UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORMForm 10-K

(Mark one)

or

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

Dreyer’s Grand Ice Cream, Inc.

5929 College Avenue, Oakland, California 94618

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

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

     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.

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.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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     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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     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

     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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     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.

     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.

     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

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     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.

     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

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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.

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     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.

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

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

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

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

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

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     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.

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     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.

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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.

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.

Not applicable.

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Executive Officers of the Registrant

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

     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.

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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:

     (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.

(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.

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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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     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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     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

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     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

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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

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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

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     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

     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

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     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.

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

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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

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     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