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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 25, 2000
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 7, 2000
------------------
Common stock, $1 par value 28,107,000
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
Mar. 25, 2000 Dec. 25, 1999
------------- -------------
(Unaudited)
($ in thousands, except per share amounts)
Assets
Current Assets:
Cash and cash equivalents $ 3,194 $ 3,158
Trade accounts receivable, net of allowance for doubtful accounts of
$916 in 2000 and $5,715 in 1999 96,008 79,251
Other accounts receivable 20,774 13,528
Inventories 63,524 54,669
Deferred income taxes 11,512 11,586
Prepaid expenses and other 7,704 6,621
--------- ---------
Total current assets 202,716 168,813
Property, plant and equipment, net 196,673 197,392
Goodwill and distribution rights, net 77,807 65,692
Other assets 2,700 7,347
--------- ---------
Total assets $ 479,896 $ 439,244
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 114,261 $ 88,845
Accrued payroll and employee benefits 11,529 29,913
Current portion of long-term debt 106,091 18,721
--------- ---------
Total current liabilities 231,881 137,479
Long-term debt, less current portion 46,714 104,257
Deferred income taxes 24,211 23,736
--------- ---------
Total liabilities 302,806 265,472
--------- ---------
Commitments and contingencies
Redeemable convertible preferred stock, $1 par value - 1,008,000 shares authorized;
1,008,000 shares issued and outstanding in 2000 and 1999 100,184 100,078
--------- ---------
Stockholders' Equity:
Preferred stock, $1 par value - 8,992,000 shares authorized; no shares
issued or outstanding in 2000 and 1999
Common stock, $1 par value - 60,000,000 shares authorized; 28,097,000 shares
and 27,871,000 shares issued and outstanding in 2000 and 1999,
respectively 28,097 27,871
Capital in excess of par 55,998 53,172
Notes receivable from stockholders (3,883) (2,501)
Accumulated deficit (3,306) (4,848)
--------- ---------
Total stockholders' equity 76,906 73,694
--------- ---------
Total liabilities and stockholders' equity $ 479,896 $ 439,244
========= =========
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
--------------------------------
Mar. 25, 2000 Mar. 27, 1999
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($ in thousands, except per share amounts)
Revenues:
Sales $ 240,419 $ 228,386
Other income 1,328 152
--------- ---------
241,747 228,538
--------- ---------
Costs and expenses:
Cost of goods sold 183,204 187,921
Selling, general and administrative 51,578 42,868
Interest, net of amounts capitalized 2,658 3,120
--------- ---------
237,440 233,909
--------- ---------
Income (loss) before income tax provision (benefit) and cumulative effect of
change in accounting principle 4,307 (5,371)
Income tax provision (benefit) 1,641 (2,036)
--------- ---------
Income (loss) before cumulative effect of change in accounting principle 2,666 (3,335)
Cumulative effect of change in accounting principle 595
--------- ---------
Net income (loss) 2,666 (3,930)
Accretion of preferred stock to redemption value 106 106
Preferred stock dividends 174 174
--------- ---------
Net income (loss) available to common stockholders $ 2,386 $ (4,210)
========= =========
Per common share-basic:
Income (loss) available to common stockholders before cumulative effect
of change in accounting principle $ .09 $ (.13)
Cumulative effect of change in accounting principle (.02)
--------- ---------
Net income (loss) available to common stockholders $ .09 $ (.15)
========= =========
Per common share-diluted:
Income (loss) available to common stockholders before cumulative effect
of change in accounting principle $ .08 $ (.13)
Cumulative effect of change in accounting principle (.02)
--------- ---------
Net income (loss) available to common stockholders $ .08 $ (.15)
========= =========
Dividends per common share $ .03 $ .03
========= =========
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 Retained
Common Stock Receivable Earnings
-------------------- Capital in From (Accumulated
Shares Amount Excess of Par Stockholders Deficit) Total
------ ------- ------------- ------------ ------------- -------
(In thousands)
Balances at December 26, 1998 27,312 $27,312 $46,722 $ (1,459) $(11,401) $61,174
Net loss (3,930) (3,930)
Accretion of preferred stock to
redemption value (106) (106)
Preferred stock dividends declared (174) (174)
Common stock dividends declared (826) (826)
Repurchases and retirements of
common stock (9) (9) (127) (136)
Issuance of common stock under
employee stock plans, net 210 210 2,316 (1,488) 1,038
------ ------- ------- -------- -------- -------
Balances at March 27, 1999 27,513 $27,513 $48,911 $ (2,947) $(16,437) $57,040
====== ======= ======= ========= ========= =======
Balances at December 25, 1999 27,871 $27,871 $53,172 $ (2,501) $ (4,848) $73,694
Net income 2,666 2,666
Accretion of preferred stock to
redemption value (106) (106)
Preferred stock dividends declared (174) (174)
Common stock dividends declared (844) (844)
Repurchases and retirements of
common stock (3) (3)
Issuance of common stock under
employee stock plans, net 226 226 2,829 (1,382) 1,673
------ ------- ------- -------- -------- -------
Balances at March 25, 2000 28,097 $28,097 $55,998 $ (3,883) $ (3,306) $76,906
====== ======= ======= ========= ========= =======
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
------------- -------------
Mar. 25, 2000 Mar. 27, 1999
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(In thousands)
Cash flows from operating activities:
Net income (loss) $ 2,666 $ (3,930)
Adjustments to reconcile net income (loss) to cash from operations:
Depreciation and amortization 8,808 8,846
Deferred income taxes 549 (2,435)
Cumulative effect of change in accounting principle 595
Changes in assets and liabilities, net of amounts acquired:
Trade accounts receivable (16,244) (9,267)
Other accounts receivable (7,035) 10,119
Inventories (8,515) (2,843)
Prepaid expenses and other (1,006) 505
Accounts payable and accrued liabilities 24,244 13,650
Accrued payroll and employee benefits (18,409) (201)
-------- --------
(14,942) 15,039
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (4,994) (5,384)
Retirement of property, plant and equipment 482 225
Purchase of common stock of Cherokee Cream Company, Inc., net of cash acquired (7,651)
Decrease (increase) in other assets (746) 546
-------- --------
(12,909) (4,613)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt, net 27,222
Repayments of long-term debt, net (9,342)
Issuance of common stock under employee stock plans, net 1,673 1,038
Repurchases and retirements of common stock (3) (136)
Cash dividends paid (1,005) (992)
-------- --------
27,887 (9,432)
-------- --------
Increase in cash and cash equivalents 36 994
Cash and cash equivalents, beginning of period 3,158 1,171
-------- --------
Cash and cash equivalents, end of period $ 3,194 $ 2,165
======== ========
Supplemental cash flow information:
Cash paid (refunded) during the period for:
Interest (net of amounts capitalized) $ 1,648 $ 2,375
======== ========
Income taxes (net of refunds) $ 2 $ (331)
======== ========
Supplemental acquisition information:
Fair value of assets acquired $ 19,052
Cash paid for common stock (7,855)
--------
Liabilities assumed $ 11,197
========
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 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 25, 2000 and March 27, 1999 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 disclosure normally
included in financial statements prepared in conformity with generally accepted
accounting principles 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 25, 1999, appearing in the Company's 1999
Annual Report to Stockholders. Certain reclassifications have been made to prior
years' financial statements to conform to the current year presentation.
NOTE 2 - Inventories
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at March 25, 2000 and December 25, 1999
consisted of the following:
Mar. 25, 2000 Dec. 25, 1999
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(In thousands)
Raw materials $ 7,534 $ 6,174
Finished goods 55,990 48,495
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$63,524 $54,669
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NOTE 3 - Acquisition of Cherokee Cream Company, Inc.
On February 9, 2000, the Company acquired the remaining 84 percent of the
outstanding common stock of Cherokee Cream Company, Inc. (Cherokee), the parent
of Sunbelt Distributors, Inc. (Sunbelt), the leading independent
direct-store-delivery ice cream distributor in Texas. The Company paid
$7,855,000 in cash in this transaction which has been accounted for as a
purchase. This purchase price includes $55,000 of direct transaction-related
fees and expenses. The results of Cherokee are included in the Company's
Consolidated Statement of Operations from the date of acquisition. In connection
with this transaction, the Company recorded $12,853,000 of goodwill and
distribution rights.
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NOTE 4 - The 1998 Restructuring and Other Actions
During 1999, the restructuring and other actions were completed with the
exception of the payment of $389,000 of remaining severance and related
benefits. The following tables summarizes the first quarter of 2000 activity in
the restructuring and other accruals included in accounts payable and accrued
liabilities in the Consolidated Balance Sheet:
Restructuring Accruals
----------------------------------
Sales and
distribution
Grand Soft severance Total
---------- ------------ -----
(In thousands)
Balances at December 25, 1999 $ 132 $ 257 $ 389
Additions
Payments (88) (19) (107)
----- ----- -----
Balances at March 25, 2000 $ 44 $ 238 $ 282
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NOTE 5 - Current Portion of Long-term Debt
The Company has a credit agreement with various banks for a total revolving line
of credit of $149,286,000 at March 25, 2000. This line of credit will expire on
December 31, 2000. As a result, the Company has classified the $87,000,000
balance outstanding at March 25, 2000 as a current portion of long-term debt.
The Company is in the process of refinancing this line of credit.
NOTE 6 - Redeemable Convertible Preferred Stock
The Company's Series A redeemable convertible preferred stock, redemption value
$100,752,000, is convertible, under certain conditions, at an initial conversion
price of $17.37 per share, into a total of 5,800,000 shares of common stock. The
holder may instead redeem the issue for cash at the redemption value on June 30,
2001. The Company presently anticipates that it would fund such redemption from
operating cash flows, borrowings or other financing sources.
NOTE 7 - Net Income (Loss) Per Common Share
Under Statement of Financial Accounting Standards No. 128, "Earnings per Share",
the denominator for basic earnings (loss) per share includes the number of
weighted average common shares outstanding and the denominator for diluted
earnings (loss) per share includes the number of weighted-average shares
outstanding plus the dilutive effect of assumed conversions.
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Net income (loss) per common share is computed as follows:
Thirteen Weeks Ended
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Mar. 25, 2000 Mar. 27, 1999
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(In thousands, except per share amounts)
Net income (loss) available to common
stockholders - basic $ 2,386 $ (4,210)
Add: preferred dividends and accretion 280
-------- --------
Net income (loss) available to common
stockholders - diluted $ 2,666 $ (4,210)
======== ========
Weighted-average shares-basic 27,939 27,377
Dilutive effect of options 619
Dilutive effect of preferred stock 5,800
-------- --------
Weighted-average shares-diluted 34,358 27,377
======== ========
Net income (loss) per common share:
Basic $ .09 $ (.15)
======== ========
Diluted $ .08 $ (.15)
======== ========
Potentially dilutive securities are excluded from the calculations of
income (loss) per diluted common share, as their inclusion would have an
anti-dilutive effect. These securities, stated in equivalent shares of common
stock, consisted of the following:
Mar. 25, 2000 Mar. 27, 1999
------------- -------------
(In thousands)
Stock options 1,597 4,731
Stock warrants 2,000
Preferred stock 5,800
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited)
The following table sets forth the percent which the items in the Consolidated
Statement of Operations bear to sales and the percentage change of such items
compared to the indicated prior period:
Period-to-Period
Variance
Percentage of Sales Favorable (Unfavorable)
----------------------------------- -----------------------
Thirteen Weeks Ended
----------------------------------- Thirteen Weeks Ended
Mar. 25, 2000 Mar. 27, 1999 2000 Compared to 1999
------------- ------------- ---------------------
Revenues:
Sales 100.0% 100.0% 5.3%
Other income 0.5 0.0 NM
----- -----
100.5 100.0 5.8
----- -----
Costs and expenses:
Cost of goods sold 76.2 82.3 2.5
Selling, general and administrative 21.5 18.8 (20.3)
Interest, net of amounts capitalized 1.1 1.3 14.8
----- -----
98.8 102.4 (1.5)
----- -----
Income (loss) before income tax provision (benefit) and
cumulative effect of change in accounting principle 1.7 (2.4) 180.2
Income tax provision (benefit) 0.6 (0.9) (180.6)
----- -----
Income (loss) before cumulative effect of change in
accounting principle 1.1 (1.5) 179.9
Cumulative effect of change in accounting principle 0.2 NM
----- -----
Net income (loss) 1.1 (1.7) 167.8
Accretion of preferred stock to redemption value 0.1 0.1 0.0
Preferred stock dividends 0.1 0.1 0.0
----- -----
Net income (loss) available to common stockholders 0.9% (1.9)% 156.7%
===== ===== =====
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RESULTS OF OPERATIONS
Forward-Looking Statements
The Company may from time to time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission, in press releases, and in reports
to stockholders. The Private Securities Litigation Reform Act of 1995 contains a
"safe harbor" for forward-looking statements upon which the Company relies in
making such disclosures. In accordance with this "safe harbor" provision, we
have identified that forward-looking statements are contained in this
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 below and in the Company's other filings with
the Securities and Exchange Commission.
Thirteen Weeks ended March 25, 2000 Compared with Thirteen Weeks ended March 27,
1999
Consolidated sales for the first quarter of 2000 increased $12,033,000, or five
percent, to $240,419,000 from $228,386,000 for the same quarter last year.
Sales of the Company's branded products, including licensed and joint
venture products (company brands), increased $30,291,000, or 21 percent, to
$172,335,000 from $142,044,000 for the same quarter last year. Company brands
represented 72 percent of consolidated sales compared with 62 percent in the
same quarter last year. The increase in sales of the Company's branded products
related primarily to an increase in unit sales and generally higher average
wholesale prices. The products that led this increase were superpremium
Dreamery(TM) and Godiva(R) Ice Cream and premium Classic Dreyer's and Edy's
Grand Ice Cream. As a result of changes in mix and wholesale price increases,
the average price of the Company's branded products increased approximately
nine percent, before the effect of increased trade promotion expenses. Gallon
sales of the Company's branded products increased approximately 2,300,000
gallons, or 11 percent, to approximately 22,500,000 gallons.
Sales of products distributed for other manufacturers (partner brands),
including Ben & Jerry's Homemade, Inc., decreased $18,258,000, or 21 percent, to
$68,084,000. Sales of partner brands represented 28 percent of consolidated
sales compared with 38 percent in the same quarter last year. As previously
disclosed, the Company began distributing Ben & Jerry's products in a smaller
geographic area during September, 1999. This change was the primary cause of the
lower partner brand sales for the quarter. Unit sales of partner brands
decreased by 21 percent over the same quarter last year. The effect of price
changes for partner brands was not significant.
Cost of goods sold decreased $4,717,000, or three percent, over the same
quarter last year, while the overall gross margin increased to 24 percent from
18 percent. The improvement was primarily the result of increased sales of
higher-margin premium and superpremium products, comparatively lower dairy raw
material costs and higher wholesale prices. The effect of these positive
factors more than offset the lost of distribution gross profit from lower Ben &
Jerry's sales. The impact of the change in dairy raw material costs for the
quarter was a $7,900,000 benefit as compared to the same quarter last year.
Other income increased $1,176,000 primarily due to an increase in earnings
from joint ventures accounted for under the equity method.
Selling, general and administrative expenses increased $8,710,000, or 20
percent, to $51,578,000. Selling, general and administrative expenses
represented 22 percent of consolidated sales in 2000 compared with 19
percent in the same quarter last year. This increase primarily reflects
marketing spending related to and Godiva(R) Ice Cream and, to a lesser extent,
expenses related to the introduction of the M&M/Mars line, ongoing support of
Dreyer's and Edy's premium portfolio, and administrative expenses.
Interest expense decreased $462,000, or 15 percent, to $2,658,000, primarily
attributable to lower average borrowings.
The income tax provision increased due to a correspondingly higher pre-tax
income in 2000. This increase was offset in part by a decrease in the effective
tax rate from 39.7 percent for the first quarter of 1999 to 38.1 percent for
the first quarter of 2000.
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LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 25, 2000 decreased $60,499,000 from year-end 1999 due
primarily to the line of credit being classified as a current portion of
long-term debt as the line expires on December 31, 2000. The Company's cash used
in operating activities of $14,942,000 reflects the timing of payments for
employee benefits and the seasonal increase in receivables and inventories,
offset in part by a seasonal increase in accounts payable and accrued
liabilities.
Cash used in investing activities of $12,909,000 relates primarily to the
February 9, 2000 acquisition of the remaining 84 percent of the outstanding
common stock of Cherokee Cream Company, Inc. (Cherokee) and acquisitions of
$4,994,000 in property, plant and equipment.
Cash flows from financing activities totaling $27,887,000 primarily
consisted of a net increase of $27,222,000 in long-term debt outstanding.
The Company's Series A redeemable convertible preferred stock, redemption
value $100,752,000, is convertible, under certain conditions, at an initial
conversion price of $17.37 per share, into a total of 5,800,000 shares of common
stock. The holder may instead redeem the issue for cash at the redemption value
on June 30, 2001. The Company presently anticipates that it would fund such
redemption from operating cash flows, borrowings or other financing sources.
The Company has a credit agreement with various banks for a total revolving
line of credit of $149,286,000 at March 25, 2000. This line of credit will
expire on December 31, 2000. As a result, the Company has classified the
$87,000,000 balance outstanding at March 25, 2000 as a current portion of
long-term debt. The Company is in the process of refinancing this line of
credit.
At March 25, 2000, the Company had $3,194,000 in cash and cash equivalents,
and an unused credit line of $62,286,000. 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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 25, 1999, there have been no material changes in the Company's
market risk exposure.
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PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule.
(b) No reports on Form 8-K were filed by the Company during the quarter ended
March 25, 2000.
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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 9, 2000 By: /s/ Timothy F. Kahn
-------------------------------------
Timothy F. Kahn
Vice President - Finance and
Administration and Chief Financial
Officer (Principal Financial
Officer)
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DREYER'S GRAND ICE CREAM, INC.
INDEX OF EXHIBITS
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule.
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