 1988 filed on March 31, 1989.
(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.
(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.
(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.
(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.
(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.
(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.

37


(9)(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.
(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.
(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.
(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.
(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.
(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.
(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.
(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.

58


(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.
(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.
(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.
(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.

3859


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

Date:     March 28, 20022003

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.

     
SignatureTitleDate



 
/s/ T. GARY ROGERS

(T. Gary Rogers)
 Chairman of the Board and Chief Executive Officer and Director (Principal Executive Officer) March 28, 20022003
 
/s/ WILLIAM F. CRONK, III

(William F. Cronk, III)
 President and Director March 28, 20022003
 
/s/ EDMUND R. MANWELL

(Edmund R. Manwell)
 Secretary and Director March 28, 20022003
 
/s/ TIMOTHY F. KAHN

(Timothy F. Kahn)
 Vice President — Finance and Administration and Chief Financial Officer (Principal Financial Officer) March 28, 20022003
 
/s/ JEFFREY P. PORTER

(Jeffrey P. Porter)
 Corporate Controller (Principal Accounting Officer) March 28, 20022003
 
/s/ JAN L. BOOTH

(Jan L. Booth)
 Director March 28, 20022003
 
/s/ ROBERT A. HELMAN

(Robert A. Helman)
 Director March 28, 20022003
 
/s/ M. STEVEN LANGMAN

(M. Steven Langman)
 Director March 28, 20022003
 
/s/ JOHN W. LARSON

(John W. Larson)
 Director March 28, 20022003
 
/s/ TIMOTHY P. SMUCKER

(Timothy P. Smucker)
 Director March 28, 20022003

     Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act:

Not applicable.

3960


CERTIFICATIONS

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, T. Gary Rogers, certify that:

     1.     I have reviewed this annual report on Form 10-K of Dreyer’s Grand Ice Cream, Inc.;

     2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

     3.     Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

     4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
     (b)     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
     (c)     presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

     5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

     (a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
     (b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

     6.     The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ T. GARY ROGERS

T. Gary Rogers
Chairman of the Board of Directors and
Chief Executive Officer

Dated:     March 28, 2003

61


CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Timothy F. Kahn, certify that:

     1.     I have reviewed this annual report on Form 10-K of Dreyer’s Grand Ice Cream, Inc.;

     2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

     3.     Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

     4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
     (b)     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
     (c)     presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

     5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

     (a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
     (b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

     6.     The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ TIMOTHY F. KAHN

Timothy F. Kahn
Vice President — Finance and Administration and
Chief Financial Officer

Dated:     March 28, 2003

62