##### Table of Contents



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 29, 2003

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

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

(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)

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.

|                           |  |                                                 
|-------------------------- |  | ------------------------------------------------
|Common
stock, $1 par value |  | Shares Outstanding   May 12,
2003     35,096,164





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TABLE OF CONTENTS



|                              |                                                                                                            |  |  |  |  |  |  | 
|----------------------------- | ---------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I: FINANCIAL INFORMATION
|                              | ITEM 1. 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                                        
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                                           
|PART II: OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                                 
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                               
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                                  
|SIGNATURE                    
|CERTIFICATIONS               
|INDEX OF EXHIBITS            
|Exhibit 99.1                 
|Exhibit 99.2                 



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##### Table of Contents






PART I: FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS.

DREYERS GRAND ICE CREAM, INC.

CONSOLIDATED BALANCE SHEET

|                                                             |                                                                                                                                                          |                      |         |               |         |               |         |         |         | 
|------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------- | ------------- | ------- | ------------- | ------- | ------- | ------- | 
|                                                             |                                                                                                                                                          |                      |         | Mar. 29, 2003 |         | Dec. 28, 2002
|                                                             |                                                                                                                                                          |                      |         |               |         |              
|($ in
thousands, except per share amounts)                   |                                                                                                                                                          | (Unaudited)          |         |               |         |              
|Assets                                                       |                                                                                                                                                          |                      |         |               |         |               |         |        
|Current Assets:                                              |                                                                                                                                                          |                      |         |               |         |               |         |        
|                                                             | Cash and cash equivalents                                                                                                                                |                      | $       | 1,490         |         |               | $       | 1,119   |        
|                                                             | Trade accounts receivable, net of allowance for doubtful accounts of
$2,472 in 2003 and $1,586 in 2002                                                   |                      |         | 97,288        |         |               |         | 91,268  |        
|                                                             | Other accounts receivable                                                                                                                                |                      |         | 13,146        |         |               |         | 13,161  |        
|                                                             | Inventories                                                                                                                                              |                      |         | 100,119       |         |               |         | 82,831  |        
|                                                             | Deferred income taxes                                                                                                                                    |                      |         | 1,433         |         |               |         | 1,468   |        
|                                                             | Prepaid expenses and other                                                                                                                               |                      |         | 27,565        |         |               |         | 24,026  |        
|                                                             |                                                                                                                                                          |                      |         |               |         |               |         |        
|                                                             |                                                                                                                                                          | Total current assets |         |               | 241,041 |               |         |         | 213,873 | 
|                                                            
|Property, plant and equipment, net                           |                                                                                                                                                          |                      | 207,043 |               |         |               | 208,846 |        
|Goodwill                                                     |                                                                                                                                                          |                      | 86,293  |               |         |               | 84,651  |        
|Other intangibles, net                                       |                                                                                                                                                          |                      | 1,562   |               |         |               | 1,679   |        
|Other assets                                                 |                                                                                                                                                          |                      | 4,448   |               |         |               | 3,523   |        
|                                                             |                                                                                                                                                          |                      |         |               |         |               |         |        
|Total assets                                                 |                                                                                                                                                          | $                    | 540,387 |               |         | $             | 512,572 |        
|                                                             |                                                                                                                                                          |                      |         |               |         |               |         |         |        
|Liabilities and Stockholders Equity                         |                                                                                                                                                          |                      |         |               |         |               |         |        
|Current Liabilities:                                         |                                                                                                                                                          |                      |         |               |         |               |         |        
|                                                             | Accounts payable and accrued liabilities                                                                                                                 |                      | $       | 98,404        |         |               | $       | 90,534  |        
|                                                             | Accrued payroll and employee benefits                                                                                                                    |                      |         | 23,839        |         |               |         | 40,828  |        
|                                                             | Current portion of long-term debt                                                                                                                        |                      |         | 2,143         |         |               |         | 2,143   |        
|                                                             |                                                                                                                                                          |                      |         |               |         |               |         |        
|                                                             | Total current liabilities                                                                                                                                |                      |         | 124,386       |         |               |         | 133,505 |        
|                                                            
|Long-term debt, less current portion                         |                                                                                                                                                          |                      | 154,929 |               |         |               | 118,529 |        
|Deferred income taxes                                        |                                                                                                                                                          |                      | 16,590  |               |         |               | 16,550  |        
|                                                             |                                                                                                                                                          |                      |         |               |         |               |         |        
|Total liabilities                                            |                                                                                                                                                          |                      | 295,905 |               |         |               | 268,584 |        
|                                                             |                                                                                                                                                          |                      |         |               |         |               |         |        
|Commitments and contingencies                                |                                                                                                                                                          |                      |         |               |         |               |         |        
|                                                            
|Stockholders Equity:                                        |                                                                                                                                                          |                      |         |               |         |               |         |        
|                                                             | Preferred stock, $1 par value - 10,000,000 shares authorized;
no shares issued or outstanding in 2003 and 2002                                           |                      |         |               |         |               |         |         |        
|                                                             | Common stock, $1 par value - 60,000,000 shares authorized;
35,036,000 shares and 34,989,000 shares issued and outstanding
in 2003 and 2002, respectively |                      |         | 35,036        |         |               |         | 34,989  |        
|                                                             | Capital in excess of par                                                                                                                                 |                      |         | 175,695       |         |               |         | 174,126 |        
|                                                             | Notes receivable from stockholders                                                                                                                       |                      |         | (2,070        | )       |               |         | (2,179  | )      
|                                                             | Retained earnings                                                                                                                                        |                      |         | 35,821        |         |               |         | 37,052  |        
|                                                             |                                                                                                                                                          |                      |         |               |         |               |         |        
|Total stockholders equity                                   |                                                                                                                                                          |                      | 244,482 |               |         |               | 243,988 |        
|                                                             |                                                                                                                                                          |                      |         |               |         |               |         |        
|Total liabilities and stockholders equity                   |                                                                                                                                                          | $                    | 540,387 |               |         | $             | 512,572 |        
|                                                             |                                                                                                                                                          |                      |         |               |         |               |         |         |        
|                                                            
|See accompanying Notes to Consolidated Financial Statements.

2



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DREYERS GRAND ICE CREAM, INC.

CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

|                                                             |                                      |               |         |                      |   |   |         |         |   | 
|------------------------------------------------------------ | ------------------------------------ | ------------- | ------- | -------------------- | - | - | ------- | ------- | - | 
|                                                             |                                      |               |         | Thirteen Weeks Ended
|                                                             |                                      |               |         |                     
|($ in
thousands, except per share amounts)                   |                                      | Mar. 29, 2003 |         | Mar. 30, 2002       
|                                                             |                                      |               |         |                      |   |  
|Net sales                                                    |                                      | $             | 298,424 |                      |   | $ | 290,414 |        
|                                                             |                                      |               |         |                      |   |   |         |        
|Costs and expenses:                                          |                                      |               |         |                      |   |   |         |        
|                                                             | Cost of goods sold                   |               |         | 264,509              |   |   |         | 262,161 |  
|                                                             | Selling, general and administrative  |               |         | 27,173               |   |   |         | 25,415  |  
|                                                             | Interest, net of amounts capitalized |               |         | 1,226                |   |   |         | 1,786   |  
|                                                             | Other income, net                    |               |         | (460                 | ) |   |         | (995    | )
|                                                             | Merger transaction expenses          |               |         | 4,548                |   |   |         |         |  
|                                                             |                                      |               |         |                      |   |   |         |        
|                                                             |                                      |               | 296,996 |                      |   |   | 288,367 |        
|                                                             |                                      |               |         |                      |   |   |         |        
|                                                            
|Income before income tax provision                           |                                      |               | 1,428   |                      |   |   | 2,047   |        
|                                                            
|Income tax provision                                         |                                      |               | 557     |                      |   |   | 737     |        
|                                                             |                                      |               |         |                      |   |   |         |        
|Net income                                                   |                                      | $             | 871     |                      |   | $ | 1,310   |        
|                                                             |                                      |               |         |                      |   |   |         |        
|Net income per common share:                                 |                                      |               |         |                      |   |   |         |        
|                                                             | Basic                                |               | $       | .02                  |   |   | $       | .04     |  
|                                                             |                                      |               |         |                      |   |   |         |        
|                                                             | Diluted                              |               | $       | .02                  |   |   | $       | .04     |  
|                                                             |                                      |               |         |                      |   |   |         |        
|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 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 |       
|                              |                                                          |        |              |        |            |               |        |              |            |          |         |        |   |   |        |      |   |   |        |        |   |   |         |       
|                             
|                             
|Balances at December 28, 2002 |                                                          |        | 34,989       |        |            | $             | 34,989 |              |            | $        | 174,126 |        |   | $ | (2,179 | )    |   | $ | 37,052 |        |   | $ | 243,988 |       
|                              | Net income                                               |        |              |        |            |               |        |              |            |          |         |        |   |   |        |      |   |   |        | 871    |   |   |         | 871    |  
|                              | Common stock dividends declared                          |        |              |        |            |               |        |              |            |          |         |        |   |   |        |      |   |   |        | (2,102 | ) |   |         | (2,102 | )
|                              | Issuance of common stock under
employee stock plans, net |        |              | 47     |            |               |        | 47           |            |          |         | 1,569  |   |   |        | 109  |   |   |        |        |   |   |         | 1,725  |  
|                              |                                                          |        |              |        |            |               |        |              |            |          |         |        |   |   |        |      |   |   |        |        |   |   |         |       
|Balances at March 29, 2003    |                                                          |        | 35,036       |        |            | $             | 35,036 |              |            | $        | 175,695 |        |   | $ | (2,070 | )    |   | $ | 35,821 |        |   | $ | 244,482 |       
|                              |                                                          |        |              |        |            |               |        |              |            |          |         |        |   |   |        |      |   |   |        |        |   |   |         |       

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. 29, 2003                                               |                                          | Mar. 30, 2002
|                                                 |                                                                    |                                                             |                                          |              
|Cash flows from operating activities:            |                                                                    |                                                             |                                          |               |                      |         |         |        
|                                                 | Net income                                                         |                                                             | $                                        | 871           |                      |         | $       | 1,310   |      
|                                                 | Adjustments to reconcile net income to cash flows from operations: |                                                             |                                          |               |                      |         |         |         |      
|                                                 |                                                                    | Depreciation and amortization                               |                                          |               | 8,812                |         |         |         | 8,477 |        
|                                                 |                                                                    | Deferred income taxes                                       |                                          |               | 75                   |         |         |         | 113   |        
|                                                 |                                                                    | Loss on disposal of property, plant and equipment           |                                          |               | 583                  |         |         |         | 150   |        
|                                                 |                                                                    | Changes in assets and liabilities, net of amounts acquired: |                                          |               |                      |         |         |         |       |        
|                                                 |                                                                    |                                                             | Trade accounts receivable                |               |                      | (6,020  | )       |         |       | (28,717 | )
|                                                 |                                                                    |                                                             | Other accounts receivable                |               |                      | 15      |         |         |       | (1,399  | )
|                                                 |                                                                    |                                                             | Inventories                              |               |                      | (17,288 | )       |         |       | (9,201  | )
|                                                 |                                                                    |                                                             | Prepaid expenses and other               |               |                      | (3,539  | )       |         |       | (9,352  | )
|                                                 |                                                                    |                                                             | Accounts payable and accrued liabilities |               |                      | 7,867   |         |         |       | 18,080  |  
|                                                 |                                                                    |                                                             | Accrued payroll and employee benefits    |               |                      | (16,989 | )       |         |       | (4,099  | )
|                                                 |                                                                    |                                                             |                                          |               |                      |         |         |        
|                                                 |                                                                    |                                                             | (25,613                                  | )             |                      |         | (24,638 | )      
|                                                 |                                                                    |                                                             |                                          |               |                      |         |         |        
|Cash flows from investing activities:            |                                                                    |                                                             |                                          |               |                      |         |         |        
|                                                 | Acquisition of property, plant and equipment                       |                                                             |                                          | (7,361        | )                    |         |         | (13,985 | )    
|                                                 | Retirement of property, plant and equipment                        |                                                             |                                          | 25            |                      |         |         | 38      |      
|                                                 | Purchase of independent distributors and other intangibles         |                                                             |                                          | (1,692        | )                    |         |         | (2,438  | )    
|                                                 | Increase in other assets                                           |                                                             |                                          | (1,014        | )                    |         |         | (1,350  | )    
|                                                 |                                                                    |                                                             |                                          |               |                      |         |         |        
|                                                 |                                                                    |                                                             | (10,042                                  | )             |                      |         | (17,735 | )      
|                                                 |                                                                    |                                                             |                                          |               |                      |         |         |        
|Cash flows from financing activities:            |                                                                    |                                                             |                                          |               |                      |         |         |        
|                                                 | Proceeds from long-term line of credit, net                        |                                                             |                                          | 36,400        |                      |         |         | 42,200  |      
|                                                 | Issuance of common stock under employee stock plans, net           |                                                             |                                          | 1,725         |                      |         |         | 3,260   |      
|                                                 | Repurchases and retirements of common stock                        |                                                             |                                          |               |                      |         |         | (1,073  | )    
|                                                 | Cash dividends paid                                                |                                                             |                                          | (2,099        | )                    |         |         | (2,068  | )    
|                                                 |                                                                    |                                                             |                                          |               |                      |         |         |        
|                                                 |                                                                    |                                                             | 36,026                                   |               |                      |         | 42,319  |        
|                                                 |                                                                    |                                                             |                                          |               |                      |         |         |        
|Increase (decrease) in cash and cash equivalents |                                                                    |                                                             | 371                                      |               |                      |         | (54     | )      
|Cash and cash equivalents, beginning of period   |                                                                    |                                                             | 1,119                                    |               |                      |         | 1,650   |        
|                                                 |                                                                    |                                                             |                                          |               |                      |         |         |        
|Cash and cash equivalents, end of period         |                                                                    | $                                                           | 1,490                                    |               |                      | $       | 1,596   |        
|                                                 |                                                                    |                                                             |                                          |               |                      |         |         |        
|Supplemental cash flow information:              |                                                                    |                                                             |                                          |               |                      |         |         |        
|                                                 | Cash paid during the period for:                                   |                                                             |                                          |               |                      |         |         |         |      
|                                                 |                                                                    |                                                             | Interest (net of amounts capitalized)    |               | $                    | 692     |         |         | $     | 1,320   |  
|                                                 |                                                                    |                                                             |                                          |               |                      |         |         |         |      
|                                                 |                                                                    |                                                             | Income taxes (net of refunds)            |               | $                    | 192     |         |         | $     | 140     |  
|                                                 |                                                                    |                                                             |                                          |               |                      |         |         |         |      

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 weeks ended March
29, 2003 and March 30, 2002 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 28, 2002, appearing in the Companys
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  Certain Significant Accounting Policies

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 recoverability and estimated useful lives of property, plant and equipment; 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 these estimates.

Accounting for Stock-Based Compensation

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure (SFAS No. 148) which
provides alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock options. SFAS No. 148 also amends
the disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation to require more prominent disclosures about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results in both annual and interim financial statements. The
Company adopted the disclosure provisions of SFAS No. 148 for its annual period
ended December 28, 2002.

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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
Agreement and Plan of Merger and Contribution, dated June 16, 2002, as amended
(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 waived their rights to accelerated vesting of their
unvested stock options in conjunction with entering into employment agreements
with New Dreyers. The employment agreements will become 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.

The Company accounts for its employee stock option and stock purchase
plans using the intrinsic value-based method under APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based compensation cost is reflected in net income, as all options
granted under these plans had an exercise price equal to the market value of
the underlying common stock on the date of grant.

For
disclosure purposes only, the Company used the Black-Scholes option pricing model to estimate the
fair value per share of options granted. No pro forma stock-based compensation expense
was computed for the thirteen weeks ended March 29, 2003 because no options
were granted during that period and all stock compensation expense related to
options granted prior to the thirteen weeks ended March 29, 2003 was reflected
in pro forma net income for 2002 due to the accelerated vesting of stock
options in June 2002. The assumptions used to compute compensation expense in
the pro forma presentation below and to estimate the weighted-average fair
market value per share of options granted during the thirteen weeks ended March
30, 2002 are as follows:

|                                   |  |               |       |  
|---------------------------------- |  | ------------- | ----- | -
|                                   |  | Mar. 30, 2002
|                                   |  |              
|Risk-free interest rate            |  |               | 4.70  | %
|Dividend yield                     |  |               | .61   | %
|Volatility                         |  |               | 44.28 | %
|Expected term (years)              |  |               | 5.90  |  
|Weighted average fair market value |  | $             | 18.35 |  

The following table illustrates the effect on net income and net income
per common share if the Company had applied the fair value recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation rather than the intrinsic value-based method
provisions of APB Opinion No. 25:

|                                                                                                                                                        |                                                            |               |     |               |  |   |       |     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------- | --- | ------------- |  | - | ----- | --- | 
|(In thousands, except
per share amounts)                                                                                                                |                                                            | Mar. 29, 2003 |     | Mar. 30, 2002
|                                                                                                                                                        |                                                            |               |     |              
|Net income-as reported                                                                                                                                  |                                                            | $             | 871 |               |  | $ | 1,310 |    
|Deduct: total stock-based employee compensation expense
determined under the fair value-based method for all
awards, net of related tax effects of $138 |                                                            |               |     |               |  |   | 245   |    
|                                                                                                                                                        |                                                            |               |     |               |  |   |       |    
|Pro forma net income under the fair value-based method                                                                                                  |                                                            | $             | 871 |               |  | $ | 1,065 |    
|                                                                                                                                                        |                                                            |               |     |               |  |   |       |    
|Net income per common share:                                                                                                                            |                                                            |               |     |               |  |   |       |    
|                                                                                                                                                        | Basic-as reported using the intrinsic value-based method   |               | $   | .02           |  |   | $     | .04 | 
|                                                                                                                                                        |                                                            |               |     |               |  |   |       |    
|                                                                                                                                                        | Basic-pro forma using the fair value-based method          |               | $   | .02           |  |   | $     | .03 | 
|                                                                                                                                                        |                                                            |               |     |               |  |   |       |    
|                                                                                                                                                        | Diluted-as reported using the intrinsic value-based method |               | $   | .02           |  |   | $     | .04 | 
|                                                                                                                                                        |                                                            |               |     |               |  |   |       |    
|                                                                                                                                                        | Diluted-pro forma using the fair value-based method        |               | $   | .02           |  |   | $     | .03 | 
|                                                                                                                                                        |                                                            |               |     |               |  |   |       |    

7



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##### Table of Contents



NOTE 3  Merger and Contribution Agreement

The Company entered into an Agreement and Plan of Merger and Contribution,
dated June 16, 2002, as amended, (the Merger Agreement), with New December,
Inc. (New Dreyers), December Merger Sub, Inc., Nestlé Holdings, Inc. (Nestlé)
and NICC Holdings, Inc. (NICC Holdings), a wholly-owned subsidiary of Nestlé,
to combine the Company with Nestlé Ice Cream Company, LLC (NICC), the Nestlé
affiliate which holds Nestlés United States frozen dessert business. The
combination will result in both the Company and NICC becoming wholly-owned
subsidiaries of New Dreyers, a Delaware corporation formed by the Company to
effect the transactions contemplated by the Merger Agreement (the Merger).

A Registration Statement on Form S-4 was filed by New Dreyers with the
SEC in connection with the Merger and was declared effective on February 14,
2003. A proxy statement/prospectus for a Special Meeting of Stockholders
(Special Meeting) to vote on the Merger was mailed on February 18, 2003 to the
Companys stockholders of record as of January 29, 2003. On March 20, 2003, the

Special Meeting was held and the Companys stockholders approved the Merger
Agreement and the Merger.

If the Merger is completed, each stockholder (other than Nestlé and its
affiliates) who holds shares of the Companys common stock at the effective
time of the Merger will receive one share of Class A Callable Puttable Common
Stock of New Dreyers for each share of the Companys common stock. Subject to
the terms and conditions of the amended and restated certificate of
incorporation of New Dreyers, the holders of New Dreyers Class A Callable
Puttable Common Stock will be permitted to sell (put) some or all of their
shares to New Dreyers for $83.00 per share during two periods, the first
beginning on December 1, 2005 and ending on January 13, 2006, and the second
beginning on April 3, 2006 and ending on May 12, 2006. The New Dreyers Class A
Callable Puttable Common Stock will also be subject to redemption (call) by New
Dreyers at the request of Nestlé at $88.00 per share during a six-month period
beginning on January 1, 2007 and ending on June 30, 2007. At the effective time
of the Merger, NICC Holdings will contribute all of its ownership interest of
NICC to New Dreyers and will receive in exchange for such contribution,
55,001,299 shares of Class B Common Stock of New Dreyers. The Class B Common
Stock is similar to the Class A Callable Puttable Common Stock, except that it
lacks the call and put features and has additional voting rights. The shares of
the Companys common stock currently held by Nestlé will be converted into the
same number of shares of Class B Common Stock of New Dreyers. As of December
28, 2002, Nestlé owned approximately 23 percent of the Companys common stock
on a diluted basis. If the Merger is completed, Nestlé and its affiliates will
own approximately 67 percent of New Dreyers common stock on a diluted basis.

In addition, if the Merger is completed, each outstanding option to
purchase the Companys common stock under the Companys existing stock option
plans will, at the completion of the Merger, be converted into an option to
acquire:



| |  |  | prior to the date that New Dreyers Class A Callable Puttable Common
Stock is redeemed under the call right or prior to the completion of a
short form merger of New Dreyers with Nestlé or an affiliate of Nestlé
S.A., that number of shares of New Dreyers Class A Callable Puttable
Common Stock equal to the number of shares of the Companys common stock
subject to the option immediately prior to the completion of the Merger,
at the price or prices per share in effect immediately prior to the
completion of the Merger.                                    
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | at or after the date New Dreyers Class A Callable Puttable Common
Stock is redeemed under the call right or after the completion of a
short form merger of New Dreyers with Nestlé or an affiliate of Nestlé
S.A., the same consideration that the holder of the options would have
received had the holder exercised the stock options prior to the
redemption or short form merger and received consideration in respect of
the shares of Class A Callable Puttable Common Stock under the
redemption or short form merger at the price or prices in effect at that
time.

The New Dreyers stock options will otherwise be subject to the same terms and
conditions applicable to the original options to purchase the Companys common
stock immediately prior to the completion of the Merger.

Certain regulatory requirements must be satisfied before the Merger is
completed. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the HSR Act), and the rules promulgated thereunder by the United
States Federal Trade Commission (the FTC), the Merger cannot be completed until
notifications have been given and

8



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##### Table of Contents



information has been furnished to the FTC and the Antitrust Division of
the United States Department of Justice (the Antitrust Division), and the
specified waiting periods have expired or have been terminated. The Company and
Nestlé filed notification and report forms under the HSR Act with the FTC and
the Antitrust Division on July 3, 2002. On August 2, 2002, the FTC made a
request for additional information and documentary material. Both the Company
and Nestlé declared substantial compliance with the FTCs request by December
26, 2002. On February 25, 2003, the Company announced that the Company and
Nestlé committed to the FTC not to close the Merger without first giving 20
days written notice to the FTC of an intent to close, and that in no event
would the parties give such notice to the FTC in a manner that would permit the
Merger to close prior to March 31, 2003.

In an effort to address concerns of the FTC arising out of the Merger, on
March 3, 2003, the Company and NICC entered into an agreement with Integrated
Brands, Inc. (Integrated Brands), a subsidiary of CoolBrands International
Inc., for the sale and purchase of certain ice cream assets of Dreyers and
certain distribution assets of NICC (the Sale Agreement). Under the terms of
the Sale Agreement, the Company agreed to sell to Integrated Brands the
Dreamery® and Whole Fruit Sorbet brands and, subject to the receipt of the
required consent by Godiva Chocolatier, Inc. (Godiva), to assign the license
for the Godiva® ice cream brand, and NICC agreed to sell to Integrated Brands
its distribution assets in the states of Oregon, Washington and Florida and in
the metropolitan areas of the San Francisco Bay Area, Southern California (Los
Angeles and San Diego), Baltimore/Washington, D.C., Philadelphia, Delaware
Valley Area (PA) and Central/Southern New Jersey. The Sale Agreement also
contemplates that when the sale closes, the parties will enter into other
ancillary agreements related to the manufacture and distribution of ice cream
products. The sale to Integrated Brands will be completed only if the Merger is
completed.

On March 4, 2003, the FTC authorized its staff to commence legal action
and seek a preliminary injunction to block the Merger pending trial. The
Company, NICC, Nestlé and the FTC are discussing the terms of the proposed sale
to Integrated Brands in order to address concerns expressed by the FTC.
Depending on the outcome of these discussions, the Company, NICC and Nestlé may
agree with the FTC to certain conditions relating to the Sale Agreement or
other matters.

A substantial delay in obtaining satisfactory approvals and consents from
the FTC to close the Merger or the insistence upon unfavorable terms or
conditions by the FTC, such as significant asset dispositions, could have a
material adverse effect on the business, financial condition, results of
operations or cash flows of the Company, or may result in the Company, NICC and
Nestlé litigating with a governmental agency, or possibly cause the parties to
the Merger Agreement to abandon the Merger. As a result, there can be no
assurance that the Merger will close.

Several of the Companys joint venture partners and partner brand
manufacturers have rights to terminate their arrangements with the Company upon
completion of the Merger, subject to various other terms and conditions. The
Company can provide no assurance as to the potential actions of these business
partners. Should any of the Companys significant partners or suppliers choose
to terminate these arrangements in accordance with their rights to do so
following the completion of the Merger, the Company may incur significant
decreases in gross profit and/or be required to write-off certain assets as a
result of the loss of these business partners. Unilever United States, Inc.
(Unilever) has announced that it may decide to sell Ben & Jerrys® through the
grocers warehouse instead of through the Companys distribution system after
completion of the Merger. However, under the terms of the Companys agreement
with Unilever, Unilever must give the Company at least nine months notice after
completion of the Merger to terminate its agreement with the Company.

If the Merger is completed, the Company and NICC will become wholly-owned
subsidiaries of New Dreyers and New Dreyers will be a publicly-held
registrant. The Merger will be accounted for as a reverse acquisition under the
purchase method of accounting. For this purpose, NICC will be deemed to be the
acquirer and the Company will be deemed to be the acquiree. As a result, the
Company is charging to expense all costs related to the Merger as incurred.
These expenses totaled $4,548,000 for the thirteen weeks ended March 29, 2003.
Through the first quarter of 2003, the Company has incurred $15,109,000 of
Merger transaction expenses.

9



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##### Table of Contents



NOTE 4  Inventories

Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at March 29, 2003 and December 28,
2002 consisted of the following:

|               |  |               |         |               |  |   |        | 
|-------------- |  | ------------- | ------- | ------------- |  | - | ------ | 
|(In thousands) |  | Mar. 29, 2003 |         | Dec. 28, 2002
|               |  |               |         |              
|Raw materials  |  | $             | 9,005   |               |  | $ | 7,706  | 
|Finished goods |  |               | 91,114  |               |  |   | 75,125 | 
|               |  |               |         |               |  |   |        | 
|               |  | $             | 100,119 |               |  | $ | 82,831 | 
|               |  |               |         |               |  |   |        | 

NOTE 5  Butter Investments

Under current federal and state regulations and industry practice, the
price of cream, a primary ingredient in ice cream, is linked to the price of
butter. In an effort to proactively mitigate the effects of butter price
volatility, the Company will periodically purchase butter or butter futures
contracts with the intent of reselling or settling its positions in order
reduce its exposure to the volatility of this market. Since the Companys
investment in butter does not qualify as a hedge for accounting purposes, it
marks to market its investment at the end of each quarter and records any
resulting gain or loss as a decrease or increase in Other income, net. The
Company typically holds its butter investments for up to four months.

Investments in butter, included in Prepaid expenses and other, totaled
$7,106,000 and $1,195,000, at March 29, 2003 and December 28, 2002,
respectively. During the thirteen weeks ended March 29, 2003 and March 30,
2002, the Company recorded losses from butter investments of $787,000 and
$315,000, respectively.

NOTE 6  Goodwill and Other Intangibles

The gross carrying amount and related accumulated amortization of other
intangibles at March 29, 2003 and December 28, 2002 consisted of the following:

|                         |  |                |       |                   |  |     |       |        |  |              |       |             |  |   |       |  |  |   |       |  |  |   |       | 
|------------------------ |  | -------------- | ----- | ----------------- |  | --- | ----- | ------ |  | ------------ | ----- | ----------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                         |  | March 29, 2003 |       | December 28, 2002
|                         |  |                |       |                  
|                         |  | Gross          |       |                   |  |     |       |        |  |              |       | Gross       |  |   |       |  |  |   |       | 
|                         |  | Carrying       |       | Accumulated       |  |     |       |        |  | Carrying     |       | Accumulated |  |   |       | 
|                         |  | Amount         |       | Amortization      |  | Net |       | Amount |  | Amortization |       | Net        
|                         |  |                |       |                   |  |     |       |        |  |              |       |            
|(In thousands)           |  |                |       |                   |  |     |       |        |  |              |       |             |  |   |       |  |  |   |       |  |  |   |       | 
|Distribution rights      |  | $              | 2,000 |                   |  | $   | 828   |        |  | $            | 1,172 |             |  | $ | 2,000 |  |  | $ | 728   |  |  | $ | 1,272 | 
|Product formulation      |  |                | 4,239 |                   |  |     | 4,239 |        |  |              |       |             |  |   | 4,239 |  |  |   | 4,239 |  |  |   |       | 
|Covenants not to compete |  |                | 875   |                   |  |     | 576   |        |  |              | 299   |             |  |   | 825   |  |  |   | 534   |  |  |   | 291   | 
|Trademark                |  |                | 618   |                   |  |     | 527   |        |  |              | 91    |             |  |   | 618   |  |  |   | 502   |  |  |   | 116   | 
|                         |  |                |       |                   |  |     |       |        |  |              |       |             |  |   |       |  |  |   |       |  |  |   |       | 
|                         |  | $              | 7,732 |                   |  | $   | 6,170 |        |  | $            | 1,562 |             |  | $ | 7,682 |  |  | $ | 6,003 |  |  | $ | 1,679 | 
|                         |  |                |       |                   |  |     |       |        |  |              |       |             |  |   |       |  |  |   |       |  |  |   |       | 

Amortization expense of other intangibles for the thirteen weeks ended
March 29, 2003 was $167,000. Future estimated amortization
expense for the remaining thirty-nine weeks of fiscal 2003 and for
the four fiscal periods ending on the last Saturday of December 2004 through 2007 are as
follows:

|               |      |   |       |     | 
|-------------- | ---- | - | ----- | --- | 
|(In thousands) |      |   |       |    
|Year ending:   |      |   |       |    
|               | 2003 |   | $     | 418 | 
|               | 2004 |   |       | 482 | 
|               | 2005 |   |       | 475 | 
|               | 2006 |   |       | 137 | 
|               | 2007 |   |       | 50  | 
|               |      |   |       |    
|               |      | $ | 1,562 |    
|               |      |   |       |     | 

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##### Table of Contents



The changes in the carrying amount of goodwill for the thirteen weeks
ended March 29, 2003, are as follows:

|                                |  |   |        | 
|------------------------------- |  | - | ------ | 
|(In thousands)                  |  |   |        | 
|Balance as of December 28, 2002 |  | $ | 84,651 | 
|Goodwill acquired during year   |  |   | 1,642  | 
|                                |  |   |        | 
|Balance as of March 29, 2003    |  | $ | 86,293 | 
|                                |  |   |        | 

NOTE 7  Net Income Per Common Share

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 effect of potentially dilutive securities which includes stock
options. The following table reconciles the numerators and denominators of the
basic and diluted net income per common share calculations:

|                                         |         |               |                      |               |  |   |        |     | 
|---------------------------------------- | ------- | ------------- | -------------------- | ------------- |  | - | ------ | --- | 
|                                         |         |               | Thirteen Weeks Ended
|                                         |         |               |                     
|(In
thousands, except per share amounts) |         | Mar. 29, 2003 |                      | Mar. 30, 2002
|                                         |         |               |                      |              
|Net income-basic and diluted             |         | $             | 871                  |               |  | $ | 1,310  |    
|                                         |         |               |                      |               |  |   |        |    
|Weighted-average shares-basic            |         |               | 35,011               |               |  |   | 34,510 |    
|Dilutive effect of options               |         |               | 3,180                |               |  |   | 2,643  |    
|                                         |         |               |                      |               |  |   |        |    
|Weighted-average shares-diluted          |         |               | 38,191               |               |  |   | 37,153 |    
|                                         |         |               |                      |               |  |   |        |    
|Net income per common share:             |         |               |                      |               |  |   |        |    
|                                         | Basic   |               | $                    | .02           |  |   | $      | .04 | 
|                                         |         |               |                      |               |  |   |        |    
|                                         | Diluted |               | $                    | .02           |  |   | $      | .04 | 
|                                         |         |               |                      |               |  |   |        |    

Anti-dilutive securities

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-week periods ended March 29, 2003 and March 30,
2002.

11



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##### Table of Contents








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


Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking information.
Forward-looking information includes statements relating to future actions,
prospective products, future performance or results of current or anticipated
products, sales and marketing efforts, costs and expenses, interest rates,
outcome of contingencies, financial condition, results of operations,
liquidity, business strategies, cost savings, objectives of management of
Dreyers Grand Ice Cream, Inc. (the Company) and other matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking information to encourage companies to provide prospective
information about themselves without fear of litigation so long as that
information is identified as forward-looking and is accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the information. Forward-
looking information may be included in this Quarterly Report on Form 10-Q or
may be incorporated by reference from other documents filed with the Securities
and Exchange Commission (SEC) by the Company. You can find many of these
statements by looking for words including, for example, believes, expects,
anticipates, estimates or similar expressions in this Quarterly Report on
Form 10-Q or in documents incorporated by reference (if any) in this Quarterly
Report on Form 10-Q.

These forward-looking statements involve risks and uncertainties. Actual
results may differ materially from those contemplated by these forward-looking
statements. You should understand that various factors, in addition to those
discussed elsewhere in this Quarterly Report on Form 10-Q and in the documents
referred to in this Quarterly Report on Form 10-Q (if any), could affect the
future results of the Company, and could cause results to differ materially
from those expressed in these forward-looking statements, including, but not
limited to:



| |  |  | risk factors described under the Risks and Uncertainties section below;                                                                                                                                                       
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the level of consumer spending for frozen dessert products;                                                                                                                                                                     
|
| |  |  | the Companys ability to achieve efficiencies in manufacturing and
distribution operations without negatively affecting sales;                                                                                                  
|
| |  |  | the cost of energy and gasoline used in manufacturing and distribution;                                                                                                                                                         
|
| |  |  | the cost of dairy raw materials and other commodities used in the Companys products;                                                                                                                                           
|
| |  |  | the Companys ability to develop, market and sell new frozen dessert products;                                                                                                                                                  
|
| |  |  | the success of the Companys marketing and promotion programs and
competitors marketing and promotion responses;                                                                                                               
|
| |  |  | market conditions affecting the prices of the Companys products;                                                                                                                                                               
|
| |  |  | responsiveness of both the trade and consumers to the Companys new
products and marketing and promotion programs;                                                                                                              
|
| |  |  | existing and future governmental regulations resulting from the
events of September 11, 2001, the war in Iraq and the continuing threat
of terrorist attacks, which could affect commodity and service costs to
the Company; and
|
| |  |  | uncertainty regarding the completion and effect of the proposed
transactions with Nestlé as described under Recent Events below.                                                                                              

You are cautioned not to place undue reliance on these statements, which
speak only as of the date of this Quarterly Report on Form 10-Q or, in the case
of documents incorporated by reference (if any) in this Quarterly Report on
Form

12



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##### Table of Contents



10-Q, the dates of those documents. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information or future events.

Recent Events

The Company entered into an Agreement and Plan of Merger and Contribution,
dated June 16, 2002, as amended, (the Merger Agreement), with New December,
Inc. (New Dreyers), December Merger Sub, Inc., Nestlé Holdings, Inc. (Nestlé)
and NICC Holdings, Inc. (NICC Holdings), a wholly-owned subsidiary of Nestlé,
to combine the Company with Nestlé Ice Cream Company, LLC (NICC), the Nestlé
affiliate which holds Nestlés United States frozen dessert business. The
combination will result in both the Company and NICC becoming wholly-owned
subsidiaries of New Dreyers, a Delaware corporation formed by the Company to
effect the transactions contemplated by the Merger Agreement (the Merger).

A Registration Statement on Form S-4 was filed by New Dreyers with the
SEC in connection with the Merger and was declared effective on February 14,
2003. A proxy statement/prospectus for a Special Meeting of Stockholders
(Special Meeting) to vote on the Merger was mailed on February 18, 2003 to the
Companys stockholders of record as of January 29, 2003. On March 20, 2003, the
Special Meeting was held and the Companys stockholders approved the Merger
Agreement and the Merger.

If the Merger is completed, each stockholder (other than Nestlé and its
affiliates) who holds shares of the Companys common stock at the effective
time of the Merger will receive one share of Class A Callable Puttable Common
Stock of New Dreyers for each share of the Companys common stock. Subject to
the terms and conditions of the amended and restated certificate of
incorporation of New Dreyers, the holders of New Dreyers Class A Callable
Puttable Common Stock will be permitted to sell (put) some or all of their
shares to New Dreyers for $83.00 per share during two periods, the first
beginning on December 1, 2005 and ending on January 13, 2006, and the second
beginning on April 3, 2006 and ending on May 12, 2006. The New Dreyers Class A
Callable Puttable Common Stock will also be subject to redemption (call) by New
Dreyers at the request of Nestlé at $88.00 per share during a six-month period
beginning on January 1, 2007 and ending on June 30, 2007. At the effective time
of the Merger, NICC Holdings will contribute all of its ownership interest of
NICC to New Dreyers and will receive in exchange for such contribution,
55,001,299 shares of Class B Common Stock of New Dreyers. The Class B Common
Stock is similar to the Class A Callable Puttable Common Stock, except that it
lacks the call and put features and has additional voting rights. The shares of
the Companys common stock currently held by Nestlé will be converted into the
same number of shares of Class B Common Stock of New Dreyers. As of December
28, 2002, Nestlé owned approximately 23 percent of the Companys common stock
on a diluted basis. If the Merger is completed, Nestlé and its affiliates will
own approximately 67 percent of New Dreyers common stock on a diluted basis.

In addition, if the Merger is completed, each outstanding option to
purchase the Companys common stock under the Companys existing stock option
plans will, at the completion of the Merger, be converted into an option to
acquire:



| |  |  | prior to the date that New Dreyers Class A Callable Puttable Common
Stock is redeemed under the call right or prior to the completion of a
short form merger of New Dreyers with Nestlé or an affiliate of Nestlé
S.A., that number of shares of New Dreyers Class A Callable Puttable
Common Stock equal to the number of shares of the Companys common stock
subject to the option immediately prior to the completion of the Merger,
at the price or prices per share in effect immediately prior to the
completion of the Merger.                                    
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | at or after the date New Dreyers Class A Callable Puttable Common
Stock is redeemed under the call right or after the completion of a
short form merger of New Dreyers with Nestlé or an affiliate of Nestlé
S.A., the same consideration that the holder of the options would have
received had the holder exercised the stock options prior to the
redemption or short form merger and received consideration in respect of
the shares of Class A Callable Puttable Common Stock under the
redemption or short form merger at the price or prices in effect at that
time.

The New Dreyers stock options will otherwise be subject to the same terms and
conditions applicable to the original options to purchase the Companys common
stock immediately prior to the completion of the Merger.

13



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##### Table of Contents



Certain regulatory requirements must be satisfied before the Merger is
completed. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the HSR Act), and the rules promulgated thereunder by the United
States Federal Trade Commission (the FTC), the Merger cannot be completed until
notifications have been given and information has been furnished to the FTC and
the Antitrust Division of the United States Department of Justice (the
Antitrust Division), and the specified waiting periods have expired or have
been terminated. The Company and Nestlé filed notification and report forms
under the HSR Act with the FTC and the Antitrust Division on July 3, 2002. On
August 2, 2002, the FTC made a request for additional information and
documentary material. Both the Company and Nestlé declared substantial
compliance with the FTCs request by December 26, 2002. On February 25, 2003,
the Company announced that the Company and Nestlé committed to the FTC not to
close the Merger without first giving 20 days written notice to the FTC of an
intent to close, and that in no event would the parties give such notice to the
FTC in a manner that would permit the Merger to close prior to March 31, 2003.

In an effort to address concerns of the FTC arising out of the Merger, on
March 3, 2003, the Company and NICC entered into an agreement with Integrated
Brands, Inc. (Integrated Brands), a subsidiary of CoolBrands International
Inc., for the sale and purchase of certain ice cream assets of Dreyers and
certain distribution assets of NICC (the Sale Agreement). Under the terms of
the Sale Agreement, the Company agreed to sell to Integrated Brands the
Dreamery® and Whole Fruit Sorbet brands and, subject to the receipt of the
required consent by Godiva Chocolatier, Inc. (Godiva), to assign the license
for the Godiva® ice cream brand, and NICC agreed to sell to Integrated Brands
its distribution assets in the states of Oregon, Washington and Florida and in
the metropolitan areas of the San Francisco Bay Area, Southern California (Los
Angeles and San Diego), Baltimore/Washington, D.C., Philadelphia, Delaware
Valley Area (PA) and Central/Southern New Jersey. The Sale Agreement also
contemplates that, when the sale closes, the parties will enter into other
ancillary agreements related to the manufacture and distribution of ice cream
products. The sale to Integrated Brands will be completed only if the Merger is
completed.

On March 4, 2003, the FTC authorized its staff to commence legal action
and seek a preliminary injunction to block the Merger pending trial. The
Company, NICC, Nestlé and the FTC are discussing the terms of the proposed sale
to Integrated Brands in order to address concerns expressed by the FTC.
Depending on the outcome of these discussions, the Company, NICC and Nestlé may
agree with the FTC to certain conditions relating to the Sale Agreement or
other matters.

The Merger will be accounted for as a reverse acquisition under the
purchase method of accounting. For this purpose, NICC will be deemed to be the
acquirer and the Company will be deemed to be the acquiree. As a result, the
Company is charging to expense all costs related to the Merger as incurred.
These expenses totaled $4,548,000 for the thirteen weeks ended March 29, 2003.
Through the first quarter of 2003, the Company has incurred $15,109,000 of
Merger transaction expenses. The Company currently estimates that it will
incur total transaction expenses related to the Merger, including costs to be
incurred to close the Merger, of approximately $35,000,000.

Risks and Uncertainties

A substantial delay in obtaining satisfactory approvals and consents from
the FTC to close the Merger or the insistence upon unfavorable terms or
conditions by the FTC, such as significant asset dispositions, could have a
material adverse effect on the business, financial condition, results of
operations or cash flows of the Company, or may result in the Company, NICC and
Nestlé litigating with a governmental agency, or possibly cause the parties to
the Merger Agreement to abandon the Merger. As a result, there can be no
assurance that the Merger will close.

The Company distributes products as partner brands for several key
competitors such as ConAgra Foods, Inc. (Healthy Choice products), NICC
(Häagen-Dazs® and Nestlé products), and Unilever (Ben & Jerrys and Good
Humor®-Breyers® products). In most of these cases, the Company only provides
distribution services while maintaining a competitive selling effort for its
own brands with key retail accounts. The distribution of these partner brand
products provides profits for the Company, and the Company believes that the
parent companies of the partner brands realize substantial sales benefits from
this program. The Company has negotiated long-term contracts with each of its
key partner brands. However, because the manufacturers of these partner brands
are also key competitors of the Company, there can be no guarantee that such
relationships will continue. Nonetheless, the Company believes that the quality
of its distribution services, and the resulting incremental sales, will
continue to provide a strong rationale for the partner brand program for all
parties.

Several of the Companys joint venture partners and partner brand
manufacturers have rights to terminate their arrangements with the Company upon
completion of the Merger, subject to various other terms and conditions. The
Company can provide no assurance as to the potential actions of these business
partners. Should any of the Companys

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significant partners or suppliers choose to terminate these arrangements
in accordance with their rights to do so following the completion of the
Merger, the Company may incur significant decreases in gross profit and/or be
required to write-off certain assets as a result of the loss of these business
partners. Unilever United States, Inc. (Unilever) has announced that it may
decide to sell Ben & Jerrys® through the grocers warehouse after completion
of the Merger instead of through the Companys distribution system. However,
under the terms of the Companys agreement with Unilever, Unilever must give
the Company at least nine months notice after completion of the Merger to
terminate its agreement with the Company.

If the Merger is completed, the Company and NICC will become wholly-owned
subsidiaries of New Dreyers and New Dreyers will be a publicly-held
registrant. As such, the Companys Strategic Plan (described in its Annual
Report on Form 10-K for the fiscal year ended December 28, 2002) will not
necessarily be the strategic plan of New Dreyers. In addition, if any of the
Companys joint-venture partners or partner brand manufacturers terminate their
arrangements with the Company because of the completion of the Merger, aspects
of the Companys Strategic Plan will not be applicable. Finally, if the Merger
is not completed, the Company may also change many elements of the Strategic
Plan.

The events of September 11, 2001 reinforced the need to enhance the
security of the United States. Congress responded by passing the Public Health
Security and Bioterrorism Preparedness and Protection Act of 2002 (the Act),
which President Bush signed into law on June 12, 2002. The Act includes a large
number of provisions to help ensure the safety of the United States from
bioterrorism, including new authority for the Secretary of Health and Human
Services (HHS) to take action to protect the nations food supply against the
threat of intentional contamination. The Food and Drug Administration, as the
food regulatory arm of HHS, is responsible for developing and implementing
these food safety measures, including four major regulations. The Company has
internally reviewed its policies and procedures regarding food safety and has
increased security procedures as appropriate. The Company continues to monitor
risks in this area and is evaluating the impact of these proposed regulations
on an ongoing basis.

The primary factor causing volatility in the Companys dairy costs is the
price of cream. Under current federal and state regulations and industry
practice, the price of cream, a primary ingredient in ice cream, is linked to
the price of butter. Over the last 10 years, the price of butter in the United
States has averaged $1.15 per pound. However, the market is inherently volatile
and can experience large seasonal fluctuations. The Chicago Mercantile Exchange
butter market is characterized by very low trading volumes and a limited number
of participants. The available futures markets for butter are still in the
early stages of development, and do not have sufficient liquidity to enable the
Company to fully reduce its exposure to the volatility of the market. However,
the Company has proactively addressed this price volatility by purchasing
either butter or butter futures contracts with the intent of reselling or
settling its positions at the Chicago Mercantile Exchange. In spite of these
efforts to mitigate this risk, commodity price volatility still has the
potential to materially affect the Companys performance, including, but not
limited to, its profitability, cash flow and competitive position.

Due to volatility in the price of energy, the Company could incur higher costs for energy at its facilities. The
unfavorable cost impact resulting from these price changes cannot yet be
quantified. The Company may also experience an interruption of electricity in
California during rolling blackouts or at other times. To date, these blackouts
have been for short time periods and have had a minimal impact on the Company.
In addition, the Company believes that it could incur higher costs for gasoline
and there could be risks of shortages. A $.10 change in the price per gallon of
gasoline would result in a change in annualized gasoline expense of
approximately $600,000. During the first quarter of 2003, energy costs were
relatively flat compared to the first quarter of 2002.

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##### Table of Contents



Application of Critical Accounting Policies

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions. The Company believes that the
following critical accounting policies, which the Companys senior management
has discussed with the audit committee of the board of directors, represent the
most significant judgments and estimates used in the preparation of the
consolidated financial statements:



| |  |  | Employee Bonuses and Profit-Sharing Plan Contributions The
Companys liabilities for employee bonuses and profit sharing plan
contributions are based primarily on estimated full-year profitability
as compared to the Companys annual plan. The Company accrues for these
expenses on a pro rata basis at the end of each quarter based on the
expected full-year profitability. Due to the variability of its
business, interim adjustments to these accruals could be material.
However, at year-end when the full-year profitability is known,
variations between what was accrued for the full year and what is
actually paid subsequent to year-end are usually less significant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | The Companys liability for employee bonuses at March 29, 2003 and December
28, 2002 totaled $3,941,000 and $16,104,000, respectively. The Companys
liability for accrued pension contributions and 401(k) matching
contributions was $4,236,000 and $10,711,000 at March 29, 2003 and December
28, 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | Self-insurance The Companys liabilities for self-insured health,
workers compensation and vehicle plans are developed from third-party
actuarial valuations that rely on various key assumptions. These
valuation assumptions have historically been fairly reliable at
estimating the Companys self-insurance liabilities at each balance
sheet date. In addition, the Company maintains individual claim and
aggregated stop-loss policies with third-party insurance carriers. These
policies effectively limit the range of potential claim losses. As a
result of the historical reliability of its valuation assumptions and
its stop-loss insurance policies, the Company believes that there is a
low likelihood that the use of different assumptions or estimates would
result in a material change in its self-insurance assets, liabilities or
expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |   |  | The Companys liability for self-insured health plans at March 29, 2003 and
December 28, 2002 totaled $2,435,000 and $2,040,000, respectively.
Self-insurance claims deposits to third-party claims processors for workers
compensation and vehicle losses totaled $13,444,000 and $15,148,000, at
March 29, 2003 and December 28, 2002, respectively. The cost of claims is
charged to expense as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  |  | Goodwill The Company has recorded goodwill related to previous
business acquisitions. The Company tests goodwill for impairment on an
annual basis and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying value. If the fair value of
a reporting unit is less than its carrying value, then an impairment
loss would be recognized equal to the excess of the carrying value of
the reporting unit goodwill over the fair value of that goodwill. The
Company performs its impairment test on each of its five reporting
units. These reporting units correspond to the Companys five geographic
segments that it uses to manage its operations. Virtually all of the
Companys previous acquisitions (usually regional distributors) were
located entirely within a single reporting unit. Consequently, the
Company has been able to specifically assign its goodwill to its
reporting units for purposes of impairment testing. The Company
estimates the fair market value of its reporting units based on a
multiple of their specific pre-tax earnings (after overhead
allocations). The Company employs an earnings multiple that it believes
is the market rate for the valuation of businesses that are equivalent
to its reporting units. However, the estimated earnings multiple,
together with other inputs to the impairment test, are based upon
estimates that carry a degree of uncertainty.
|
| |   |  | The Companys business has grown at a fairly rapid pace since its
inception. As a result, the estimated fair market value of its reporting
units has increased with this growth. This has created a surplus of
estimated fair market value over the carrying value of each of its
reporting units. The Company believes that each of its reporting units
surplus is sufficient to cover a moderate decline in estimated fair market
value, making the probability of an impairment unlikely in most situations.
However, a severe or extraordinary decline in the fair market value of an
individual reporting unit could result in a material impairment charge.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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| |   |  | Goodwill at March 29, 2003 and December 28, 2002, totaled $86,293,000 and
$84,651,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Property, Plant and Equipment, net The cost of additions to
property, plant and equipment, along with major repairs and
improvements, is capitalized, while maintenance and minor repairs are
charged to expense as incurred. Property, plant and equipment is
depreciated using the straight-line method over the assets estimated
useful lives, generally ranging from two to 35 years. Interest costs
relating to capital assets under construction are capitalized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |   |  | The Company has been using the same types of property, plant and equipment
(e.g. trucks, manufacturing equipment) for many years. Based on this
experience, the Company believes its depreciation method, depreciable lives
and salvage values have proven to be fairly reliable estimates. This belief
has been substantiated by historically small gains and losses recorded when
assets have been disposed of. The Company therefore believes that there is
a low likelihood that the use of different assumptions and estimates would
result in a material change to its depreciation expense. However, future
changes to the Companys Strategic Plan or operating plans can result in a
shortening of the estimated useful life of certain affected assets. In
these cases, the Company would decrease the remaining depreciable life on a
prospective basis. This would result in an increase in depreciation expense
which, in limited situations, could be material. If changes to the
Companys plans occur suddenly or are implemented quickly, an impairment
charge could result. Depending on the scope of the changes and the assets
affected, such an impairment could be material.
|
| |  |  | Trade Accounts Receivable, net The Company assesses the
recoverability of trade accounts receivable based on estimated losses
resulting from the inability of customers to make required payments. The
Companys estimates are based on the aging of accounts receivable
balances and historical write-off experience, net of recoveries. The
Company reviews trade accounts receivable for recoverability regularly
and whenever events or circumstances, such as deterioration in the
financial condition of a customer, indicate that a change in the
allowance might be required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |   |  | Historically this methodology has been a fairly reliable means of assessing
the recoverability of trade accounts receivable at each balance sheet date.
The Company therefore believes that there is a low likelihood that the use
of different assumptions or estimates would result in a material change to
the bad debt provision or allowance for bad debts. However, lack of
information about the financial deterioration of a major customer could
result in a material change in the bad debt provision.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |   |  | At March 29, 2003 and December 28, 2002, the Companys allowance for
doubtful accounts totaled $2,472,000 and $1,586,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | Deferred Tax Assets 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, if the Company determines 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |   |  | At the present time, the Companys deferred tax asset valuation allowances
have been established based on fairly objective data (e.g. income tax
regulations) and are therefore not subject to a high degree of variability.
The Company therefore believes there is a low likelihood that the use of
different assumptions or estimates would result in a material change to the
deferred tax asset valuation allowances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |   |  | At March 29, 2003, the Company has a valuation allowance of $2,361,000
related to certain potentially nondeductible Merger transaction expenses
and to the impairment of the Companys investment in Momentx Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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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 these estimates.

Results of Operations

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:

|                                   |                                      |  |                         |      |                                                 |  |                       |      |   |  |       |        |  
|---------------------------------- | ------------------------------------ |  | ----------------------- | ---- | ----------------------------------------------- |  | --------------------- | ---- | - |  | ----- | ------ | -
|                                   |                                      |  | Percentage of Net Sales |      | Period-to-PeriodVarianceFavorable (Unfavorable)
|                                   |                                      |  | Thirteen Weeks Ended    |      |                                                 |  |                      
|                                   |                                      |  |                         |      | Thirteen Weeks Ended                           
|                                   |                                      |  | Mar. 29, 2003           |      | Mar. 30, 2002                                   |  | 2003 Compared to 2002
|                                   |                                      |  |                         |      |                                                 |  |                      
|Net sales                          |                                      |  | 100.0                   | %    |                                                 |  | 100.0                 | %    |   |  | 2.8   | %     
|                                   |                                      |  |                         |      |                                                 |  |                       |      |   |  |       |       
|Costs and expenses:                |                                      |  |                         |      |                                                 |  |                       |      |   |  |       |       
|                                   | Cost of goods sold                   |  |                         | 88.6 |                                                 |  |                       | 90.3 |   |  |       | (0.9   | )
|                                   | Selling, general and administrative  |  |                         | 9.1  |                                                 |  |                       | 8.8  |   |  |       | (6.9   | )
|                                   | Interest, net of amounts capitalized |  |                         | 0.4  |                                                 |  |                       | 0.6  |   |  |       | 31.4   |  
|                                   | Other income, net                    |  |                         | (0.1 | )                                               |  |                       | (0.4 | ) |  |       | (53.8  | )
|                                   | Merger transaction expenses          |  |                         | 1.5  |                                                 |  |                       |      |   |  |       | (100.0 | )
|                                   |                                      |  |                         |      |                                                 |  |                       |      |   |  |       |       
|                                   |                                      |  | 99.5                    |      |                                                 |  | 99.3                  |      |   |  | (3.0  | )     
|                                   |                                      |  |                         |      |                                                 |  |                       |      |   |  |       |       
|Income before income tax provision |                                      |  | 0.5                     |      |                                                 |  | 0.7                   |      |   |  | (30.2 | )     
|Income tax provision               |                                      |  | 0.2                     |      |                                                 |  | 0.2                   |      |   |  | 24.4  |       
|                                   |                                      |  |                         |      |                                                 |  |                       |      |   |  |       |       
|Net income                         |                                      |  | 0.3                     | %    |                                                 |  | 0.5                   | %    |   |  | (33.5 | )%    
|                                   |                                      |  |                         |      |                                                 |  |                       |      |   |  |       |       

Thirteen Weeks ended March 29, 2003 Compared with Thirteen Weeks ended March
30, 2002

Net sales for the first quarter of 2003 increased $8,010,000, or three
percent, to $298,424,000 from $290,414,000 for the same quarter last year.

Net sales of the Companys branded products, including licensed and joint
venture products (company brands), decreased $1,046,000, or one percent, to
$164,861,000 from $165,907,000 for the same quarter last year. Company brands
represented 55 percent of consolidated net sales in 2003 compared with 57
percent in the same quarter last year. This slight decrease was driven by a
$4,080,000 decrease in net sales of Dreyers and Edys Grand Ice Cream, offset
by a $3,653,000 increase in net sales of Dreyers and Edys Whole Fruit Bars
and a $2,659,000 increase in net sales of the Companys superpremium portfolio.
The average price of company brands, net of the effect of trade promotion
expenses, increased by 13 percent. Gallon sales of company brands, including
novelties, decreased approximately 3,100,000 gallons, or 12 percent, to
approximately 23,200,000 gallons. This large increase in price and
decrease in gallon sales is largely due to the Companys
downsizing of its half gallon products from two quarts to 1.75 quarts during 2002.

Net sales of products distributed for other manufacturers (partner
brands), including Ben & Jerrys Homemade, Inc. (Ben & Jerrys), increased
$9,056,000, or seven percent, to $133,563,000 from $124,507,000 for the same
quarter last year. This increase was primarily attributable to an increase in
net sales of $8,454,000 of the distributed novelty products of Silhouette
Brands, Inc. Sales of partner brands represented 45 percent of net sales in
2003 compared with 43 percent in the same quarter last year. Average wholesale
prices for partner brands increased approximately 10 percent. Unit sales of
partner brands decreased by three percent over the same quarter last year.

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Cost of goods sold increased $2,348,000, or one percent, to $264,509,000
from $262,161,000 for the same quarter last year. The Companys gross profit
increased by $5,662,000, or 20 percent, to $33,915,000 from $28,253,000,
representing an 11.4 percent gross margin compared with a 9.7 percent gross
margin for the same quarter last year. The improvement in gross profit was
primarily attributable to lower dairy raw material costs of
$4,300,000. In addition, the Company converted its two-quart (half
gallon) products to 1.75 quarts in 2002; this conversion
contributed approximately $3,700,000 to the gross profit increase. These improvements were partially offset by increased distribution
expenses of $4,506,000. During the first quarter of 2003, the decrease in
dairy raw material costs accounted for a $4,300,000 pre-tax benefit (excluding
the results of butter trading activities, which are included in Other income,
net and discussed below) as compared to the same quarter last year.

Selling, general and administrative expenses increased $1,758,000, or
seven percent, to $27,173,000 from $25,415,000 for the same quarter last year.
The increase in expenses from 2002 reflects increased marketing expenses of
$2,098,000, along with increased administrative expenses of $1,338,000
primarily resulting from a bad debt provision of $908,000 relating to
the bankruptcy filings of Fleming Companies, Inc. and Eagle Foods, Inc. The increase
in selling, general and administrative expenses was partially offset by a
decrease in payroll-related administrative expenses of $1,980,000. Selling,
general and administrative expenses represented nine percent of net sales in
the first quarters of 2003 and 2002, respectively.

Interest expense decreased $560,000, or 31 percent, to $1,226,000 from
$1,786,000 for the same quarter last year, primarily due to lower interest
rates.

Other income, net, decreased $535,000, or 54 percent, to $460,000 from
$995,000 for the same quarter last year. The decrease in Other income, net,
primarily resulted from an increase in losses from butter trading activities of
$472,000 over the same quarter last year.

Nestlé merger transaction expenses (discussed earlier) totaled $4,548,000
during the first quarter of 2002. Through the first quarter of 2003, the
Company has incurred $15,109,000 of Merger transaction expenses. The Company
currently estimates that it will incur total Merger transaction expenses,
including costs to be incurred to close the transactions, of approximately
$35,000,000.

The income tax provision decreased $180,000, or 24 percent, to $557,000
from $737,000 for the same quarter last year primarily due to a correspondingly
lower pre-tax income in 2003. The effective tax rate increased to 39 percent
from 36 percent for the same quarter last year due primarily to the
establishment of a valuation allowance related to certain potentially
nondeductible transaction expenses related to the Merger, partially offset by
the utilization of income tax credits.

Liquidity and Capital Resources

The Companys primary cash needs are to fund working capital requirements,
to fund capital expenditures, finance acquisitions of distributors, and to
distribute dividends to stockholders. The cash required to fund the increase in
working capital was $35,954,000 and $34,688,000 in 2003 and 2002, respectively.
Accrued payroll and employee benefits increased over the
prior year primarily due to an increase in the payment of year-end bonuses of $16,267,000 and
$7,980,000 in 2003 and 2002, respectively.

Capital expenditures were $7,361,000 and $13,985,000 in 2003 and 2002,
respectively. The Company plans to make capital expenditures totaling
approximately $47,000,000 during 2003.

The Company paid its regular fourth quarter dividend of $.06 per share of
common stock in the first quarter of 2003 and 2002. Total dividend
distributions were $2,099,000 and $2,068,000, in the first quarters
of 2003 and 2002, respectively.

The Companys primary sources of liquidity in the periods presented
consist of financing from the Companys long-term line of credit. Factors that
may affect liquidity in cash flows from operating activities consist of, but
are not limited to, increases in product ingredient costs and increases in
competitive pressures, which would result in additional promotional
expenditures.

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On July 25, 2000, the Company entered into a credit agreement with various
banks for a revolving line of credit of $240,000,000 with an expiration date of
July 25, 2005. The unused portion of the $240,000,000 revolving line of credit
was $111,500,000 at March 29, 2003. Proceeds from the long-term line of credit
were $36,400,000 and $42,200,000 in 2003 and 2002, respectively. The Company
expects to refinance the line of credit when it matures in 2005.

The Company received proceeds of $1,725,000 and $3,260,000 from the
issuance of common stock under employee stock plans in 2003 and 2002,
respectively.

As discussed earlier, the Company currently estimates that it will incur
total transaction expenses related to the Merger, including costs to be
incurred to close the Merger, of approximately $35,000,000. Through the first
quarter of 2003, the Company has incurred $15,109,000 of Merger transaction
expenses. 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 transaction expenses related to the Merger.

Known Contractual Obligations

Known contractual obligations and their related due dates at March 29,
2003 are as follows:

|                        |  |       |         |        |  |        |         |        |  |        |        |        |  |                |         |  |  |   |        |  |  |   |       |  |  |   |       | 
|----------------------- |  | ----- | ------- | ------ |  | ------ | ------- | ------ |  | ------ | ------ | ------ |  | -------------- | ------- |  |  | - | ------ |  |  | - | ----- |  |  | - | ----- | 
|Contractual Obligations |  | Total |         | Year 1 |  | Year 2 |         | Year 3 |  | Year 4 |        | Year 5 |  | Thereafter    
|                        |  |       |         |        |  |        |         |        |  |        |        |        |  |               
|                        |  |       |         |        |  |        |         |        |  |        |        |        |  | (In thousands) |         |  |  |   |        |  |  |   |       |  |  |  
|Long-term debt          |  | $     | 157,072 |        |  | $      | 2,143   |        |  | $      | 2,143  |        |  | $              | 130,643 |  |  | $ | 8,810  |  |  | $ | 6,666 |  |  | $ | 6,667 | 
|Operating leases        |  |       | 31,303  |        |  |        | 11,273  |        |  |        | 6,634  |        |  |                | 4,792   |  |  |   | 3,410  |  |  |   | 1,877 |  |  |   | 3,317 | 
|Purchase obligations(1) |  |       | 99,170  |        |  |        | 91,071  |        |  |        | 8,034  |        |  |                | 49      |  |  |   | 13     |  |  |   | 3     |  |  |   |       | 
|                        |  |       |         |        |  |        |         |        |  |        |        |        |  |                |         |  |  |   |        |  |  |   |       |  |  |   |       | 
|Total                   |  | $     | 287,545 |        |  | $      | 104,487 |        |  | $      | 16,811 |        |  | $              | 135,484 |  |  | $ | 12,233 |  |  | $ | 8,546 |  |  | $ | 9,984 | 
|                        |  |       |         |        |  |        |         |        |  |        |        |        |  |                |         |  |  |   |        |  |  |   |       |  |  |   |       | 

The Company does not have any capital lease obligations or other long-term
liabilities.



|(1) |  | The Companys purchase obligations are primarily contracts to purchase
ingredients used in the manufacture of the Companys products. These
contractual commitments are not in excess of expected manufacturing
requirements over the next 15 months.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.

This Item 3 should be read in conjunction with Item 7A of the Companys
Annual Report on Form 10-K for the fiscal year ended December 28, 2002 and in
conjunction with Item 2 above.

Under current federal and state regulations and industry practice, the
price of cream, a primary ingredient in ice cream, is linked to the price of
butter. 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. Since the Companys
investment in butter does not qualify as a hedge for accounting purposes, it
marks to market its investment at the end of each quarter and records any
resulting gain or loss in Other income, net. Other income, net, includes
$787,000 and $315,000, of losses from butter trading activities for the
thirteen weeks ended March 29, 2003 and March 30, 2002, respectively.

During the first quarter of 2003, the decrease in dairy raw material costs
accounted for a $4,300,000 pre-tax benefit (excluding the results of butter
trading activities) as compared to same quarter last year.

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ITEM 4. CONTROLS AND PROCEDURES.



|(a) |  | Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer,
we evaluated our disclosure controls and procedures, as such term is
defined under Rule 13a-14(c) promulgated under the Securities Exchange Act
of 1934, as amended (the Exchange Act), within the 90 day period prior
to the filing date of this report. Based on their evaluation, our
principal executive officer and principal financial officer concluded that
our disclosure controls and procedures were effective as of that date.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(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.                                                                                                                                                                                                                                                                               

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PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

See the description of the Merger and the FTCs decision to authorize its
staff to seek a preliminary injunction under Recent Events in PART I, ITEM 2.
To date, the Company is not aware of a complaint having been filed by the FTC
seeking to enjoin the Merger.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

A Special Meeting of Stockholders was held in Oakland, California on March
20, 2003. A total of 26,577,035 shares (75.9 percent) of the outstanding
common shares were represented at the meeting in person or by proxy and were
voted as follows on the proposal to approve the Agreement and Plan of Merger
and Contribution (the Merger Agreement) among the Company, Nestlé Ice Cream
Company, and Nestlé Holdings, Inc. pursuant to which Nestlés U.S. frozen
dessert business would be combined with that of the Companys:

|                 |                          |  |              |            | 
|---------------- | ------------------------ |  | ------------ | ---------- | 
|                 |                          |  | Shares Voted
|                 |                          |  |             
|For              |                          |  | 26,531,916   |           
|Against          |                          |  | 28,815       |           
|Abstain          |                          |  | 16,304       |           
|Broker non-votes |                          |  | 0            |           
|                 |                          |  |              |           
|                 | Total shares represented |  |              | 26,577,035 | 
|                 |                          |  |              |           




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.



|(a) |  | The following exhibits are filed herewith:
|--- |  | ------------------------------------------

|            |  |                                                                                                                                                 |  |  |  | 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit No. |  | Description                                                                                                                                     |  |  |  | 
|            |  |                                                                                                                                                 |  |  |  | 
|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.



|(b) |  | Reports on Form 8-K and Form 8-K/A:
|--- |  | -----------------------------------

A Current Report on Form 8-K/A was filed on February 4, 2003 to amend the
Current Report on Form 8-K filed on November 5, 2002, which Form 8-K
incorporated by reference into the filing of the Registration Statement on Form
S-4, the Companys financial statements that gave effect to the adoption of the
provisions of EITF 01-9 and the transition provisions of paragraph 61 of SFAS
No. 142. The Current Report on Form 8-K/A included additional information
regarding revenue and expense line items included in Item 7-Managements
Discussion and Analysis of Financial Condition and Results of Operations.

A Current Report on Form 8-K was filed on February 13, 2003 reporting that
the parties to the Agreement and Plan of Merger and Contribution, dated as of
June 16, 2002 and amended as of October 25, 2002 (Merger Agreement), by and
among Dreyers Grand Ice Cream, Inc. (Dreyers); New December, Inc., December
Merger Sub, Inc.; Nestlé Holdings, Inc. and NICC Holdings, Inc. entered into a
second amendment to the Merger Agreement to change the name of New December
to New Dreyers.

A Current Report on Form 8-K was filed on February 25, 2003 reporting that
the Company and Nestlé Holdings, Inc. made a commitment not to close the
proposed transactions between the parties without first giving 20 days written
notice

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to the Federal Trade Commission (FTC) of an intent to close, and that in no
event will the parties give such notice to the FTC in a manner that would
permit the transactions to close prior to March 31, 2003.

A Current Report on Form 8-K was filed on February 26, 2003 reporting that
the Company issued a press release announcing its fourth quarter and fiscal
2002 results.

A Current Report on Form 8-K was filed on March 5, 2003 reporting that the
Company, Nestlé Ice Cream Company, LLC (NICC), a subsidiary of Nestlé Holdings,
Inc. (Nestlé), and Integrated Brands, Inc., a subsidiary of CoolBrands
International Inc., entered into an agreement for the sale and purchase of
certain ice cream and distribution assets, contingent upon the completion of
the proposed transactions among the Company, NICC and Nestlé. On March 4, 2003,
the Company and Nestlé made a joint statement in response to the United States
FTCs announcement that it has authorized the initiation of litigation seeking
an injunction against the Companys proposed transaction with Nestlé.

A Current Report on Form 8-K was filed on March 20, 2003 reporting that
the Companys stockholders had voted to approve the proposed transaction with
Nestlé Holdings, Inc. (Nestlé) pursuant to which Nestlés U.S. frozen dessert
business would be combined with Dreyers.

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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 13, 2003 |  | By:                            |  | /s/ Timothy F. Kahn                                                                                                    
|                    |  |                                |  |                                                                                                                        
|                    |  |                                |  | Timothy F. Kahn
Vice President - Finance and Administration   and
Chief Financial Officer (Principal Financial Officer)

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CERTIFICATIONS

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, T. Gary Rogers, certify that:

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
registrant 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 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;
and

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
Dated: May 13, 2003

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CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Timothy F. Kahn, certify that:

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
registrant 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 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;
and

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/ Timothy F. Kahn
Timothy F. Kahn
Vice President - Finance and Administration and
Chief Financial Officer
Dated: May 13, 2003

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DREYERS GRAND ICE CREAM, INC.




INDEX OF EXHIBITS

|            |  |                                                                                                                                                 |  |  |  | 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit No. |  | Description                                                                                                                                     |  |  |  | 
|            |  |                                                                                                                                                 |  |  |  | 
|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.

27