5929 College Avenue, Oakland, California 94618
(Address of principal executive offices) (Zip Code)

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.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

CONSOLIDATED BALANCE SHEET
June 29, 2002 Dec. 29, 2001

($ in thousands, except per share amounts) (Unaudited)

Assets
Current Assets:

Cash and cash equivalents $ 1,700 $ 1,650
Trade accounts receivable, net of allowance for doubtful accounts of
$1,755 in 2002 and $1,024 in 2001 145,374 89,721
Other accounts receivable 14,578 16,116
Inventories 96,227 81,298
Deferred income taxes 2,517 3,547
Prepaid expenses and other 29,614 8,849

Total current assets
290,010 201,181
Property, plant and equipment, net 210,004 198,565
Goodwill 84,856 39,114
Other intangibles, net 2,019 55,354
Other assets 3,138 4,475

Total assets
$ 590,027 $ 498,689

Liabilities and Stockholders’ Equity
Current Liabilities:

Accounts payable and accrued liabilities $ 128,290 $ 91,794
Accrued payroll and employee benefits 24,514 25,369
Current portion of long-term debt 2,143

Total current liabilities
154,947 117,163
Long-term debt, less current portion 199,429 148,671
Deferred income taxes 14,404 24,490

Total liabilities
368,780 290,324

Commitments and contingencies

Stockholders’ Equity:

Preferred stock, $1 par value — 10,000,000 shares authorized; no shares issued or outstanding in 2002 and 2001
Common stock, $1 par value — 60,000,000 shares authorized; 34,746,000 shares and 34,461,000 shares issued and outstanding in 2002 and 2001, respectively 34,746 34,461
Capital in excess of par 163,809 160,103
Notes receivable from stockholders (2,489 ) (2,546 )
Retained earnings 25,181 16,347

Total stockholders’ equity
221,247 208,365

Total liabilities and stockholders’ equity
$ 590,027 $ 498,689

(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended

($ in thousands, except per share amounts) June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001

Net sales $ 376,811 $ 335,424 $ 667,225 $ 574,837

Costs and expenses:
Cost of goods sold 322,865 293,326 585,026 510,116
Selling, general and administrative 29,370 28,313 54,928 55,320
Interest, net of amounts capitalized 2,102 3,264 3,888 6,278
Other expense (income) 1,327 (930 ) 189 (1,169 )
Merger transaction expenses 2,888 2,888

358,552 323,973 646,919 570,545

Income before income tax provision 18,259 11,451 20,306 4,292

Income tax provision 6,573 4,410 7,310 1,683

Net income 11,686 7,041 12,996 2,609

Accretion of preferred stock to redemption value 106 212
Preferred stock dividends 348

Net income available to common stockholders $ 11,686 $ 6,935 $ 12,996 $ 2,049

Net income per common share:

Basic $ .34 $ .24 $ .38 $ .07

Diluted $ .31 $ .20 $ .35 $ .07

Dividends per common share
$ .06 $ .06 $ .12 $ .12

(Unaudited)
Notes
Common Stock Receivable

Capital in From Retained
(In thousands) Shares Amount Excess of Par Stockholders Earnings Total

Balances at December 30, 2000 28,268 $ 28,268 $ 58,396 $ (2,284 ) $ 15,992 $ 100,372
Net income 2,609 2,609
Accretion of preferred stock to redemption value (212 ) (212 )
Preferred stock dividends declared (348 ) (348 )
Common stock dividends declared (3,777 ) (3,777 )
Conversion of mandatorily redeemable convertible preferred stock to common stock 5,800 5,800 94,952 100,752
Issuance of common stock under employee stock plans, net 391 391 5,858 (20 ) 6,229
Repurchases and retirements of common stock (74 ) (74 ) (2,096 ) (2,170 )

Balances at June 30, 2001 34,385 $ 34,385 $ 157,110 $ (2,304 ) $ 14,264 $ 203,455

Balances at December 29, 2001 34,461 $ 34,461 $ 160,103 $ (2,546 ) $ 16,347 $ 208,365
Net income 12,996 12,996
Common stock dividends declared (4,162 ) (4,162 )
Issuance of common stock under employee stock plans, net 338 338 5,776 (339 ) 5,775
Repurchases and retirements of common stock (53 ) (53 ) (2,070 ) 396 (1,727 )

Balances at June 29, 2002 34,746 $ 34,746 $ 163,809 $ (2,489 ) $ 25,181 $ 221,247

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

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

The consolidated financial statements for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~on June 29,~~September 28, 2002 and ~~June 30,~~September 29, 2001 have not been audited by independent public accountants, but include all adjustments, such as normal recurring accruals, which management considers necessary for a fair presentation of the consolidated operating results for the interim periods. The statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange ~~Commission.~~Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of results to be expected for an entire year. The aforementioned statements should be read in conjunction with the Consolidated Financial Statements for the year ended December 29, 2001, appearing in the Company’s ~~2001 Annual~~ Report on Form ~~10-K.~~8-K filed on November 5, 2002. Certain reclassifications have been made to prior years’ financial statements to conform to the current year presentation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates include assessing the recoverability of accounts receivable; the adequacy of the valuation allowance for deferred tax assets; the recoverability of goodwill; the adequacy of the Company’s liabilities for self-insured health, workers compensation and vehicle plans; and the adequacy of the Company’s liabilities for employee bonuses and profit-sharing plan contributions, among others. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from ~~those~~these estimates.

On June 16, 2002, the Company entered into an Agreement and Plan of Merger and Contribution (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’s United States frozen dessert business. The combination will result in both the Company and Nestlé Ice Cream Company, LLC (NICC), which holds Nestlé’s United States frozen dessert business, becoming wholly-owned subsidiaries of New Dreyer’s, a newly formed Delaware ~~corporation (New Dreyer’s).~~corporation. This transaction will be recorded under the purchase method of accounting and will be treated as a reverse acquisition. Under reverse acquisition accounting, NICC will be deemed to be the acquirer for accounting purposes only, and the Company will be treated as the acquiree. As a result, the Company ~~will expense~~is expensing all merger transaction expenses as incurred. These expenses totaled ~~$2,888,000~~$2,823,000 and $5,711,000 for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 29, 2002.~~September 28, 2002, respectively.

If the transactions contemplated by the Merger Agreement are completed, each non-Nestlé stockholder 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. Under the amended and restated certificate of incorporation of New Dreyer’s, subject to the terms set forth therein, the holders of New Dreyer’s class A callable puttable 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. For the contribution of its ownership interest of NICC Holdings, Nestlé will receive approximately 55 million shares of class B common stock of New Dreyer’s. The class B common shares are similar to the class A common shares, except that they lack the call and put features. 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 ~~June 29,~~September 28, 2002, Nestlé owned approximately 23 percent of the Company’s common stock on a diluted basis. If the transactions contemplated by the Merger Agreement are completed, Nestlé will own approximately 67 percent of the diluted common stock of New Dreyer’s.

Each outstanding option to purchase the Company’s common stock under the Company’s existing stock option plans will, at the completion of the transactions, be converted into an option to acquire:

	•		prior to the date New Dreyer’s class A callable puttable common stock is redeemed under the call right, 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 options immediately prior to the completion of the transactions, at the price or prices per share in effect immediately prior to the completion of the transactions; and

	•		at or after the date New Dreyer’s class A callable puttable common stock is redeemed under the call right or to the consummation of a short-form merger of New Dreyer’s with Nestlé or an affiliate of Nestlé S.A., pursuant to the terms of the governance agreement in the form attached as an exhibit to the Merger Agreement, the same consideration which the holder of the options would have received had he or she exercised such option prior to such redemption and received consideration pursuant to the redemption at the price or prices in effect at that time.

The 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 transactions.

Certain regulatory requirements must be complied with before the transactions contemplated by the Merger Agreement are completed. The Company and Nestlé are not aware of any material governmental consents or approvals that are required prior to the completion of the transactions other than those described ~~below.~~below:

	•		Under the Hart-Scott-Rodino Antitrust ~~Improvement~~Improvements Act of 1976, as amended (the HSR Act), and the rules promulgated thereunder by the United States Federal Trade Commission (the FTC), the transactions cannot be completed until notifications have been given and information has been furnished to the FTC and the Antitrust Division of the ~~Unites~~United States Department of Justice, 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, thereby extending the statutory waiting period until 30 days after the Company and Nestlé each substantially comply with this request, unless the waiting period is terminated earlier or extended with the consent of the Company and Nestlé. The Company and Nestlé are continuing to work closely with the FTC staff on its request.

	•		On November 6, 2002, New Dreyer’s ~~must file~~filed with the SEC a ~~registration statement~~Registration Statement on Form S-4 which ~~will include~~included a proxy statement/~~prospectus.~~ prospectus pertaining to the transactions contemplated by the Merger Agreement. The SEC may choose to review the filing, and if it does so, it will typically provide comments within 30 days.

•		If the registration statement is declared effective by the SEC, and if the transactions contemplated by the Merger Agreement are completed, then all shares of New Dreyer’s class A callable puttable common stock received by the Company’s stockholders in the merger will be freely transferable, except that shares of New Dreyer’s class A callable

puttable common stock received by persons who are deemed to be “affiliates” of the Company under the Securities Act of 1933, as amended (the 1933 Act), at the time of the special meeting of the Company’s stockholders, may be resold by such affiliates only in transactions permitted by Rule 145 under the 1933 Act or as otherwise permitted under the 1933 Act. Persons who may be deemed to be affiliates of the Company for such purposes generally include individuals or entities that control, are controlled by or are under common control with the Company and include the members of the Company’s board of directors.

Several of the Company’s joint venture partners and partner brand manufacturers have rights to terminate their arrangements with the Company upon consummation of the transactions contemplated by the Merger Agreement, subject to various other terms and conditions. While the Company intends to continue in these ventures and partner brand relationships, it can provide no assurance as to the potential actions of its business partners. Should any of the Company’s significant partners or suppliers choose to exit these arrangements in accordance with their rights to do so following the consummation, the Company may incur significant decreases in gross profit or be required to write-off certain assets as a result of the loss of these business partners.

Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. Inventories at ~~June 29,~~September 28, 2002 and December 29, 2001 consisted of the following:

Under current ~~Federal~~federal and ~~State~~state regulations and industry practice, the price of cream, a primary ingredient in ice cream, is linked to the price of butter. In an effort to mitigate the effects of butter price volatility, the Company periodically purchases butter or butter futures contracts with the intent of reselling or settling its positions in order to lower its cream cost and overall exposure to the volatility of this market. The Company has elected to not treat its investment in butter as a hedge for accounting purposes. Consequently, it “marks to market” its investment at the end of each quarter and records any resulting gain or loss in other income, ~~or expense in Other Expense (Income).~~net. The Company typically holds its butter investments for periods of up to ~~three~~four months.

Investments in butter, included in ~~Prepaid Expenses~~prepaid expenses and ~~Other~~other at ~~June 29,~~September 28, 2002 consisted of the following:

During the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 29,~~September 28, 2002, the Company recorded ~~expense~~losses of ~~$1,147,000~~$746,000 and ~~$1,319,000,~~$2,065,000, respectively. During 2001, the Company made no investments in butter.

The denominator for basic net income per share includes the number of weighted-average common shares outstanding. The denominator for diluted net income per share includes the number of weighted-average shares outstanding plus the

effects of potentially dilutive securities which include stock options and redeemable convertible preferred stock. The following table reconciles the numerators and denominators of the basic and diluted net income per common share calculations:
Thirteen Weeks Ended Twenty-six Weeks Ended

(In thousands, except per share amounts) June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001

Net income available to common stockholders — basic $ 11,686 $ 6,935 $ 12,996 $ 2,049
Add: preferred dividends and accretion 106 560

Net income available to common stockholders — diluted $ 11,686 $ 7,041 $ 12,996 $ 2,609

Weighted-average shares — basic 34,685 29,275 34,598 28,822
Dilutive effect of options 2,923 1,733 2,795 1,923
Dilutive effect of preferred stock 5,099 5,449

Weighted-average shares — diluted 37,608 36,107 37,393 36,194

Net income per common share:

Basic $ .34 $ .24 $ .38 $ .07

Diluted $ .31 $ .20 $ .35 $ .07

Each outstanding and unvested option to purchase the Company’s common stock under the Company’s existing stock option plans became fully vested on June 14, 2002, the date that the Company’s board of directors approved the Merger Agreement and the transactions contemplated by the Merger Agreement (Note 3). In connection with the execution of the Merger Agreement, certain executive officers ~~entered into employment agreements which, among other things,~~ waived ~~the~~their rights to accelerated vesting of ~~such officer’s~~their unvested stock options ~~as a result of the approval of the transactions by the Company’s board of directors.~~in conjunction with entering into Employment Agreements with New Dreyer’s. The employment agreements are effective if and when the transactions contemplated by the Merger Agreement are completed. Under the Merger Agreement, the Company can have no more than 41,393,348 outstanding or issuable shares of common stock if and when the transactions contemplated by the Merger Agreement are completed. This total includes shares issuable upon exercise of options, whether vested or unvested.

Potentially dilutive securities are excluded from the calculations of diluted net income per common share when their inclusion would have an anti-dilutive effect. There were no potentially dilutive securities to be excluded during the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 29,~~September 28, 2002. Potentially dilutive securities, stated in absolute equivalent shares of common stock, consisted of ~~774,000 and~~ 753,000 stock options during the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 30, 2001, respectively.~~September 29, 2001.

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

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

The Company adopted EITF 01-9 at the beginning of fiscal 2002. ~~The~~For the thirteen and thirty-nine weeks ended September 28, 2002, the Company presented the expenses described above of ~~$63,038,000~~$65,881,000 and ~~$110,708,000,~~$176,589,000, respectively, as a reduction of net sales in accordance with this ~~pronouncement for~~pronouncement. For the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June~~September 29, ~~2002. The~~2001, the Company retroactively reclassified expenses of ~~$49,410,000~~$58,274,000 and ~~$82,026,000, respectively, for the thirteen and twenty-six weeks ended June 30, 2001.~~$140,300,000,

decrease in total sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses, with no effect on net income as previously reported.

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

~~A reconciliation of~~The following table reconciles reported net income available to common stockholders and the related per common share amounts to the corresponding adjusted net income and related per common share amounts. Adjusted net income and net income per common share ~~to the~~ amounts ~~adjusted for~~reflecting the exclusion of goodwill amortization of ~~$980,000~~$655,000 ($1,100,000 net of tax of $445,000) and ~~$2,093,000,~~$1,942,000 ($3,193,000 net of tax of $1,251,000), respectively, for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 30,~~September 29, 2001, ~~net of the related income tax effects of $382,000 and $806,000,~~ respectively, ~~follows:~~follow:
Thirteen Weeks Ended Twenty-six Weeks Ended

(In thousands, except per share amounts) June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001

Reported net income $ 11,686 $ 6,935 $ 12,996 $ 2,049
Goodwill amortization, net of tax 598 1,287

Adjusted net income $ 11,686 $ 7,533 $ 12,996 $ 3,336

Net income per common share:
Reported basic $ .34 $ .24 $ .38 $ .07
Goodwill amortization, net of tax .02 .05

Adjusted basic $ .34 $ .26 $ .38 $ .12

Reported diluted $ .31 $ .20 $ .35 $ .07
Goodwill amortization, net of tax .01 .04

Adjusted diluted $ .31 $ .21 $ .35 $ .11

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 ~~$53,927,000~~$52,997,000 of acquisition-related intangibles with indefinite lives to goodwill at the beginning of the first quarter of 2002. ~~Fiscal~~In accordance with this pronouncement, the corresponding prior year amounts were not retroactively reclassified. The remaining change in goodwill since December 29, 2001 ~~acquisition-related intangibles are included in Other Intangibles, Net, in the Consolidated Balance Sheet.~~consists of acquisition goodwill.

In October 2001, the Financial Accounting Standards Board 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 No. 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 adopted SFAS No. 144 in the first quarter of 2002. The adoption of SFAS No. 144 did not impact the Company’s financial position, results of operations or cash flows.

At December 29, 2001, the Company had a $1,093,000 investment in Momentx Corporation (Momentx), included in long-term Other Assets. Momentx is an e-market solution provider for the dairy, food and beverage industries. The Company followed the cost method in accounting for this investment since its ownership interest was less than three percent. 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 and recognized a $1,093,000 ~~loss.~~loss which is included as a component of Other income, net, in the Consolidated Statement of Income.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Unaudited).

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which contains a “safe harbor” for forward-looking statements upon which the Company relies in making such disclosures. These forward-looking statements are based on the Company’s current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about ~~us, including:~~the Company, including, but not limited to:

	•		uncertainty regarding the Company’s future operating results;

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

	•		the cost of energy used in manufacturing and distribution;

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

	•		competitors’ marketing and promotion responses;

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

	•		the Company’s ability to increase sales of its own branded products;

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

	•		uncertainty regarding the completion and effect of the proposed transactions ~~with Nestlé Holdings, Inc.~~described under “MERGER AND CONTRIBUTION AGREEMENT” below.

Other factors that could cause actual results to differ from expectations are discussed in this “Item 2 —– Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 3 —– Qualitative and Quantitative Disclosures About Market Risk” below. The Company’s actual results could differ substantially from those anticipated in these forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events.

The following discussion should be read together with the Company’s consolidated financial statements and related notes thereto included elsewhere in this document and in “Item ~~7 —~~5 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in the Company’s Report on Form 8-K filed on November 5, 2002 and in “Item 7A —– Qualitative and Quantitative Disclosures About Market Risk” appearing in the Company’s 2001 Annual Report on Form ~~10-K Report for the fiscal year ended December 29, 2002.~~10-K.

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:

	•		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 allowances might be required. Changes in the financial condition of the Company’s major customers could result in significant accounts receivable write-offs.

	•		The Company records a valuation allowance related to deferred tax assets if, based on the weight of the available evidence, the Company concludes that it is more likely than not that some portion or all of the deferred tax assets will

not be realized. While the Company has considered future taxable income and prudent and feasible tax planning strategies in assessing the need for the valuation allowance, should the Company determine that it would not be able

			to realize all or part of its net deferred tax assets in the future, an adjustment to the carrying value of the deferred tax assets would be charged to income in the period in which such determination is made.

	•		The Company has goodwill related to 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 fair value of goodwill is based on estimates that carry a degree of uncertainty.

	•		The Company’s liabilities for self-insured health, workers compensation and vehicle plans are developed from actuarial valuations that rely on various key assumptions. Changes in key assumptions may occur in the future, which could result in changes to related self-insurance costs.

	•		The Company’s liabilities for employee bonuses and profit-sharing plan contributions are based primarily on estimated full-year profitability at the end of each quarter. Changes in the performance of the business and in estimated full-year profitability could result in significant interim adjustments to the cost of these programs.

These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from ~~those~~these estimates.

~~The~~On June 16, 2002, the Company entered into an Agreement and Plan of Merger and Contribution (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’s United States frozen dessert business. The combination will result in both the Company and Nestlé Ice Cream Company, LLC (NICC), which holds Nestlé’s United States frozen dessert business, becoming wholly-owned subsidiaries of a newly formed Delaware ~~corporation (New Dreyer’s).~~corporation. This transaction will be recorded under the purchase method of accounting and will be treated as a reverse acquisition. Under reverse acquisition accounting, NICC will be deemed to be the acquirer for accounting purposes only, and the Company will be treated as the acquiree. As a result, the Company ~~will expense~~is expensing all merger transaction expenses as incurred. These expenses totaled ~~$2,888,000~~$2,823,000 and $5,711,000 for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 29, 2002.~~September 28, 2002, respectively.

If the transactions contemplated by the Merger Agreement are completed, each non-Nestlé stockholder 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. Under the amended and restated certificate of incorporation of New Dreyer’s, subject to the terms set forth therein, the holders of New Dreyer’s class A callable puttable 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. For the contribution of its ownership interest of NICC ~~Nestlé~~ Holdings, ~~Inc.~~Nestlé will receive approximately 55 million shares of class B common stock of New Dreyer’s. The class B common shares are similar to the class A common shares, except that they lack the call and put features. 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 ~~June 29,~~September 28, 2002, Nestlé owned approximately 23 percent of the Company’s common stock on a diluted basis. If the transactions contemplated by the Merger Agreement are completed, Nestlé ~~and NICC Holdings, Inc.~~ will own approximately 67 percent of the diluted common stock of New Dreyer’s.

Company’s board of directors. The employment agreements are effective if and when the transactions contemplated by the Merger Agreement are completed. Under the Merger Agreement, the Company can have no more than 41,393,348 outstanding or issuable shares of common stock if and when the transactions contemplated by the Merger Agreement are completed. This total includes shares issuable upon exercise of options, whether vested or unvested.

Each outstanding option to purchase the Company’s common stock under the Company’s existing stock option plans will, at the completion of the transactions, be converted into an option to acquire:

	•		prior to the date New Dreyer’s class A callable puttable common stock is redeemed under the call right, 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 options immediately prior to the completion of the transactions, at the price or prices per share in effect immediately prior to the completion of the transactions; and

	•		at or after the date New Dreyer’s class A callable puttable common stock is redeemed under the call right or to the consummation of a short-form merger of New Dreyer’s with Nestlé or an affiliate of Nestlé S.A., pursuant to the terms of the governance agreement in the form attached as an exhibit to the Merger Agreement, the same consideration which the holder of the options would have received had he or she exercised such option prior to such redemption and received consideration pursuant to the redemption at the price or prices in effect at that time.

	•		Under the Hart-Scott-Rodino Antitrust ~~Improvement~~Improvements Act of 1976, as amended (the HSR Act), and the rules promulgated thereunder by the United States Federal Trade Commission (the FTC), the transactions cannot be completed until notifications have been given and information has been furnished to the FTC and the Antitrust Division of the ~~Unites~~United States Department of Justice, 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, thereby extending the statutory waiting period until 30 days after the Company and Nestlé each substantially comply with this request, unless the waiting period is terminated earlier or extended with the consent of the Company and Nestlé. The Company and Nestlé are continuing to work closely with the FTC staff on its request.

	•		On November 6, 2002, New Dreyer’s ~~must file~~filed with the ~~SEC~~Securities and Exchange Commission (SEC) a ~~registration statement~~Registration Statement on Form S-4 which ~~will include~~included a proxy statement/~~prospectus.~~ prospectus pertaining to the transactions contemplated by the Merger Agreement. The SEC may choose to review the filing, and if it does so, it will typically provide comments within 30 days.

•		If the registration statement is declared effective by the SEC, and if the transactions contemplated by the Merger Agreement are completed, then all shares of New Dreyer’s class A callable puttable common stock received by the Company’s stockholders in the merger will be freely transferable, except that shares of New Dreyer’s class A callable puttable common stock received by persons who are deemed to be “affiliates” of the Company under the Securities Act of 1933, as amended (the 1933 Act), at the time of the special meeting of the Company’s stockholders, may be resold by such affiliates only in transactions permitted by Rule 145 under the 1933 Act or as otherwise permitted under the 1933 Act. Persons who may be deemed to be affiliates of the Company for such purposes generally include individuals or entities that control, are controlled by or are under common control with the Company and include the members of the Company’s board of directors.

13 Several of the Company’s joint venture partners and partner brand manufacturers have rights to terminate their arrangements with the Company upon consummation of the transactions contemplated by the Merger Agreement, subject to various other terms and conditions. While the Company intends to continue in these ventures and partner brand relationships, it can provide no assurance as to the potential actions of its business partners. Should any of the Company’s significant partners or suppliers choose to exit these arrangements in accordance with their rights to do so following the consummation, the Company may incur significant decreases in gross profit or be required to write-off certain assets as a result of the loss of these business partners.

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

of acquisition-related intangibles with indefinite lives to goodwill at the beginning of the first quarter of 2002. ~~Fiscal~~In accordance with this pronouncement, the corresponding prior year amounts were not retroactively reclassified. The remaining change in goodwill since December 29, 2001 ~~acquisition-related intangibles are included in Other Intangibles, Net, in the Consolidated Balance Sheet.~~consists of acquisition goodwill.

The following table sets forth for the periods indicated the percent which the items in the Consolidated Statement of Income bear to net sales and the percentage change of such items compared to the indicated prior period:
Period-to-Period
Variance
Percentage of Sales Favorable (Unfavorable)

Thirteen Twenty-six
Weeks Weeks
Thirteen Weeks Ended Twenty-six Weeks Ended Ended Ended

2002 2002
June 29, June 30, June 29, June 30, Compared Compared
2002 2001 2002 2001 To 2001 To 2001

Net sales 100.0 % 100.0 % 100.0 % 100.0 % 12.3 % 16.1 %

Costs and expenses:
Cost of goods sold 85.7 87.5 87.7 88.8 (10.1 ) (14.7 )
Selling, general and administrative 7.8 8.4 8.2 9.6 (3.7 ) 0.7
Interest, net of amounts capitalized 0.6 1.0 0.6 1.1 35.6 38.1
Other expense (income) 0.3 (0.3 ) 0.1 (0.2 ) (242.7 ) (116.2 )
Merger transaction expenses 0.8 — 0.4 — NM NM

95.2 96.6 97.0 99.3 (10.7 ) (13.4 )

Income before income tax provision 4.8 3.4 3.0 0.7 59.5 373.1

Income tax provision 1.7 1.3 1.1 0.3 (49.0 ) (334.3 )

Net income 3.1 2.1 1.9 0.4 66.0 398.1

Accretion of preferred stock to redemption value — — — — — —

Preferred stock dividends — — — — — —

Net income available to common stockholders 3.1 % 2.1 % 1.9 % 0.4 % 68.5 534.3

Thirteen Weeks ended ~~June 29,~~September 28, 2002 Compared with Thirteen Weeks ended ~~June 30,~~September 29, 2001

Consolidated net sales for the ~~second~~third quarter of 2002 increased ~~$41,387,000,~~$21,962,000, or 12six percent, to ~~$376,811,000~~$383,598,000 from ~~$335,424,000~~$361,636,000 for the same quarter last year. ~~If the transactions contemplated by the Merger Agreement (discussed earlier) are completed, the percentages of consolidated net sales represented by company brands and partner brands will change.~~

Net sales of the Company’s branded products, including licensed and joint venture products (company brands), increased ~~$10,818,000,~~$4,929,000, or ~~six~~two percent, to ~~$204,603,000~~$209,739,000 from ~~$193,785,000~~$204,810,000 for the same quarter last year. Company brands represented 5455 percent of consolidated net sales in 2002 compared with 5857 percent in the same quarter last year. ~~Gallon sales of the Company’s branded products, including novelties, increased approximately 700,000 gallons, or two percent, to approximately 30,900,000 gallons.~~ The products that led this increase were Dreyer’s and ~~Edy’s~~^®Edy’s® Grand Ice Cream ~~the Company’s superpremium portfolio~~ and Whole Fruit™ Bars. The average price of ~~the Company’s branded products,~~company brands, net of the effect of trade promotion expenses, ~~(which are classified as a reduction of sales),~~ increased by ~~four~~five percent. Gallon sales of

company brands, including novelties, decreased approximately 600,000 gallons, or two percent, to approximately 31,400,000 gallons.

Net sales of products distributed for other manufacturers (partner brands), including Ben & Jerry’s Homemade, Inc. (Ben & Jerry’s), increased ~~$30,569,000,~~$17,033,000, or 2211 percent, to ~~$172,208,000~~$173,859,000 from ~~$141,639,000~~$156,826,000 for the same quarter last year. This increase was driven ~~largely~~primarily by increased sales of distributed novelty products (including a significant increase in sales of Silhouette Brands, Inc. (Silhouette) novelty products) and Ben & Jerry’s superpremium ~~products and Healthy Choice ice cream.~~products. Sales of partner brands represented 4645 percent of consolidated net sales compared with

42 43 percent in the same quarter last year. Average wholesale prices for partner brands increased approximately 1614 percent. Unit sales of partner brands ~~increased~~decreased by ~~four~~three percent over the same quarter last year.

Cost of goods sold increased ~~$29,539,000,~~$6,604,000, or 10two percent, to ~~$322,865,000~~$327,624,000 from ~~$293,326,000~~$321,020,000 for the same quarter last year. The Company’s gross profit increased by ~~$11,848,000,~~$15,358,000, or 2838 percent, to ~~$53,946,000~~$55,974,000 from ~~$42,098,000,~~$40,616,000, representing a ~~14.3~~14.6 percent gross margin compared with ~~a 12.6~~an 11.2 percent gross margin for the same quarter last year. The improvement in gross profit was primarily attributable to lower dairy raw material costs and higher volume, partially offset by increases in distribution expenses. During the ~~second~~third quarter of 2002, the decrease in dairy raw material costs accounted for a ~~$11,400,000~~$16,200,000 pre-tax benefit (excluding the results of butter trading activities, which are included in ~~Other Expense (Income)~~other income, net and discussed below) as compared to the same quarter last year.

Selling, general and administrative expenses increased ~~$1,057,000,~~$6,748,000, or ~~four~~23 percent, to ~~$29,370,000~~$35,632,000 from ~~$28,313,000~~$28,884,000 for the same quarter last year. The increase in expenses from 2001 reflects higher marketing expenses and higher administrative expenses, partially offset by a ~~$980,000~~$1,100,000 reduction in amortization of goodwill as a result of the adoption of SFAS No. 142. Selling, general and administrative expenses represented nine and eight percent of consolidated net sales in the ~~second~~third quarters of 2002 and ~~2001.~~2001, respectively.

Interest expense decreased ~~$1,162,000,~~$867,000, or 3631 percent, to ~~$2,102,000~~$1,947,000 from ~~$3,264,000~~$2,814,000 for the same quarter last year, primarily due to lower interest ~~rates, partially offset by higher borrowings.~~rates.

Other income, net, decreased ~~$2,257,000,~~$454,000, or ~~243~~44 percent, to ~~an expense of $1,327,000~~$575,000 from ~~income of $(930,000)~~$1,029,000 for the same quarter last year. Other ~~expense~~income, net, includes ~~$1,147,000~~$746,000 of ~~expense~~losses from butter trading activities and a $1,093,000 write-off of a cost method 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 called for a substantial acceleration of its sales growth which did not occur, negatively impacted the recovery of the Company’s investment.activities. Decreases in other income, net, were partially offset by an increase in earnings from joint ventures accounted for under the equity method.

Nestlé merger transaction expenses (discussed earlier) totaled ~~approximately $2,888,000~~$2,823,000 during the ~~second~~third quarter of 2002. The Company currently estimates that it will incur total merger transaction expenses, ~~for fiscal 2002~~including costs to be incurred to close the transactions, in the range of ~~$23,000,000~~$28,000,000 to ~~$26,000,000.~~$30,000,000.

The income tax provision increased ~~$2,163,000,~~$1,914,000, or 49 percent, to ~~$6,573,000~~$5,813,000 from ~~$4,410,000~~$3,899,000 for the same quarter last year. The effective tax rate decreased to 36.0 percent from 38.5 percent for the same quarter last year due primarily to the reversal of income taxes provided in prior periods, the elimination of certain permanent differences in connection with the adoption of SFAS No. 142 and income tax credits.

~~Twenty-six Weeks ended June 29, 2002 Compared with Twenty-six Weeks ended June 30, 2001~~

Consolidated net sales for the first twenty-six weeks of 2002 increased $92,388,000, or 16 percent, to $667,225,000 from $574,837,000 for the same quarter last year. If the transactions contemplated by the Merger Agreement (discussed earlier) are completed, the percentages of consolidated net sales represented by company brands and partner brands will change.

Net sales of the Company’s branded products, including licensed and joint venture products (company brands), increased $31,872,000, or nine percent, to $370,497,000 from $338,625,000 for the same period last year. Company brands represented 56 percent of consolidated net sales in 2002 compared with 59 percent in the same period last year. Gallon sales of the Company’s branded products, including novelties, increased approximately 4,100,000 gallons, or eight percent, to approximately 57,200,000 gallons. The products that led this increase were Dreyer’s and Edy’s^® Grand Ice Cream, the Company’s superpremium portfolio and Whole Fruit™ Bars. The average price of the Company’s branded products, net of the effect of trade promotion expenses (which are classified as a reduction of sales), increased by one percent.

Net sales of products distributed for other manufacturers (partner brands), including Ben & Jerry’s Homemade, Inc. (Ben & Jerry’s), increased $60,516,000, or 26 percent, to $296,728,000 from $236,212,000 for the same period last year.

This increase was driven largely by increased sales of distributed novelty products, Ben & Jerry’s superpremium products and Healthy Choice ice cream. Sales of partner brands represented 44 percent of consolidated net sales compared with 41 percent in the same period last year. Average wholesale prices for partner brands increased approximately 13 percent. Unit sales of partner brands increased by 11 percent over the same period last year.

Cost of goods sold increased $74,910,000, or 15 percent, to $585,026,000 from $510,116,000 for the same period last year. The Company’s gross profit increased by $17,478,000, or 27 percent, to $82,199,000 from $64,721,000, representing a 12.3 percent gross margin compared with a 11.3 percent gross margin for the same period last year. The improvement in gross profit was primarily attributable to lower dairy raw material costs and higher volume, partially offset by increases in distribution expenses. During the first twenty-six weeks of 2002, the decrease in dairy raw material costs accounted for a $13,300,000 pre-tax benefit (excluding the results of butter trading activities, which are included in Other Expense (Income) and are discussed below) as compared to the same period last year.

Selling, general and administrative expenses decreased $392,000, or one percent, to $54,928,000 from $55,320,000 for the same period last year. The decrease in expenses from 2001 reflects lower marketing expenses and a $2,093,000 reduction in amortization of goodwill as a result of SFAS No. 142, partially offset by higher administrative expenses. Selling, general and administrative expenses represented eight and 10 percent of consolidated net sales in the first twenty-six weeks of 2002 and 2001, respectively.

~~Interest expense decreased $2,390,000, or 38 percent, to $3,888,000 from $6,278,000 for the same period last year, primarily due to lower interest rates, partially offset by higher borrowings.~~

Other income decreased $1,358,000, or 116 percent, to an expense of $189,000 from income of $(1,169,000) for the same period last year. Other expense includes $1,319,000 of expense from butter trading activities and a $1,093,000 write-off of a cost method 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 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 were partially offset by an increase in earnings from joint ventures accounted for under the equity method.

Nestlé merger transaction expenses (discussed earlier) totaled approximately $2,888,000 during the first twenty-six weeks of 2002. The Company currently estimates that it will incur total merger transaction expenses for fiscal 2002 in the range of $23,000,000 to $26,000,000.

~~The income tax provision increased $5,627,000, or 334 percent, to $7,310,000 from $1,683,000 for the same period~~ last year. The effective tax rate decreased to 36.0 percent from 39.2 percent for the same quarter last year due primarily to the reversal of income taxes provided in prior periods, the elimination of certain permanent differences in connection with the adoption of SFAS No. 142 and the utilization of certain income tax credits.

Thirty-nine Weeks ended September 28, 2002 Compared with Thirty-nine Weeks ended September 29, 2001

Consolidated net sales for the first thirty-nine weeks of 2002 increased $114,350,000, or 12 percent, to $1,050,823,000 from $936,473,000 for the same period last year.

Net sales of the Company’s branded products, including licensed and joint venture products (company brands), increased $36,801,000, or seven percent, to $580,235,000 from $543,434,000 for the same period last year. Company brands represented 55 percent of consolidated net sales in 2002 compared with 58 percent in the same period last year. The products that led this increase were Dreyer’s and Edy’s® Grand Ice Cream, Whole Fruit™ Bars and the Company’s superpremium portfolio. The average price of company brands, net of the effect of trade promotion expenses, increased by three percent. Gallon sales of company brands, including novelties, increased approximately 3,500,000 gallons, or four percent, to approximately 88,600,000 gallons.

Net sales of products distributed for other manufacturers (partner brands), including Ben & Jerry’s, increased $77,549,000, or 20 percent, to $470,588,000 from $393,039,000 for the same period last year. This increase was driven largely by increased sales of distributed novelty products (including a significant increase in sales of Silhouette novelty products), Ben & Jerry’s superpremium products and Healthy Choice ice cream. Sales of partner brands represented 45 percent of consolidated net sales compared with 42 percent in the same period last year. Average wholesale prices for partner brands increased approximately 13 percent. Unit sales of partner brands increased by six percent over the same period last year.

Cost of goods sold increased $81,514,000, or ten percent, to $912,650,000 from $831,136,000 for the same period last year. The Company’s gross profit increased by $32,836,000, or 31 percent, to $138,173,000 from $105,337,000, representing a 13.1 percent gross margin compared with an 11.2 percent gross margin for the same period last year. The improvement in gross profit was primarily attributable to lower dairy raw material costs and higher volume, partially offset by increases in distribution expenses. During the first thirty-nine weeks of 2002, the decrease in dairy raw material costs accounted for a $29,500,000 pre-tax benefit (excluding the results of butter trading activities, which are included in other income, net, and are discussed below) as compared to the same period last year.

Selling, general and administrative expenses increased $6,356,000, or eight percent, to $90,560,000 from $84,204,000 for the same period last year. The increase in expenses from 2001 reflects higher administrative expenses and higher marketing expenses, partially offset by a $3,193,000 reduction in amortization of goodwill as a result of the adoption of SFAS No. 142. Selling, general and administrative expenses represented nine percent of consolidated net sales in each of the first thirty-nine weeks of 2002 and 2001.

Interest expense decreased $3,257,000, or 36 percent, to $5,835,000 from $9,092,000 for the same period last year, primarily due to lower interest rates.

Other income, net, decreased $1,812,000, or 82 percent, to $386,000 from $2,198,000 for the same period last year. Other income, net, includes $2,065,000 of losses from butter trading activities and a $1,093,000 impairment of 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 an increase in earnings from joint ventures accounted for under the equity method.

Nestlé merger transaction expenses (discussed earlier) totaled $5,711,000 during the first thirty-nine weeks of 2002. The Company currently estimates that it will incur total merger transaction expenses, including costs to be incurred to close the transactions, in the range of $28,000,000 to $30,000,000.

The income tax provision increased $7,541,000, or 135 percent, to $13,123,000 from $5,582,000 for the same period last year. The effective tax rate decreased to 36.0 percent from 39.2 percent for the same period last year due primarily to the reversal of income taxes provided in prior periods, the elimination of certain permanent differences in connection with the adoption of SFAS No. 142 and the utilization of income tax credits.

Working capital at ~~June 29,~~September 28, 2002 increased ~~$51,045,000~~$9,339,000 from year-end 2001. The Company’s cash flows ~~used in~~from operating activities increased to ~~$21,928,000~~$39,336,000 from ~~$9,788,000~~$11,888,000 for the same period last year. ~~The increase in cash~~Cash flows ~~used in~~from operating activities ~~were~~for 2002 primarily ~~comprised~~consisted of net income of $23,330,000, depreciation and amortization of $26,067,000, and an increase ~~in prepaid expenses and other of $20,086,000 and~~ in accounts payable and accrued liabilities of ~~$14,836,000,~~$17,854,000, partially offset by an increase in trade accounts receivable of $26,919,000. Cash flows from operating activities for 2001 primarily consisted of net income of ~~$10,387,000.~~$8,657,000, depreciation and amortization of $26,940,000, and an increase in accounts payable and accrued liabilities of $42,353,000, partially offset by an increase in trade accounts receivable of $52,241,000.

Cash flows used in investing activities totaled ~~$30,826,000~~$40,397,000 and ~~$25,588,000,~~$32,689,000, in 2002 and 2001, respectively. Cash flows used in investing activities primarily consisted of property, plant and equipment purchases of ~~$28,416,000~~$37,927,000 and ~~$21,485,000,~~$29,218,000, in 2002 and 2001, respectively.

Cash flows from financing activities totaled ~~$52,804,000~~$1,270,000 and ~~$37,906,000,~~$20,609,000, in 2002 and 2001, respectively. Cash flows from financing activities for 2002 primarily consisted of ~~a net increase~~issuance of ~~$52,901,000 in the Company’s revolving line~~common stock of

~~credit.~~ $9,351,000 partially offset by cash dividends paid of $6,230,000 and repurchases and retirements of common stock of $1,752,000. Cash flows from financing activities for 2001 primarily consisted of a net increase of ~~$47,300,000~~$42,700,000 in the revolving line of credit, partially offset by repayments of debt totaling ~~$10,543,000.~~$22,186,000.

At ~~June 29,~~September 28, 2002, the Company had ~~$1,700,000~~$1,859,000 in cash and cash equivalents, and an unused credit line of ~~$67,000,000.~~$120,000,000. As discussed earlier, the Company currently estimates that it will incur total merger transaction expenses, ~~for fiscal 2002~~including costs to be incurred to close the transactions, in the range of ~~$23,000,000~~$28,000,000 to ~~$26,000,000.~~$30,000,000. The Company believes that its credit line, along with its liquid resources, internally-generated cash and financing capacity, are adequate to meet both short-term and long-term operating and capital requirements, including the merger transaction expenses. ~~The Company also believes that New Dreyer’s, the new company that would be created upon the consummation of~~In connection with the transactions contemplated by the Merger Agreement, ~~would have sufficient liquid resources, internally-generated cash and financing capacity~~the Company is currently in the process of negotiating modifications to ~~meet~~ its ~~short-term and long-term operating and capital requirements.~~revolving line of credit agreement, including modifications relating to dividends permitted under such credit agreement.

This Item 3 should be read in conjunction with Item 7A of the Company’s 2001 Annual Report on Form 10-K and in conjunction with Item 2 above.

Under current ~~Federal~~federal and ~~State~~state regulations and industry practice, the price of cream, a primary ingredient in ice cream, is linked to the price of butter. In an effort to mitigate the effects of butter price volatility, the Company periodically purchases butter or butter futures contracts with the intent of reselling or settling its positions in order to lower its cream cost and overall exposure to the volatility of this market. The Company has elected to not treat its investment in butter as a hedge for accounting purposes. Consequently, it “marks to market” its investment at the end of each quarter and records any resulting ~~income~~gain or ~~expense~~loss in Other ~~Expense (Income).~~income, net. During the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 29,~~September 28, 2002, the Company marked its butter ~~investment~~investments to market and recorded ~~expense~~losses of ~~$1,147,000~~$746,000 and ~~$1,319,000,~~$2,065,000, respectively.

During the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 29,~~September 28, 2002, the decrease in dairy raw material costs accounted for a ~~$11,400,000~~$16,200,000 pre-tax benefit and a ~~$13,300,000~~$29,500,000 pre-tax benefit (excluding the results of butter trading activities), respectively, as compared to the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 30,~~September 29, 2001, respectively.

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

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

An Annual Meeting of Stockholders was held in Oakland, California on May 8, 2002. A total of 31,906,712 shares (92.3 percent) of the outstanding common shares were represented at the meeting in person or by proxy. The following matters were voted upon by the stockholders:

The following persons, who were the only nominees, were re-elected as Class II directors of the Board of Directors and will hold office until the 2005 Annual Meeting of Stockholders or until their respective successors are elected and qualified, and received the following number of votes:
Nominee For Withheld

Robert A. Helman 31,006,716 899,996
Edmund R. Manwell 31,010,556 896,156
Timothy P. Smucker 30,942,346 964,366

~~(b)~~

~~Approving the appointment of PricewaterhouseCoopers LLP as independent public accountants for the fiscal year 2002 and thereafter until its successor is appointed:~~


	~~Votes~~

~~For~~		~~31,182,712~~
~~Against~~		~~716,175~~
~~Abstain~~		~~7,825~~
~~Broker non-votes~~		6

(b)		A Report on Form 8-K/A was filed on June 17, 2002, reporting the Agreement and Plan of Merger and Contribution, dated as of June 16, 2002, by and among Dreyer’s Grand Ice Cream, Inc., New December, Inc., December Merger Sub, Inc., Nestlé Holdings, Inc. and NICC Holdings, Inc.

		A Report on Form 8-K was filed on August 7, 2002, reporting the submission of sworn statements by the Company’s Principal Executive Officer and Principal Financial Officer to the SEC pursuant to SEC Order No. 4-460.

		A Report on Form 8-K was filed on October 25, 2002, reporting an amendment to the Merger and Contribution Agreement dated June 16, 2002, to change the name of the holding company resulting from the transactions contemplated by the Merger and Contribution Agreement from “Dreyer’s Grand Ice Cream, Inc.” to “Dreyer’s Grand Ice Cream Holdings, Inc.” and to report the anticipated filing of the proxy statement/prospectus.

		A Report on Form 8-K was filed on November 5, 2002 which includes the information in Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8-Financial Statements and Supplementary Data appearing in the Company’s Form 10-K for the fiscal year ended December 29, 2001, giving effect to the adoption of the provisions of certain new accounting pronouncements.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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

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

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

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

(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls;

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

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

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

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls;

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


	Delaware		No. 94-2967523




(State or other jurisdiction of		(I.R.S. Employer




incorporation or organization)		Identification No.)


	Shares Outstanding
	~~August~~November 11, 2002

Common stock, $1 par value	~~34,797,000~~	34,911,000


				Twenty-six Weeks Ended									Thirty-nine Weeks Ended

(In thousands)				June 29, 2002			June 30, 2001
($ in thousands)										($ in thousands)			Sept. 28, 2002			Sept. 29, 2001

Cash flows from operating activities:	Cash flows from operating activities:									Cash flows from operating activities:
	Net income			$	12,996		$	2,609		Net income			$	23,330		$	8,657
	Adjustments to reconcile net income to cash flows from operations:									Adjustments to reconcile net income to cash flows from operations:
		Depreciation and amortization			17,058			17,953			Depreciation and amortization			26,067			26,940
		Deferred income taxes			1,110			310			Deferred income taxes			1,993			1,029
		Impairment of investment in Momentx Corporation			1,093						Impairment of investment in Momentx Corporation			1,093
		Changes in assets and liabilities, net of amounts acquired:									Changes in assets and liabilities, net of amounts acquired:
			Trade accounts receivable		(55,653	)		(57,619	)			Trade accounts receivable		(26,919	)		(52,241	)
			Other accounts receivable		1,538			(2,268	)			Other accounts receivable		1,732			(1,957	)
			Inventories		(14,929	)		(16,065	)			Inventories		(4,235	)		(12,688	)
			Prepaid expenses and other		(20,765	)		(679	)			Prepaid expenses and other		(8,404	)		219
			Accounts payable and accrued liabilities		36,479			51,315				Accounts payable and accrued liabilities		17,854			42,353
			Accrued payroll and employee benefits		(855	)		(5,344	)			Accrued payroll and employee benefits		6,825			(424	)

					(21,928	)		(9,788	)					39,336			11,888

Cash flows from investing activities:	Cash flows from investing activities:									Cash flows from investing activities:
	Acquisition of property, plant and equipment				(28,416	)		(21,485	)	Acquisition of property, plant and equipment				(37,927	)		(29,218	)
	Retirement of property, plant and equipment				348			703		Retirement of property, plant and equipment				536			1,662
	Purchase of independent distributors and other intangibles				(2,913	)		(4,270	)	Purchase of independent distributors and other intangibles				(2,757	)		(5,646	)
	Increase in other assets				155			(536	)	Increase in other assets				(249	)		513

					(30,826	)		(25,588	)					(40,397	)		(32,689	)

Cash flows from financing activities:	Cash flows from financing activities:									Cash flows from financing activities:
	Proceeds from long-term debt, net				52,901			47,300		Net (repayments of) proceeds from long-term debt				(99	)		42,700
	Repayments of long-term debt							(10,543	)	Repayments of long-term debt							(22,186	)
	Issuance of common stock under employee stock plans, net				5,775			6,229		Issuance of common stock under employee stock plans, net				9,351			7,400
	Repurchases and retirements of common stock				(1,727	)		(2,170	)	Repurchases and retirements of common stock				(1,752	)		(2,331	)
	Cash dividends paid				(4,145	)		(2,910	)	Cash dividends paid				(6,230	)		(4,974	)

					52,804			37,906						1,270			20,609

Increase in cash and cash equivalents					50			2,530
Increase (decrease) in cash and cash equivalents										Increase (decrease) in cash and cash equivalents				209			(192	)

Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period				1,650			2,721		Cash and cash equivalents, beginning of period				1,650			2,721

Cash and cash equivalents, end of period	Cash and cash equivalents, end of period			$	1,700		$	5,251		Cash and cash equivalents, end of period			$	1,859		$	2,529

Supplemental cash flow information:	Supplemental cash flow information:									Supplemental cash flow information:
	Cash paid during the period for:									Cash paid during the period for:
			Interest (net of amounts capitalized)	$	4,249		$	5,565				Interest (net of amounts capitalized)	$	5,511		$	8,848

			Income taxes (net of refunds)	$	343		$	46				Income taxes (net of refunds)	$	6,653		$	261

Supplemental schedule of noncash investing and financing activities:	Supplemental schedule of noncash investing and financing activities:									Supplemental schedule of noncash investing and financing activities:
	Conversion of redeemable convertible preferred stock to common stock						$	100,752		Conversion of redeemable convertible preferred stock to common stock						$	100,752


(In thousands)	June 29, 2002		Dec. 29, 2001		Sept. 28, 2002		Dec. 29, 2001

Raw materials	$	8,611	$	9,099	$	9,173	$	9,099
Finished goods		87,616		72,199		76,360		72,199

	$	96,227	$	81,298	$	85,533	$	81,298


(In thousands)	June 29, 2002		Sept. 28, 2002

Butter	$	5,406	$	3,501
Butter futures contracts		180		155

	$	5,586	$	3,656


(Mark One)





[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		OR




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


			June 29, 2002			Dec. 29, 2001

($ in thousands, except per share amounts)			(Unaudited)

Assets
Current Assets:
	Cash and cash equivalents		$	1,700		$	1,650
	Trade accounts receivable, net of allowance for doubtful accounts of $1,755 in 2002 and $1,024 in 2001			145,374			89,721
	Other accounts receivable			14,578			16,116
	Inventories			96,227			81,298
	Deferred income taxes			2,517			3,547
	Prepaid expenses and other			29,614			8,849

		Total current assets		290,010			201,181




Property, plant and equipment, net				210,004			198,565
Goodwill				84,856			39,114
Other intangibles, net				2,019			55,354
Other assets				3,138			4,475

Total assets			$	590,027		$	498,689

Liabilities and Stockholders’ Equity
Current Liabilities:
	Accounts payable and accrued liabilities		$	128,290		$	91,794
	Accrued payroll and employee benefits			24,514			25,369
	Current portion of long-term debt			2,143

	Total current liabilities			154,947			117,163




Long-term debt, less current portion				199,429			148,671
Deferred income taxes				14,404			24,490

Total liabilities				368,780			290,324


Commitments and contingencies

Stockholders’ Equity:
	Preferred stock, $1 par value — 10,000,000 shares authorized; no shares issued or outstanding in 2002 and 2001
	Common stock, $1 par value — 60,000,000 shares authorized; 34,746,000 shares and 34,461,000 shares issued and outstanding in 2002 and 2001, respectively			34,746			34,461
	Capital in excess of par			163,809			160,103
	Notes receivable from stockholders			(2,489	)		(2,546	)
	Retained earnings			25,181			16,347

Total stockholders’ equity				221,247			208,365

Total liabilities and stockholders’ equity			$	590,027		$	498,689


		Thirteen Weeks Ended					Twenty-six Weeks Ended

($ in thousands, except per share amounts)		June 29, 2002		June 30, 2001			June 29, 2002		June 30, 2001


Net sales		$	376,811	$	335,424		$	667,225	$	574,837





Costs and expenses:
	Cost of goods sold		322,865		293,326			585,026		510,116
	Selling, general and administrative		29,370		28,313			54,928		55,320
	Interest, net of amounts capitalized		2,102		3,264			3,888		6,278
	Other expense (income)		1,327		(930	)		189		(1,169	)
	Merger transaction expenses		2,888					2,888

			358,552		323,973			646,919		570,545


Income before income tax provision			18,259		11,451			20,306		4,292

Income tax provision			6,573		4,410			7,310		1,683


Net income			11,686		7,041			12,996		2,609

Accretion of preferred stock to redemption value					106					212
Preferred stock dividends										348

Net income available to common stockholders		$	11,686	$	6,935		$	12,996	$	2,049


Net income per common share:
	Basic	$	.34	$	.24		$	.38	$	.07

	Diluted	$	.31	$	.20		$	.35	$	.07


Dividends per common share		$	.06	$	.06		$	.12	$	.12


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

Balances at December 30, 2000			28,268		$	28,268		$	58,396		$	(2,284	)	$	15,992		$	100,372
	Net income														2,609			2,609
	Accretion of preferred stock to redemption value														(212	)		(212	)
	Preferred stock dividends declared														(348	)		(348	)
	Common stock dividends declared														(3,777	)		(3,777	)
	Conversion of mandatorily redeemable convertible preferred stock to common stock		5,800			5,800			94,952									100,752
	Issuance of common stock under employee stock plans, net		391			391			5,858			(20	)					6,229
	Repurchases and retirements of common stock		(74	)		(74	)		(2,096	)								(2,170	)


Balances at June 30, 2001			34,385		$	34,385		$	157,110		$	(2,304	)	$	14,264		$	203,455


Balances at December 29, 2001			34,461		$	34,461		$	160,103		$	(2,546	)	$	16,347		$	208,365
	Net income														12,996			12,996
	Common stock dividends declared														(4,162	)		(4,162	)
	Issuance of common stock under employee stock plans, net		338			338			5,776			(339	)					5,775
	Repurchases and retirements of common stock		(53	)		(53	)		(2,070	)		396						(1,727	)


Balances at June 29, 2002			34,746		$	34,746		$	163,809		$	(2,489	)	$	25,181		$	221,247


		Thirteen Weeks Ended				Twenty-six Weeks Ended

(In thousands, except per share amounts)		June 29, 2002		June 30, 2001		June 29, 2002		June 30, 2001

Net income available to common stockholders — basic		$	11,686	$	6,935	$	12,996	$	2,049
Add: preferred dividends and accretion					106				560

Net income available to common stockholders — diluted		$	11,686	$	7,041	$	12,996	$	2,609


Weighted-average shares — basic			34,685		29,275		34,598		28,822
Dilutive effect of options			2,923		1,733		2,795		1,923
Dilutive effect of preferred stock					5,099				5,449

Weighted-average shares — diluted			37,608		36,107		37,393		36,194


Net income per common share:
	Basic	$	.34	$	.24	$	.38	$	.07

	Diluted	$	.31	$	.20	$	.35	$	.07


														Period-to-Period
														Variance
		Percentage of Sales												Favorable (Unfavorable)

														Thirteen			Twenty-six
														Weeks			Weeks
		Thirteen Weeks Ended						Twenty-six Weeks Ended						Ended			Ended
														2002			2002
		June 29,			June 30,			June 29,			June 30,			Compared			Compared
		2002			2001			2002			2001			To 2001			To 2001


Net sales			100.0	%		100.0	%		100.0	%		100.0	%		12.3	%		16.1	%

Costs and expenses:
	Cost of goods sold		85.7			87.5			87.7			88.8			(10.1	)		(14.7	)
	Selling, general and administrative		7.8			8.4			8.2			9.6			(3.7	)		0.7
	Interest, net of amounts capitalized		0.6			1.0			0.6			1.1			35.6			38.1
	Other expense (income)		0.3			(0.3	)		0.1			(0.2	)		(242.7	)		(116.2	)
	Merger transaction expenses		0.8			—			0.4			—		NM			NM


			95.2			96.6			97.0			99.3			(10.7	)		(13.4	)


Income before income tax provision			4.8			3.4			3.0			0.7			59.5			373.1

Income tax provision			1.7			1.3			1.1			0.3			(49.0	)		(334.3	)



Net income			3.1			2.1			1.9			0.4			66.0			398.1

Accretion of preferred stock to redemption value			—			—			—			—			—			—

Preferred stock dividends			—			—			—			—			—			—


Net income available to common stockholders			3.1	%		2.1	%		1.9	%		0.4	%		68.5			534.3


Nominee	For		Withheld

Robert A. Helman		31,006,716		899,996
Edmund R. Manwell		31,010,556		896,156
Timothy P. Smucker		30,942,346		964,366


	Exhibit No.		Description

10.1		Second Amendment dated October 18, 2002 to Credit Agreement dated as of July 25, 2000 among Dreyer’s Grand Ice Cream, Inc., the banks party to this agreement, Bank of America, N.A. as Agent for the Banks, as Swing Line Bank and as Letter of Credit Issuing Bank; Union Bank of California, N.A. as Syndication Agent and Banc of America Securities LLC as Lead Arranger and Book Manager.




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




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


	DREYER’S GRAND ICE CREAM, INC.



















Dated: ~~August 13,~~November 12, 2002	By:	/s/ Timothy F. Kahn

		Timothy F. Kahn
		Vice President — Finance and Administration and ~~Administration~~ ~~and~~ Chief Financial Officer (Principal Financial ~~Officer (Principal Financial~~ Officer)