Dreyers Grand Ice Cream 10-Q 2002 Q3 Quarterly report

FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

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

For the quarterly period ended March 30, 2002

OR

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

Commission file number 0-14190

DREYER’S GRAND ICE CREAM, INC.
(Exact name of registrant as specified in its charter)

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

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

(510) 652-8187
(Registrant’s telephone number, including area 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.

Yes [X]     No [   ]

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

	Shares Outstanding
	May 11, 2002
Common stock, $1 par value	34,699,000

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS.
		CONSOLIDATED BALANCE SHEET
		CONSOLIDATED STATEMENT OF OPERATIONS
		CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
		CONSOLIDATED STATEMENT OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
PART II: OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DREYER’S GRAND ICE CREAM, INC.

CONSOLIDATED BALANCE SHEET

			Mar. 30, 2002			Dec. 29, 2001
($ in thousands, except per share amounts)			(Unaudited)
Assets
Current Assets:
		Cash and cash equivalents	$	1,596		$	1,650
		Trade accounts receivable, net of allowance for doubtful accounts of $1,699 in 2002 and $1,024 in 2001		118,438			89,721
		Other accounts receivable		17,515			16,116
		Inventories		90,499			81,298
		Deferred income taxes		3,443			3,547
		Prepaid expenses and other		18,201			8,849
		Total current assets		249,692			201,181
Property, plant and equipment, net				204,144			198,565
Goodwill				84,382			39,114
Other intangibles, net				2,188			55,354
Other assets				5,736			4,475
Total assets			$	546,142		$	498,689
Liabilities and Stockholders’ Equity
Current Liabilities:
	Accounts payable and accrued liabilities		$	109,883		$	91,794
	Accrued payroll and employee benefits			21,270			25,369
	Total current liabilities			131,153			117,163
Long-term debt				190,871			148,671
Deferred income taxes				14,333			24,490
Total liabilities				336,357			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; 34,625,000 shares and 34,461,000 shares issued and outstanding in 2002 and 2001, respectively			34,625			34,461
	Capital in excess of par			162,250			160,103
	Notes receivable from stockholders			(2,670	)		(2,546	)
	Retained earnings			15,580			16,347
Total stockholders’ equity				209,785			208,365
Total liabilities and stockholders’ equity			$	546,142		$	498,689

See accompanying Notes to Consolidated Financial Statements.

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DREYER’S GRAND ICE CREAM, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

		Thirteen Weeks Ended
($ in thousands, except per share amounts)		Mar. 30, 2002		Mar. 31, 2001
Revenues:
	Net sales	$	290,414	$	239,413
	Other income		1,138		239
			291,552		239,652
Costs and expenses:
	Cost of goods sold		262,161		216,790
	Selling, general and administrative		25,558		27,007
	Interest, net of amounts capitalized		1,786		3,014
			289,505		246,811
Income (loss) before income tax provision (benefit)			2,047		(7,159	)
Income tax provision (benefit)			737		(2,727	)
Net income (loss)			1,310		(4,432	)
Accretion of preferred stock to redemption value					106
Preferred stock dividends					348
Net income (loss) available to common stockholders		$	1,310	$	(4,886	)
Net income (loss) per common share:
	Basic	$	.04	$	(.17	)
	Diluted	$	.04	$	(.17	)
Dividends per common share		$	.06	$	.06

See accompanying Notes to Consolidated Financial Statements.

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DREYER’S GRAND ICE CREAM, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(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 loss														(4,432	)		(4,432	)
	Accretion of preferred stock to redemption value														(106	)		(106	)
	Preferred stock dividends declared														(348	)		(348	)
	Common stock dividends declared														(1,714	)		(1,714	)
	Issuance of common stock under employee stock plans, net		347			347			4,636			(299	)					4,684
	Repurchases and retirements of common stock		(46	)		(46	)		(604	)								(650	)
Balances at March 31, 2001			28,569		$	28,569		$	62,428		$	(2,583	)	$	9,392		$	97,806
Balances at December 29, 2001			34,461		$	34,461		$	160,103		$	(2,546	)	$	16,347		$	208,365
	Net income														1,310			1,310
	Common stock dividends declared														(2,077	)		(2,077	)
	Issuance of common stock under employee stock plans, net		196			196			3,444			(380	)					3,260
	Repurchases and retirements of common stock		(32	)		(32	)		(1,297	)		256						(1,073	)
Balances at March 30, 2002			34,625		$	34,625		$	162,250		$	(2,670	)	$	15,580		$	209,785

See accompanying Notes to Consolidated Financial Statements.

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DREYER’S GRAND ICE CREAM, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

				Thirteen Weeks Ended
(In thousands)				Mar. 30, 2002			Mar. 31, 2001
Cash flows from operating activities:
	Net income (loss)			$	1,310		$	(4,432	)
	Adjustments to reconcile net income (loss) to cash from operations:
		Depreciation and amortization			8,477			9,169
		Deferred income taxes			113			(502	)
		Changes in assets and liabilities, net of amounts acquired:
			Trade accounts receivable		(28,717	)		(30,327	)
			Other accounts receivable		(1,399	)		(4,100	)
			Inventories		(9,201	)		(9,555	)
			Prepaid expenses and other		(9,352	)		(51	)
			Accounts payable and accrued liabilities		18,080			22,012
			Accrued payroll and employee benefits		(4,099	)		(6,385	)
					(24,788	)		(24,171	)
Cash flows from investing activities:
	Acquisition of property, plant and equipment				(13,985	)		(7,178	)
	Retirement of property, plant and equipment				188			372
	Purchase of independent distributors and other intangibles				(2,438	)		(2,000	)
	Increase in other assets				(1,350	)		(797	)
					(17,585	)		(9,603	)
Cash flows from financing activities:
	Proceeds from long-term debt, net				42,200			33,900
	Repayments of long-term debt							(3,400	)
	Issuance of common stock under employee stock plans, net				3,260			4,684
	Repurchases and retirements of common stock				(1,073	)		(650	)
	Cash dividends paid				(2,068	)		(1,022	)
					42,319			33,512
Decrease in cash and cash equivalents					(54	)		(262	)
Cash and cash equivalents, beginning of period					1,650			2,721
Cash and cash equivalents, end of period				$	1,596		$	2,459
Supplemental cash flow information:
	Cash paid during the period for:
			Interest (net of amounts capitalized)	$	1,320		$	1,391
			Income taxes (net of refunds)	$	140		$	2

See accompanying Notes to Consolidated Financial Statements.

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DREYER’S GRAND ICE CREAM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 — Operations and Financial Statement Presentation

     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-week periods ended March 30, 2002 and March 31, 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. 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. Certain reclassifications have been made to prior years’ financial statements to conform to the current year presentation.

NOTE 2 — Significant Accounting Assumptions and Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates include assessing the recoverability of accounts receivable, 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 estimates.

NOTE 3 — Inventories

     Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. Inventories at March 30, 2002 and December 29, 2001 consisted of the following:

(In thousands)	Mar. 30, 2002		Dec. 29, 2001
Raw materials	$	9,018	$	9,099
Finished goods		81,481		72,199
	$	90,499	$	81,298

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NOTE 4 — Net Income (Loss) Per Common Share

     The denominator for basic net income (loss) per share includes the number of weighted-average common shares outstanding. The denominator for diluted net income (loss) per share includes the number of weighted-average shares outstanding plus the effect of potentially dilutive securities which include stock options and redeemable convertible preferred stock.

		Thirteen Weeks Ended
(In thousands, except per share amounts)		Mar. 30, 2002		Mar. 31, 2001
Net income (loss) available to common stockholders — basic and diluted		$	1,310	$	(4,886	)
Weighted-average shares — basic			34,510		28,370
Dilutive effect of options			2,643
Weighted-average shares — diluted			37,153		28,370
Net income (loss) per common share:
	Basic	$	.04	$	(.17	)
	Diluted	$	.04	$	(.17	)

Anti-dilutive securities

     Potentially dilutive securities are excluded from the calculations of diluted net income (loss) per common share when their inclusion would have an anti-dilutive effect. There were no potentially dilutive securities to be excluded during the first quarter of 2002. During the first quarter of 2001, potentially dilutive securities included 2,129,000 stock options and 5,800,0000 equivalent common shares relating to redeemable convertible preferred stock (which was converted to common stock in the second quarter of 2001); these securities were excluded from the calculation of diluted net loss per common share in the first quarter 2001 net loss period due to their anti-dilutive effects.

NOTE 5 — Adoption of New Accounting Pronouncements

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

     In November 2001, the Emerging Issues Task Force 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 in the first quarter of 2002, presented $47,670,000 of first quarter 2002 expenses in accordance with this pronouncement and reclassified $32,616,000 of first quarter 2001 expenses on a retroactive basis. The retroactive reclassification of these expenses resulted in a decrease in total sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses, with no effect on net loss as previously reported.

Accounting for Goodwill and Other Intangible Assets

     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, which the Company adopted at the beginning of the first quarter of 2002, requires recognition of goodwill and other unidentifiable intangible assets with indeterminate lives as long-term assets, however, amortization as previously required by Accounting Principles Board Opinion No. 17, “Intangible Assets”, is no longer permitted beginning with the first quarter of 2002. In lieu of

7

amortization, these assets are now being 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 completed its transitional impairment test during the first quarter of 2002 and did not record any impairment charges.

     A reconciliation of reported net income (loss) and net income (loss) per common share to the amounts adjusted for the exclusion of first quarter 2001 goodwill amortization of $1,113,000, net of the related income tax effect of $424,000, follows:

		Thirteen Weeks Ended
(In thousands, except per share amounts)		Mar. 30, 2002		Mar. 31, 2001
Reported net income (loss)		$	1,310	$	(4,886	)
Goodwill amortization, net of tax					689
Adjusted net income (loss)		$	1,310	$	(4,197	)
Net income (loss) per common share:
	Reported basic	$	.04	$	(.17	)
	Goodwill amortization, net of tax				.02
	Adjusted basic	$	.04	$	(.15	)
	Reported diluted	$	.04	$	(.17	)
	Goodwill amortization, net of tax				.02
	Adjusted diluted	$	.04	$	(.15	)

     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 its acquisition-related intangibles (e.g. distribution rights) to goodwill at the beginning of the first quarter of 2002. Fiscal 2001 acquisition-related intangibles are included in Other Intangibles, net, in the Consolidated Balance Sheet.

Accounting for the Impairment or Disposal of Long-Lived Assets

     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.

NOTE 6-Investment in Momentx Corporation

     The Company has a $1,100,000 investment in Momentx Corporation (Momentx), which is an e-market solution provider for the dairy, food and beverage industries. The Company follows the “cost method” in accounting for this investment since its ownership interest is less than three percent. Momentx is currently a development stage enterprise and its future success is uncertain at this time. The Company continues to monitor the recoverability of this investment.

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

FORWARD-LOOKING STATEMENTS

     The Company may from time to time make written or oral forward-looking statements. Written or oral forward-looking statements may appear in documents filed with the Securities and Exchange Commission, and in press releases, conference calls and webcasts (whether live 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 contained in this Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

     Also, in connection with this “safe harbor” provision, the Company identifies important factors that could cause the Company’s actual results to differ materially from those contained in any forward-looking statement made by or on behalf of the Company. Any such statement is qualified by reference to the cautionary statements set forth in this and other filings with the Securities and Exchange Commission.

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Management’s Discussion and Analysis for the year ended December 29, 2001, appearing in the Company’s 2001 Annual Report on Form 10-K.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

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 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.

• The Company records a valuation allowance related to deferred tax assets when it is determined that the deferred tax assets will not be utilized to offset future taxable income.

• 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 amount. The assessment of impairment is based on the estimated undiscounted future cash flows from operating activities compared with the carrying value of the assets. If the undiscounted future cash flows are less than the carrying value, a write-down is recorded, measured by the amount of the difference between the carrying value and the fair value of the asset.

• 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.

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• 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 estimates.

Adoption of New Accounting Pronouncements

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

     In November 2001, the Emerging Issues Task Force 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 in the first quarter of 2002, presented $47,670,000 of first quarter 2002 expenses in accordance with this pronouncement and reclassified $32,616,000 of first quarter 2001 expenses on a retroactive basis. The retroactive reclassification of these expenses resulted in a decrease in total sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses, with no effect on net loss as previously reported.

Accounting for Goodwill and Other Intangible Assets

     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, which the Company adopted at the beginning of the first quarter of 2002, requires recognition of goodwill and other unidentifiable intangible assets with indeterminate lives as long-term assets, however, amortization as previously required by Accounting Principles Board Opinion No. 17, “Intangible Assets”, is no longer permitted beginning with the first quarter of 2002. In lieu of amortization, these assets are now being 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 completed its transitional impairment test during the first quarter of 2002 and did not record any impairment charges.

     A reconciliation of reported net income (loss) and net income (loss) per common share to the amounts adjusted for the exclusion of first quarter 2001 goodwill amortization of $1,113,000, net of the related income tax effect of $424,000, follows:

		Thirteen Weeks Ended
(In thousands, except per share amounts)		Mar. 30, 2002		Mar. 31, 2001
Reported net income (loss)		$	1,310	$	(4,886	)
Goodwill amortization, net of tax					689
Adjusted net income (loss)		$	1,310	$	(4,197	)
Net income (loss) per common share:
	Reported basic	$	.04	$	(.17	)
	Goodwill amortization, net of tax				.02
	Adjusted basic	$	.04	$	(.15	)
	Reported diluted	$	.04	$	(.17	)
	Goodwill amortization, net of tax				.02
	Adjusted diluted	$	.04	$	(.15	)

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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 its acquisition-related intangibles (e.g. distribution rights) to goodwill at the beginning of the first quarter of 2002. Fiscal 2001 acquisition-related intangibles are included in Other Intangibles, net, in the Consolidated Balance Sheet.

Accounting for the Impairment or Disposal of Long-Lived Assets

     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.

RESULTS OF OPERATIONS

     The following table sets forth for the periods indicated the percent which the items in the Consolidated Statement of Operations bear to net sales and the percentage change of such items compared to the indicated prior period:

								Period-to-Period
								Variance
		Percentage of Net Sales						Favorable (Unfavorable)
		Thirteen Weeks Ended
								Thirteen Weeks Ended
		Mar. 30, 2002			Mar. 31, 2001			2002 Compared to 2001
Revenues:
	Net sales		100.0	%		100.0	%		21.3	%
	Other income		0.4			0.1			376.2
			100.4			100.1			21.7
Costs and expenses:
	Cost of goods sold		90.3			90.6			(20.9	)
	Selling, general and administrative		8.8			11.3			5.4
	Interest, net of amounts capitalized		0.6			1.2			40.7
			99.7			103.1			(17.3	)
Income (loss) before income tax provision (benefit)			0.7			(3.0	)		128.6
Income tax provision (benefit)			0.2			(1.1	)		(127.0	)
Net income (loss)			0.5			(1.9	)		129.6
Accretion of preferred stock to redemption value									(100.0	)
Preferred stock dividends						0.1			(100.0	)
Net income (loss) available to common stockholders			0.5	%		(2.0	)%		126.8	%

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Thirteen Weeks ended March 30, 2002 Compared with Thirteen Weeks ended March 31, 2001

     Consolidated sales for the first quarter of 2002 increased $51,001,000, or 21 percent, to $290,414,000 from $239,413,000 for the same quarter last year.

     Sales of the Company’s branded products, including licensed and joint venture products (company brands), increased $20,217,000, or 14 percent, to $166,616,000 from $146,399,000 for the same quarter last year. Company brands represented 57 percent of consolidated sales in 2002 compared with 61 percent in the same quarter last year. Gallon sales of the Company’s branded products, including novelties, increased approximately 3,400,000 gallons, or 15 percent, to approximately 26,300,000 gallons. The products that led this increase were Dreyer’s and Edy’s® Grand Ice Cream, Grand Light and Whole Fruit™ Bars. The average price of the Company’s branded products, net of the effect of trade promotion expenses (which are now classified as a reduction of sales), decreased by two percent.

     Sales of products distributed for other manufacturers (partner brands), including Ben & Jerry’s Homemade, Inc. (Ben & Jerry’s), increased $30,784,000, or 33 percent, to $123,798,000 from $93,014,000 for the same quarter last year. This increase was driven largely by increased sales of Ben & Jerry’s superpremium products and by the acquisition of independent distributors in 2000. The Company began distributing Ben & Jerry’s products to a larger distribution territory in March 2001 and distributes Ben & Jerry’s products for the grocery channel in all of the Company’s company-owned distribution markets across the country. Sales of partner brands represented 43 percent of consolidated net sales compared with 39 percent in the same quarter last year. Average wholesale prices for partner brands increased approximately 11 percent. Unit sales of partner brands increased by 22 percent over the same quarter last year.

     Cost of goods sold increased $45,371,000, or 21 percent, to $262,161,000 from $216,790,000 for the same quarter last year. The Company’s gross profit increased by $5,630,000, or 25 percent, to $28,253,000 from $22,623,000, representing a 9.7 percent gross margin compared with a 9.4 percent gross margin for the same quarter last year. The improvement in gross profit was primarily attributable to strong company brand sales growth, increased sales of Ben & Jerry’s products, and lower dairy raw material costs. These improvements were partially offset by an increase in slotting expenses and other expenses related to the introduction of new products and a new package size for the Company’s premium brands. During the first quarter of 2002, the decrease in dairy raw material costs favorably impacted gross profit by approximately $1,600,000 (net of the results of butter trading activities) as compared to the same quarter last year.

     Other income increased $899,000, or 376 percent, to $1,138,000 from $239,000 for the same quarter last year, primarily due to an increase in earnings from joint ventures accounted for under the equity method.

     Selling, general and administrative expenses decreased $1,449,000, or five percent, to $25,558,000 from $27,007,000 for the same quarter last year. The decrease primarily reflects lower marketing expenses and a $1,113,000 reduction in amortization of goodwill. These decreases were partially offset by increased administrative expenses including the recording of a $300,000 bad debt provision as a result of a bankruptcy filing by a major customer. Selling, general and administrative expenses represented nine percent of consolidated net sales in the first quarter of 2002 and 11 percent in the same quarter last year.

     Interest expense decreased $1,228,000, or 41 percent, to $1,786,000 from $3,014,000, due to lower interest rates, partially offset by higher borrowings.

     Income taxes increased to a provision of $737,000 from a benefit of $(2,727,000) for the same quarter last year. The effective tax rate decreased to 36.0 percent for the first quarter of 2002 from 38.1 percent for the first quarter of 2001 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.

     The Company has a $1,100,000 investment in Momentx Corporation (Momentx), which is an e-market solution provider for the dairy, food and beverage industries. The Company follows the “cost method” in accounting for this investment since its ownership interest is less than three percent. Momentx is currently a development stage enterprise and its future success is uncertain at this time. The Company continues to monitor the recoverability of this investment.

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LIQUIDITY AND CAPITAL RESOURCES

     Working capital at March 30, 2002 increased $34,521,000 from year-end 2001. The Company’s cash flows used in operating activities increased to $24,788,000 from $24,171,000 for the same period last year. These increases were primarily comprised of increases in accounts receivable and inventories, partially offset by increases in accounts payable and accrued liabilities, and resulted from both seasonality and the additional Ben & Jerry’s business.

     Cash flows used in investing activities totaled $17,585,000 and $9,603,000, in 2002 and 2001, respectively. Cash flows used in investing activities consisted primarily of property, plant and equipment purchases of $13,985,000 and $7,178,000, in 2002 and 2001, respectively.

     Cash flows from financing activities totaled $42,319,000 and $33,512,000, in 2002 and 2001, respectively. Cash flows from financing activities for the first quarter of 2002 primarily consisted of a net increase of $42,200,000 in the Company’s revolving line of credit. Cash flows from financing activities for the first quarter of 2001 primarily consisted of a net increase of $33,900,000 in the revolving line of credit, partially offset by repayments of debt totaling $3,400,000.

     At March 30, 2002, the Company had $1,596,000 in cash and cash equivalents, and an unused credit line of $77,700,000. 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.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.

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

     During the first quarter of 2002, the decrease in dairy raw material costs favorably impacted gross profit by approximately $1,600,000 (net of the results of butter trading activities) as compared to the first quarter of 2001.

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PART II: OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)	The following exhibits are filed herewith:
	None.
(b)	A Report on Form 8-K was filed on January 30, 2002 reporting a letter agreement dated January 28, 2002, between the Company and General Electric Pension Trust, GE Investment Private Placement Partners I, Limited Partnership, and General Electric Capital Corporation (collectively the “GE Entities”), which among other things confirms certain understandings between the parties with respect to registration rights held by the GE Entities and removal of restrictive legends from stock owned by the GE Entities. Concurrently therewith, Jack O. Peiffer resigned from the Company’s board of directors.

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SIGNATURE

     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.

DREYER’S GRAND ICE CREAM, INC.

Dated: May 14, 2002 By: /s/ Timothy F. Kahn
Timothy F. Kahn
Vice President — Finance and Administration
    and Chief Financial Officer (Principal Financial Officer)

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