##### 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 September 28, 2002

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

Commission file number 0-14190

DREYERS GRAND ICE CREAM, INC.

(Exact name of registrant as specified in its charter)


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

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

(510) 652-8187
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [   ]

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

|                           |  |                    |            | 
|-------------------------- |  | ------------------ | ---------- | 
|                           |  | Shares Outstanding
|                           |  | November 11, 2002 
|                           |  |                   
|Common stock, $1 par value |  |                    | 34,911,000 | 





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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 6.    EXHIBITS AND REPORTS ON FORM 8-K.                                                                  
|SIGNATURE                    
|CERTIFICATIONS               
|INDEX OF EXHIBITS            
|Exhibit 10.1                 
|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

|                                           |  |                                                                                                                                                            |         |                |   |               |         |         |   | 
|------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | -------------- | - | ------------- | ------- | ------- | - | 
|                                           |  |                                                                                                                                                            |         | Sept. 28, 2002 |   | Dec. 29, 2001
|                                           |  |                                                                                                                                                            |         |                |   |              
|($ in thousands, except per share amounts) |  | (Unaudited)                                                                                                                                                |         |                |   |              
|                                          
|Assets                                     |  |                                                                                                                                                            |         |                |   |               |         |        
|                                          
|                                          
|                                          
|                                          
|Current Assets:                            |  |                                                                                                                                                            |         |                |   |               |         |        
|                                          
|                                          
|                                          
|                                          
|                                           |  | Cash and cash equivalents                                                                                                                                  | $       | 1,859          |   |               | $       | 1,650   |  
|                                          
|                                          
|                                          
|                                          
|                                           |  | Trade accounts receivable, net of allowance for doubtful accounts of

 $1,584 in 2002 and $1,024 in 2001                                                   |         | 116,640        |   |               |         | 89,721  |  
|                                          
|                                          
|                                          
|                                          
|                                           |  | Other accounts receivable                                                                                                                                  |         | 14,384         |   |               |         | 16,116  |  
|                                          
|                                          
|                                          
|                                          
|                                           |  | Inventories                                                                                                                                                |         | 85,533         |   |               |         | 81,298  |  
|                                          
|                                          
|                                          
|                                          
|                                           |  | Deferred income taxes                                                                                                                                      |         | 1,698          |   |               |         | 3,547   |  
|                                          
|                                          
|                                          
|                                          
|                                           |  | Prepaid expenses and other                                                                                                                                 |         | 17,253         |   |               |         | 8,849   |  
|                                           |  |                                                                                                                                                            |         |                |   |               |         |         |  
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                           |  | Total current assets                                                                                                                                       |         | 237,367        |   |               |         | 201,181 |  
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|Property, plant and equipment, net         |  |                                                                                                                                                            | 210,665 |                |   |               | 198,565 |        
|                                          
|                                          
|                                          
|                                          
|Goodwill                                   |  |                                                                                                                                                            | 84,701  |                |   |               | 39,114  |        
|                                          
|                                          
|                                          
|                                          
|Other intangibles, net                     |  |                                                                                                                                                            | 1,849   |                |   |               | 55,354  |        
|                                          
|                                          
|                                          
|                                          
|Other assets                               |  |                                                                                                                                                            | 3,364   |                |   |               | 4,475   |        
|                                           |  |                                                                                                                                                            |         |                |   |               |         |         |  
|Total assets                               |  | $                                                                                                                                                          | 537,946 |                |   | $             | 498,689 |        
|                                           |  |                                                                                                                                                            |         |                |   |               |         |         |  
|Liabilities and Stockholders Equity       |  |                                                                                                                                                            |         |                |   |               |         |        
|                                          
|                                          
|                                          
|                                          
|Current Liabilities:                       |  |                                                                                                                                                            |         |                |   |               |         |        
|                                          
|                                          
|                                          
|                                          
|                                           |  | Accounts payable and accrued liabilities                                                                                                                   | $       | 109,673        |   |               | $       | 91,794  |  
|                                          
|                                          
|                                          
|                                          
|                                           |  | Accrued payroll and employee benefits                                                                                                                      |         | 32,194         |   |               |         | 25,369  |  
|                                          
|                                          
|                                          
|                                          
|                                           |  | Current portion of long-term debt                                                                                                                          |         | 2,143          |   |               |         |         |  
|                                           |  |                                                                                                                                                            |         |                |   |               |         |         |  
|                                           |  | Total current liabilities                                                                                                                                  |         | 144,010        |   |               |         | 117,163 |  
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|Long-term debt, less current portion       |  |                                                                                                                                                            | 146,429 |                |   |               | 148,671 |        
|                                          
|                                          
|                                          
|                                          
|Deferred income taxes                      |  |                                                                                                                                                            | 14,468  |                |   |               | 24,490  |        
|                                           |  |                                                                                                                                                            |         |                |   |               |         |         |  
|Total liabilities                          |  |                                                                                                                                                            | 304,907 |                |   |               | 290,324 |        
|                                           |  |                                                                                                                                                            |         |                |   |               |         |         |  
|Commitments and contingencies              |  |                                                                                                                                                            |         |                |   |               |         |        
|                                          
|                                          
|                                          
|                                          
|                                          
|Stockholders Equity:                      |  |                                                                                                                                                            |         |                |   |               |         |        
|                                          
|                                          
|                                          
|                                          
|                                           |  | Preferred stock, $1 par value - 10,000,000 shares authorized;
no shares issued
 or outstanding in 2002 and 2001                                            |         |                |   |               |         |         |  
|                                          
|                                          
|                                          
|                                          
|                                           |  | Common stock, $1 par value - 60,000,000 shares authorized;
34,883,000
 shares and 34,461,000 shares issued and outstanding
in 2002 and 2001,
 respectively |         | 34,883         |   |               |         | 34,461  |  
|                                          
|                                          
|                                          
|                                          
|                                           |  | Capital in excess of par                                                                                                                                   |         | 166,962        |   |               |         | 160,103 |  
|                                          
|                                          
|                                          
|                                          
|                                           |  | Notes receivable from stockholders                                                                                                                         |         | (2,228         | ) |               |         | (2,546  | )
|                                          
|                                          
|                                          
|                                          
|                                           |  | Retained earnings                                                                                                                                          |         | 33,422         |   |               |         | 16,347  |  
|                                           |  |                                                                                                                                                            |         |                |   |               |         |         |  
|Total stockholders equity                 |  |                                                                                                                                                            | 233,039 |                |   |               | 208,365 |        
|                                           |  |                                                                                                                                                            |         |                |   |               |         |         |  
|Total liabilities and stockholders equity |  | $                                                                                                                                                          | 537,946 |                |   | $             | 498,689 |        
|                                           |  |                                                                                                                                                            |         |                |   |               |         |         |  

See accompanying Notes to Consolidated Financial Statements.

2



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##### Table of Contents



DREYERS GRAND ICE CREAM, INC.

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)


|                                                 |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   |         |         |   | 
|------------------------------------------------ | ------------------------------------ | -------------- | ------- | -------------------- | - | ----------------------- | ------- | -------------- | - | - | --------- | ------- | - | - | ------- | ------- | - | 
|                                                 |                                      |                |         | Thirteen Weeks Ended |   | Thirty-nine Weeks Ended
|                                                 |                                      |                |         |                      |   |                        
|($ in thousands, except per share amounts)       |                                      | Sept. 28, 2002 |         | Sept. 29, 2001       |   | Sept. 28, 2002          |         | Sept. 29, 2001
|                                                 |                                      |                |         |                      |   |                         |         |               
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|Net sales                                        |                                      | $              | 383,598 |                      |   | $                       | 361,636 |                |   | $ | 1,050,823 |         |   | $ | 936,473 |        
|                                                 |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   |         |        
|Costs and expenses:                              |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   |         |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Cost of goods sold                   |                |         | 327,624              |   |                         |         | 321,020        |   |   |           | 912,650 |   |   |         | 831,136 |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Selling, general and administrative  |                |         | 35,632               |   |                         |         | 28,884         |   |   |           | 90,560  |   |   |         | 84,204  |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Interest, net of amounts capitalized |                |         | 1,947                |   |                         |         | 2,814          |   |   |           | 5,835   |   |   |         | 9,092   |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Other income, net                    |                |         | (575                 | ) |                         |         | (1,029         | ) |   |           | (386    | ) |   |         | (2,198  | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Merger transaction expenses          |                |         | 2,823                |   |                         |         |                |   |   |           | 5,711   |   |   |         |         |  
|                                                 |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   |         |        
|                                                 |                                      |                | 367,451 |                      |   |                         | 351,689 |                |   |   | 1,014,370 |         |   |   | 922,234 |        
|                                                 |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   |         |        
|Income before income tax provision               |                                      |                | 16,147  |                      |   |                         | 9,947   |                |   |   | 36,453    |         |   |   | 14,239  |        
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
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|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|Income tax provision                             |                                      |                | 5,813   |                      |   |                         | 3,899   |                |   |   | 13,123    |         |   |   | 5,582   |        
|                                                 |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   |         |        
|Net income                                       |                                      |                | 10,334  |                      |   |                         | 6,048   |                |   |   | 23,330    |         |   |   | 8,657   |        
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|Accretion of preferred stock to redemption
value |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   | 212     |        
|                                                
|                                                
|                                                
|                                                
|Preferred stock dividends                        |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   | 348     |        
|                                                 |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   |         |        
|Net income available to common stockholders      |                                      | $              | 10,334  |                      |   | $                       | 6,048   |                |   | $ | 23,330    |         |   | $ | 8,097   |        
|                                                 |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   |         |        
|Net income per common share:                     |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   |         |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Basic                                |                | $       | .30                  |   |                         | $       | .18            |   |   | $         | .67     |   |   | $       | .26     |  
|                                                 |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   |         |        
|                                                 | Diluted                              |                | $       | .27                  |   |                         | $       | .17            |   |   | $         | .62     |   |   | $       | .24     |  
|                                                 |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   |         |        
|Dividends per common share                       |                                      | $              | .06     |                      |   | $                       | .06     |                |   | $ | .18       |         |   | $ | .18     |        
|                                                 |                                      |                |         |                      |   |                         |         |                |   |   |           |         |   |   |         |        

See accompanying Notes to Consolidated Financial Statements.

3



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##### Table of Contents



DREYERS GRAND ICE CREAM, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

(Unaudited)


|                               |                                                                                  |        |              |        |            |               |            |              |          |          |         |        |   |   |        |      |   |   |        |        |   |   |         |         |  
|------------------------------ | -------------------------------------------------------------------------------- | ------ | ------------ | ------ | ---------- | ------------- | ---------- | ------------ | -------- | -------- | ------- | ------ | - | - | ------ | ---- | - | - | ------ | ------ | - | - | ------- | ------- | -
|                               |                                                                                  |        |              |        |            |               |            |              |          |          |         |        |   |   | Notes  |      |   |   |        |        |   |   |        
|                               |                                                                                  |        | Common Stock |        |            |               | Receivable |              |          |          |         |        |  
|                               |                                                                                  |        |              |        | Capital in |               | From       |              | Retained |          |         |        |  
|(In thousands)                 |                                                                                  | Shares |              | Amount |            | Excess of Par |            | Stockholders |          | Earnings |         | Total 
|                               |                                                                                  |        |              |        |            |               |            |              |          |          |         |       
|Balances at December 30, 2000  |                                                                                  |        | 28,268       |        |            | $             | 28,268     |              |          | $        | 58,396  |        |   | $ | (2,284 | )    |   | $ | 15,992 |        |   | $ | 100,372 |        
|                              
|                              
|                              
|                              
|                               | Net income                                                                       |        |              |        |            |               |            |              |          |          |         |        |   |   |        |      |   |   |        | 8,657  |   |   |         | 8,657   |  
|                              
|                              
|                              
|                              
|                               | Accretion of preferred stock to
redemption value                                 |        |              |        |            |               |            |              |          |          |         |        |   |   |        |      |   |   |        | (212   | ) |   |         | (212    | )
|                              
|                              
|                              
|                              
|                               | Preferred stock dividends declared                                               |        |              |        |            |               |            |              |          |          |         |        |   |   |        |      |   |   |        | (348   | ) |   |         | (348    | )
|                              
|                              
|                              
|                              
|                               | Common stock dividends declared                                                  |        |              |        |            |               |            |              |          |          |         |        |   |   |        |      |   |   |        | (5,845 | ) |   |         | (5,845  | )
|                              
|                              
|                              
|                              
|                               | Conversion of mandatorily
redeemable convertible preferred
stock to common stock |        |              | 5,800  |            |               |            | 5,800        |          |          |         | 94,952 |   |   |        |      |   |   |        |        |   |   |         | 100,752 |  
|                              
|                              
|                              
|                              
|                               | Issuance of common stock under
employee stock plans, net                         |        |              | 480    |            |               |            | 480          |          |          |         | 7,739  |   |   |        | (819 | ) |   |        |        |   |   |         | 7,400   |  
|                              
|                              
|                              
|                              
|                               | Repurchases and retirements of
common stock                                      |        |              | (82    | )          |               |            | (82          | )        |          |         | (2,249 | ) |   |        |      |   |   |        |        |   |   |         | (2,331  | )
|                               |                                                                                  |        |              |        |            |               |            |              |          |          |         |        |   |   |        |      |   |   |        |        |   |   |         |        
|Balances at September 29, 2001 |                                                                                  |        | 34,466       |        |            | $             | 34,466     |              |          | $        | 158,838 |        |   | $ | (3,103 | )    |   | $ | 18,244 |        |   | $ | 208,445 |        
|                               |                                                                                  |        |              |        |            |               |            |              |          |          |         |        |   |   |        |      |   |   |        |        |   |   |         |        
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|Balances at December 29, 2001  |                                                                                  |        | 34,461       |        |            | $             | 34,461     |              |          | $        | 160,103 |        |   | $ | (2,546 | )    |   | $ | 16,347 |        |   | $ | 208,365 |        
|                              
|                              
|                              
|                              
|                               | Net income                                                                       |        |              |        |            |               |            |              |          |          |         |        |   |   |        |      |   |   |        | 23,330 |   |   |         | 23,330  |  
|                              
|                              
|                              
|                              
|                               | Common stock dividends declared                                                  |        |              |        |            |               |            |              |          |          |         |        |   |   |        |      |   |   |        | (6,255 | ) |   |         | (6,255  | )
|                              
|                              
|                              
|                              
|                               | Issuance of common stock under
employee stock plans, net                         |        |              | 477    |            |               |            | 477          |          |          |         | 8,952  |   |   |        | (78  | ) |   |        |        |   |   |         | 9,351   |  
|                              
|                              
|                              
|                              
|                               | Repurchases and retirements of
common stock                                      |        |              | (55    | )          |               |            | (55          | )        |          |         | (2,093 | ) |   |        | 396  |   |   |        |        |   |   |         | (1,752  | )
|                               |                                                                                  |        |              |        |            |               |            |              |          |          |         |        |   |   |        |      |   |   |        |        |   |   |         |        
|Balances at September 28, 2002 |                                                                                  |        | 34,883       |        |            | $             | 34,883     |              |          | $        | 166,962 |        |   | $ | (2,228 | )    |   | $ | 33,422 |        |   | $ | 233,039 |        
|                               |                                                                                  |        |              |        |            |               |            |              |          |          |         |        |   |   |        |      |   |   |        |        |   |   |         |        

See accompanying Notes to
Consolidated Financial Statements.

4



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##### Table of Contents



DREYERS GRAND ICE CREAM, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)


|                                                                     |                                                                      |                                                             |                                          |                |                         |         |         |         |        |         |  
|-------------------------------------------------------------------- | -------------------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------- | -------------- | ----------------------- | ------- | ------- | ------- | ------ | ------- | -
|                                                                     |                                                                      |                                                             |                                          |                | Thirty-nine Weeks Ended
|                                                                     |                                                                      |                                                             |                                          |                |                        
|($ in thousands)                                                     |                                                                      | Sept. 28, 2002                                              |                                          | Sept. 29, 2001
|                                                                     |                                                                      |                                                             |                                          |               
|Cash flows from operating activities:                                |                                                                      |                                                             |                                          |                |                         |         |         |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Net income                                                           |                                                             | $                                        | 23,330         |                         |         | $       | 8,657   |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Adjustments to reconcile net income to cash flows from operations:   |                                                             |                                          |                |                         |         |         |         |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                      | Depreciation and amortization                               |                                          |                | 26,067                  |         |         |         | 26,940 |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                      | Deferred income taxes                                       |                                          |                | 1,993                   |         |         |         | 1,029  |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                      | Impairment of investment in Momentx Corporation             |                                          |                | 1,093                   |         |         |         |        |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                      | Changes in assets and liabilities, net of amounts acquired: |                                          |                |                         |         |         |         |        |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                      |                                                             | Trade accounts receivable                |                |                         | (26,919 | )       |         |        | (52,241 | )
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                      |                                                             | Other accounts receivable                |                |                         | 1,732   |         |         |        | (1,957  | )
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                      |                                                             | Inventories                              |                |                         | (4,235  | )       |         |        | (12,688 | )
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                      |                                                             | Prepaid expenses and other               |                |                         | (8,404  | )       |         |        | 219     |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                      |                                                             | Accounts payable and accrued liabilities |                |                         | 17,854  |         |         |        | 42,353  |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                      |                                                             | Accrued payroll and employee benefits    |                |                         | 6,825   |         |         |        | (424    | )
|                                                                     |                                                                      |                                                             |                                          |                |                         |         |         |         |       
|                                                                     |                                                                      |                                                             | 39,336                                   |                |                         |         | 11,888  |        
|                                                                     |                                                                      |                                                             |                                          |                |                         |         |         |         |       
|Cash flows from investing activities:                                |                                                                      |                                                             |                                          |                |                         |         |         |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Acquisition of property, plant and equipment                         |                                                             |                                          | (37,927        | )                       |         |         | (29,218 | )     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Retirement of property, plant and equipment                          |                                                             |                                          | 536            |                         |         |         | 1,662   |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Purchase of independent distributors and other intangibles           |                                                             |                                          | (2,757         | )                       |         |         | (5,646  | )     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Increase in other assets                                             |                                                             |                                          | (249           | )                       |         |         | 513     |       
|                                                                     |                                                                      |                                                             |                                          |                |                         |         |         |         |       
|                                                                     |                                                                      |                                                             | (40,397                                  | )              |                         |         | (32,689 | )      
|                                                                     |                                                                      |                                                             |                                          |                |                         |         |         |         |       
|Cash flows from financing activities:                                |                                                                      |                                                             |                                          |                |                         |         |         |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Net (repayments of) proceeds from long-term debt                     |                                                             |                                          | (99            | )                       |         |         | 42,700  |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Repayments of long-term debt                                         |                                                             |                                          |                |                         |         |         | (22,186 | )     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Issuance of common stock under employee stock plans, net             |                                                             |                                          | 9,351          |                         |         |         | 7,400   |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Repurchases and retirements of common stock                          |                                                             |                                          | (1,752         | )                       |         |         | (2,331  | )     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Cash dividends paid                                                  |                                                             |                                          | (6,230         | )                       |         |         | (4,974  | )     
|                                                                     |                                                                      |                                                             |                                          |                |                         |         |         |         |       
|                                                                     |                                                                      |                                                             | 1,270                                    |                |                         |         | 20,609  |        
|                                                                     |                                                                      |                                                             |                                          |                |                         |         |         |         |       
|Increase (decrease) in cash and cash equivalents                     |                                                                      |                                                             | 209                                      |                |                         |         | (192    | )      
|                                                                    
|Cash and cash equivalents, beginning of period                       |                                                                      |                                                             | 1,650                                    |                |                         |         | 2,721   |        
|                                                                     |                                                                      |                                                             |                                          |                |                         |         |         |         |       
|Cash and cash equivalents, end of period                             |                                                                      | $                                                           | 1,859                                    |                |                         | $       | 2,529   |        
|                                                                     |                                                                      |                                                             |                                          |                |                         |         |         |         |       
|Supplemental cash flow information:                                  |                                                                      |                                                             |                                          |                |                         |         |         |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Cash paid during the period for:                                     |                                                             |                                          |                |                         |         |         |         |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                      |                                                             | Interest (net of amounts capitalized)    |                | $                       | 5,511   |         |         | $      | 8,848   |  
|                                                                     |                                                                      |                                                             |                                          |                |                         |         |         |         |       
|                                                                     |                                                                      |                                                             | Income taxes (net of refunds)            |                | $                       | 6,653   |         |         | $      | 261     |  
|                                                                     |                                                                      |                                                             |                                          |                |                         |         |         |         |       
|Supplemental schedule of noncash investing and financing activities: |                                                                      |                                                             |                                          |                |                         |         |         |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Conversion of redeemable convertible preferred stock to common stock |                                                             |                                          |                |                         |         | $       | 100,752 |       
|                                                                     |                                                                      |                                                             |                                          |                |                         |         |         |         |       

See accompanying Notes to Consolidated Financial Statements.

5



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##### Table of Contents



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

NOTE 2  Significant Accounting Assumptions and Estimates

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

NOTE 3  Merger and Contribution Agreement

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

6



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##### Table of Contents



If the transactions contemplated by the Merger Agreement are completed,
each non-Nestlé stockholder who holds shares of the Companys common stock at
the effective time of the merger will receive one share of class A callable
puttable common stock of New Dreyers. Under the amended and restated
certificate of incorporation of New Dreyers, subject to the terms set forth
therein, the holders of New Dreyers class A callable puttable stock will be
permitted to sell (put) some or all of their shares to New Dreyers for $83.00
per share during two periods, the first beginning on December 1, 2005 and
ending on January 13, 2006, and the second beginning on April 3, 2006 and
ending on May 12, 2006. New Dreyers class A callable puttable common stock
will also be subject to redemption (call) by New Dreyers at the request of
Nestlé at $88.00 per share during a six-month period beginning on January 1,
2007. For the contribution of its ownership interest of NICC Holdings, Nestlé will
receive approximately 55 million shares of class B common stock of New
Dreyers. The class B common shares are similar to the class A common shares,
except that they lack the call and put features. The shares of the Companys
common stock currently held by Nestlé will be converted into the same number of
shares of class B common stock of New Dreyers. As of September 28, 2002,
Nestlé owned approximately 23 percent of the Companys common stock on a
diluted basis. If the transactions contemplated by the Merger Agreement are
completed, Nestlé will own approximately 67 percent of the diluted common stock
of New Dreyers.

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



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

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

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



| |  | 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 transactions
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, and the specified waiting
periods have expired or have been terminated. The Company and Nestlé
filed notification and report forms under the HSR Act with the FTC and
the Antitrust Division on July 3, 2002. On August 2, 2002, the FTC
made a request for additional information and documentary material,
thereby extending the statutory waiting period until 30 days after the
Company and Nestlé each substantially comply with this request, unless
the waiting period is terminated earlier or extended with the consent
of the Company and Nestlé. The Company and Nestlé are continuing to
work closely with the FTC staff on its request.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | On November 6, 2002, New
Dreyers filed with the SEC a Registration Statement on Form
S-4 which included a proxy statement/prospectus pertaining to the
transactions contemplated by the Merger Agreement. The SEC may choose to review
the filing, and if it does so, it will typically provide comments within
30 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| 
| |  | If the registration statement is declared effective by the SEC, and if
the transactions contemplated by the Merger Agreement are completed,
then all shares of New Dreyers class A callable puttable common stock
received by the Companys stockholders in the merger will be freely
transferable, except that shares of New Dreyers class A callable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

7



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

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

NOTE 4  Inventories

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

|               |  |                |        |               |  |   |        | 
|-------------- |  | -------------- | ------ | ------------- |  | - | ------ | 
|(In thousands) |  | Sept. 28, 2002 |        | Dec. 29, 2001
|               |  |                |        |              
|Raw materials  |  | $              | 9,173  |               |  | $ | 9,099  | 
|              
|              
|              
|              
|Finished goods |  |                | 76,360 |               |  |   | 72,199 | 
|               |  |                |        |               |  |   |        | 
|               |  | $              | 85,533 |               |  | $ | 81,298 | 
|               |  |                |        |               |  |   |        | 

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 mitigate the effects of butter price volatility, the
Company periodically purchases butter or butter futures contracts with the
intent of reselling or settling its positions in order to lower its cream cost
and overall exposure to the volatility of this market. The Company has elected
to not treat its investment in butter as a hedge for accounting purposes.
Consequently, it marks to market its investment at the end of each quarter
and records any resulting gain or loss in other income, net. The Company
typically holds its butter investments for periods of up to four months.

Investments in butter, included in prepaid expenses and other at September
28, 2002 consisted of the following:

|                         |  |                |       | 
|------------------------ |  | -------------- | ----- | 
|(In thousands)           |  | Sept. 28, 2002
|                         |  |               
|Butter                   |  | $              | 3,501 | 
|                        
|                        
|                        
|                        
|Butter futures contracts |  |                | 155   | 
|                         |  |                |       | 
|                         |  | $              | 3,656 | 
|                         |  |                |       | 

During the thirteen and thirty-nine weeks ended September 28, 2002, the
Company recorded losses of $746,000 and $2,065,000, respectively. During 2001,
the Company made no investments in butter.

NOTE 6  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

8



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##### Table of Contents



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

|                                                    |         |                |                      |                |                         |                |        |                |  |   |        |     |  |   |        |     | 
|--------------------------------------------------- | ------- | -------------- | -------------------- | -------------- | ----------------------- | -------------- | ------ | -------------- |  | - | ------ | --- |  | - | ------ | --- | 
|                                                    |         |                | Thirteen Weeks Ended |                | Thirty-nine Weeks Ended
|                                                    |         |                |                      |                |                        
|(In thousands, except per share amounts)            |         | Sept. 28, 2002 |                      | Sept. 29, 2001 |                         | Sept. 28, 2002 |        | Sept. 29, 2001
|                                                    |         |                |                      |                |                         |                |        |               
|Net income available to common
stockholders-basic   |         | $              | 10,334               |                |                         | $              | 6,048  |                |  | $ | 23,330 |     |  | $ | 8,097  |    
|                                                   
|                                                   
|                                                   
|                                                   
|Add: preferred dividends and accretion              |         |                |                      |                |                         |                |        |                |  |   |        |     |  |   | 560    |    
|                                                    |         |                |                      |                |                         |                |        |                |  |   |        |     |  |   |        |    
|Net income available to common
stockholders-diluted |         | $              | 10,334               |                |                         | $              | 6,048  |                |  | $ | 23,330 |     |  | $ | 8,657  |    
|                                                    |         |                |                      |                |                         |                |        |                |  |   |        |     |  |   |        |    
|                                                   
|Weighted-average shares-basic                       |         |                | 34,814               |                |                         |                | 34,420 |                |  |   | 34,670 |     |  |   | 30,688 |    
|                                                   
|                                                   
|                                                   
|                                                   
|Dilutive effect of options                          |         |                | 3,358                |                |                         |                | 1,801  |                |  |   | 3,020  |     |  |   | 1,897  |    
|                                                   
|                                                   
|                                                   
|                                                   
|Dilutive effect of preferred stock                  |         |                |                      |                |                         |                |        |                |  |   |        |     |  |   | 3,633  |    
|                                                    |         |                |                      |                |                         |                |        |                |  |   |        |     |  |   |        |    
|Weighted-average shares-diluted                     |         |                | 38,172               |                |                         |                | 36,221 |                |  |   | 37,690 |     |  |   | 36,218 |    
|                                                    |         |                |                      |                |                         |                |        |                |  |   |        |     |  |   |        |    
|                                                   
|Net income per common share:                        |         |                |                      |                |                         |                |        |                |  |   |        |     |  |   |        |    
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Basic   |                | $                    | .30            |                         |                | $      | .18            |  |   | $      | .67 |  |   | $      | .26 | 
|                                                    |         |                |                      |                |                         |                |        |                |  |   |        |     |  |   |        |    
|                                                    | Diluted |                | $                    | .27            |                         |                | $      | .17            |  |   | $      | .62 |  |   | $      | .24 | 
|                                                    |         |                |                      |                |                         |                |        |                |  |   |        |     |  |   |        |    

Each outstanding and unvested option to purchase the Companys common
stock under the Companys existing stock option plans became fully vested on
June 14, 2002, the date that the Companys board of directors approved the
Merger Agreement and the transactions contemplated by the Merger Agreement
(Note 3). In connection with the execution of the Merger Agreement, certain
executive officers 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 are effective if and when the transactions
contemplated by the Merger Agreement are completed. Under the Merger
Agreement, the Company can have no more than 41,393,348 outstanding or issuable
shares of common stock if and when the transactions contemplated by the Merger
Agreement are completed. This total includes shares issuable upon exercise of
options, whether vested or unvested.

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 and thirty-nine weeks ended September 28, 2002.
Potentially dilutive securities, stated in absolute equivalent shares of common
stock, consisted of 753,000 stock options during the thirteen and thirty-nine
weeks ended September 29, 2001.

NOTE 7  Adoption of New Accounting Pronouncements

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

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

The Company adopted EITF 01-9 at the beginning of fiscal 2002. For the
thirteen and thirty-nine weeks ended September 28, 2002, the Company presented
the expenses described above of $65,881,000 and $176,589,000, respectively, as
a reduction of net sales in accordance with this pronouncement. For the
thirteen and thirty-nine weeks ended September 29, 2001, the Company
retroactively reclassified expenses of $58,274,000 and $140,300,000,

9



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##### Table of Contents



respectively. The retroactive reclassification of these expenses resulted in a
decrease in total sales and gross profit, along with a corresponding decrease
in selling, general and administrative expenses, with no effect on net income
as previously reported.

Accounting for Goodwill and Other Intangible Assets

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

The
following table reconciles reported net income available to common
stockholders and the related per
common share amounts to the corresponding adjusted net income and related per
common share amounts. Adjusted
net income and net income per common share amounts reflecting the exclusion of
goodwill amortization of $655,000 ($1,100,000 net of tax of $445,000)
and $1,942,000
($3,193,000 net of tax of $1,251,000), respectively, for the thirteen and thirty-nine
weeks ended September 29, 2001, respectively, follow:

|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |     | 
|---------------------------------------- | --------------------------------- | -------------- | -------------------- | -------------- | ----------------------- | -------------- | ----- | -------------- |  | - | ------ | --- |  | - | ------ | --- | 
|                                         |                                   |                | Thirteen Weeks Ended |                | Thirty-nine Weeks Ended
|                                         |                                   |                |                      |                |                        
|(In thousands, except per share amounts) |                                   | Sept. 28, 2002 |                      | Sept. 29, 2001 |                         | Sept. 28, 2002 |       | Sept. 29, 2001
|                                         |                                   |                |                      |                |                         |                |       |               
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|                                        
|                                        
|                                        
|                                        
|As reported                              |                                   | $              | 10,334               |                |                         | $              | 6,048 |                |  | $ | 23,330 |     |  | $ | 8,097  |    
|                                        
|                                        
|                                        
|                                        
|Goodwill amortization, net of tax        |                                   |                |                      |                |                         |                | 655   |                |  |   |        |     |  |   | 1,942  |    
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|As adjusted                              |                                   | $              | 10,334               |                |                         | $              | 6,703 |                |  | $ | 23,330 |     |  | $ | 10,039 |    
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|Per common share:                        |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|                                        
|                                        
|                                        
|                                        
|                                         | As reported-basic                 |                | $                    | .30            |                         |                | $     | .18            |  |   | $      | .67 |  |   | $      | .26 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Goodwill amortization, net of tax |                |                      |                |                         |                |       | .02            |  |   |        |     |  |   |        | .06 | 
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|                                         | As adjusted-basic                 |                | $                    | .30            |                         |                | $     | .20            |  |   | $      | .67 |  |   | $      | .32 | 
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|                                         | As reported-diluted               |                | $                    | .27            |                         |                | $     | .17            |  |   | $      | .62 |  |   | $      | .24 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Goodwill amortization, net of tax |                |                      |                |                         |                |       | .02            |  |   |        |     |  |   |        | .05 | 
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|                                         | As adjusted-diluted               |                | $                    | .27            |                         |                | $     | .19            |  |   | $      | .62 |  |   | $      | .29 | 
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    

In accordance with SFAS No. 142, the Company reclassified the long-term
deferred income tax liability associated with nondeductible goodwill, resulting
in a noncash reduction in goodwill and a corresponding reduction in the
deferred income tax liability of $10,166,000. Also in accordance with SFAS No.
142, the Company now presents goodwill separately from other intangibles in the
Consolidated Balance Sheet. In addition, the Company reclassified
$52,997,000
of acquisition-related intangibles with indefinite lives to goodwill at the
beginning of the first quarter of 2002. In accordance with this pronouncement,
the corresponding prior year amounts were not retroactively reclassified. The remaining change in goodwill since December 29, 2001
consists of acquisition goodwill.

Accounting for the Impairment or Disposal of Long-Lived Assets

In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No.
144). This pronouncement clarifies certain issues related to SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of and develops a single accounting model for long-lived assets
to be disposed of. The Company adopted SFAS No. 144 in the first quarter of
2002. The adoption of SFAS No. 144 did not impact the Companys financial
position, results of operations or cash flows.

10



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NOTE 8-Investment in Momentx Corporation

At December 29, 2001, the Company had a $1,093,000 investment in Momentx
Corporation (Momentx), included in long-term Other Assets. Momentx is an
e-market solution provider for the dairy, food and beverage industries. The
Company followed the cost method in accounting for this investment since its
ownership interest was less than three percent. During the second quarter of
2002, the Company determined that Momentxs shortfalls to its business plan,
which plan called for a substantial acceleration of its sales growth which did
not occur, negatively impacted the recovery of the Companys investment and
recognized a $1,093,000 loss which is included as a component of Other income,
net, in the Consolidated Statement of Income.

11



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

FORWARD-LOOKING STATEMENTS

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



| |  |  | uncertainty regarding the Companys future operating results;                                                                          
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the Companys ability to achieve efficiencies in its manufacturing
and distribution operations without negatively affecting sales;     
|
| |  |  | the cost of energy used in manufacturing and distribution;                                                                             
|
| |  |  | the cost of dairy raw materials and other commodities used in the Companys products;                                                  
|
| |  |  | competitors marketing and promotion responses;                                                                                        
|
| |  |  | market conditions affecting the prices of the Companys products;                                                                      
|
| |  |  | the Companys ability to increase sales of its own branded products;                                                                   
|
| |  |  | responsiveness of both the trade and consumers to the Companys new
products and marketing and promotional programs; and               
|
| |  |  | uncertainty regarding the completion and effect of the proposed
transactions described under MERGER AND CONTRIBUTION
AGREEMENT below.

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

The following discussion should be read together with the Companys
consolidated financial statements and related notes thereto included elsewhere
in this document and in Item 5  Managements Discussion and Analysis of
Financial Condition and Results of Operations appearing in the Companys
Report on Form 8-K filed on November 5, 2002 and in Item 7A  Qualitative and
Quantitative Disclosures About Market Risk appearing in the Companys 2001
Annual Report on Form 10-K.

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:



| |  | The Company assesses the recoverability of trade accounts receivable
based on estimated losses resulting from the inability of customers to
make required payments. The Companys estimates are based on the
aging of accounts receivable balances and historical write-off
experience, net of recoveries. The Company reviews trade accounts
receivable for recoverability regularly and whenever events or
circumstances, such as deterioration in the financial condition of a
customer, indicate that additional allowances might be required.
Changes in the financial condition of the Companys major customers
could result in significant accounts receivable write-offs.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The Company records a valuation allowance related to deferred tax
assets if, based on the weight of the available evidence, the Company
concludes that it is more likely than not that some portion or all of
the deferred tax assets will                                                                                                                                                                                                                                                                                                                                                                                                                                        

12



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|  |  | not be realized. While the Company has considered future taxable income and
prudent and feasible tax planning strategies in assessing the need for the
valuation allowance, should the Company determine that it would not be able
to realize all or part of its net deferred tax assets in the future, an
adjustment to the carrying value of the deferred tax assets would be charged
to income in the period in which such determination is made.                                                                                                                                                                  
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The Company has goodwill related to business acquisitions. The
Company tests goodwill for impairment on an annual basis and between
annual tests if an event occurs or circumstances change that would
more likely than not reduce the fair value of a reporting unit below
its carrying value. If the fair value of a reporting unit is less
than its carrying value, then an impairment loss would be recognized
equal to the excess of the carrying value of the reporting unit
goodwill over the fair value of that goodwill. The fair value of
goodwill is based on estimates that carry a degree of uncertainty.
| 
| |  | The Companys liabilities for self-insured health, workers
compensation and vehicle plans are developed from actuarial valuations
that rely on various key assumptions. Changes in key assumptions may
occur in the future, which could result in changes to related
self-insurance costs.                                                                                                                                                                                                                                                                                                                            
| 
| |  | The Companys liabilities for employee bonuses and profit-sharing plan
contributions are based primarily on estimated full-year profitability
at the end of each quarter. Changes in the performance of the
business and in estimated full-year profitability could result in
significant interim adjustments to the cost of these programs.                                                                                                                                                                                                                                                                          

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

MERGER AND CONTRIBUTION AGREEMENT

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

If the transactions contemplated by the Merger Agreement are completed,
each non-Nestlé stockholder who holds shares of the Companys common stock at
the effective time of the merger will receive one share of class A callable
puttable common stock of New Dreyers. Under the amended and restated
certificate of incorporation of New Dreyers, subject to the terms set forth
therein, the holders of New Dreyers class A callable puttable stock will be
permitted to sell (put) some or all of their shares to New Dreyers for $83.00
per share during two periods, the first beginning on December 1, 2005 and
ending on January 13, 2006, and the second beginning on April 3, 2006 and
ending on May 12, 2006. New Dreyers class A callable puttable common stock
will also be subject to redemption (call) by New Dreyers at the request of
Nestlé at $88.00 per share during a six-month period beginning on January 1,
2007. For the contribution of its ownership interest of NICC Holdings, Nestlé will
receive approximately 55 million shares of class B common stock of New
Dreyers. The class B common shares are similar to the class A common shares,
except that they lack the call and put features. The shares of the Companys
common stock currently held by Nestlé will be converted into the same number of
shares of class B common stock of New Dreyers. As of September 28, 2002,
Nestlé owned approximately 23 percent of the Companys common stock on a
diluted basis. If the transactions contemplated by the Merger Agreement are
completed, Nestlé will own approximately 67 percent of the diluted common stock
of New Dreyers.

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



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

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

13



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



| |  | 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 transactions
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, and the specified waiting
periods have expired or have been terminated. The Company and Nestlé
filed notification and report forms under the HSR Act with the FTC and
the Antitrust Division on July 3, 2002. On August 2, 2002, the FTC
made a request for additional information and documentary material,
thereby extending the statutory waiting period until 30 days after the
Company and Nestlé each substantially comply with this request, unless
the waiting period is terminated earlier or extended with the consent
of the Company and Nestlé. The Company and Nestlé are continuing to
work closely with the FTC staff on its request.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | On November 6, 2002, New Dreyers filed with the Securities and Exchange Commission
(SEC) 
a Registration Statement on Form
S-4 which included a proxy statement/prospectus pertaining to the
transactions contemplated by the Merger Agreement. The SEC may choose to review
the filing, and if it does so, it will typically provide comments within
30 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| 
| |  | If the registration statement is declared effective by the SEC, and if
the transactions contemplated by the Merger Agreement are completed,
then all shares of New Dreyers class A callable puttable common stock
received by the Companys stockholders in the merger will be freely
transferable, except that shares of New Dreyers class A callable
puttable common stock received by persons who are deemed to be
affiliates of the Company under the Securities Act of 1933, as
amended (the 1933 Act), at the time of the special meeting of the
Companys stockholders, may be resold by such affiliates only in
transactions permitted by Rule 145 under the 1933 Act or as otherwise
permitted under the 1933 Act. Persons who may be deemed to be
affiliates of the Company for such purposes generally include
individuals or entities that control, are controlled by or are under
common control with the Company and include the members of the
Companys board of directors.                                           

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

14



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##### Table of Contents



ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

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

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

The Company adopted EITF 01-9 at the beginning of fiscal 2002. For the
thirteen and thirty-nine weeks ended September 28, 2002, the Company presented
the expenses described above of $65,881,000 and $176,589,000, respectively, as
a reduction of net sales in accordance with this pronouncement. For the
thirteen and thirty-nine weeks ended September 29, 2001, the Company
retroactively reclassified expenses of $58,274,000 and $140,300,000,
respectively. The retroactive reclassification of these expenses resulted in a
decrease in total sales and gross profit, along with a corresponding decrease
in selling, general and administrative expenses, with no effect on net income
as previously reported.

Accounting for Goodwill and Other Intangible Assets

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

The
following table reconciles reported net income available to common
stockholders and the related per
common share amounts to the corresponding adjusted net income and related per
common share amounts. Adjusted
net income and net income per common share amounts reflecting the exclusion of
goodwill amortization of $655,000 ($1,100,000 net of tax of $445,000) and $1,942,000
($3,193,000 net of tax of $1,251,000), respectively, for the thirteen and thirty-nine
weeks ended September 29, 2001, respectively, follow:

|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |     | 
|---------------------------------------- | --------------------------------- | -------------- | -------------------- | -------------- | ----------------------- | -------------- | ----- | -------------- |  | - | ------ | --- |  | - | ------ | --- | 
|                                         |                                   |                | Thirteen Weeks Ended |                | Thirty-nine Weeks Ended
|                                         |                                   |                |                      |                |                        
|(In thousands, except per share amounts) |                                   | Sept. 28, 2002 |                      | Sept. 29, 2001 |                         | Sept. 28, 2002 |       | Sept. 29, 2001
|                                         |                                   |                |                      |                |                         |                |       |               
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|                                        
|                                        
|                                        
|                                        
|As reported                              |                                   | $              | 10,334               |                |                         | $              | 6,048 |                |  | $ | 23,330 |     |  | $ | 8,097  |    
|                                        
|                                        
|                                        
|                                        
|Goodwill amortization, net of tax        |                                   |                |                      |                |                         |                | 655   |                |  |   |        |     |  |   | 1,942  |    
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|As adjusted                              |                                   | $              | 10,334               |                |                         | $              | 6,703 |                |  | $ | 23,330 |     |  | $ | 10,039 |    
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|Per common share:                        |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|                                        
|                                        
|                                        
|                                        
|                                         | As reported-basic                 |                | $                    | .30            |                         |                | $     | .18            |  |   | $      | .67 |  |   | $      | .26 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Goodwill amortization, net of tax |                |                      |                |                         |                |       | .02            |  |   |        |     |  |   |        | .06 | 
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|                                         | As adjusted-basic                 |                | $                    | .30            |                         |                | $     | .20            |  |   | $      | .67 |  |   | $      | .32 | 
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|                                         | As reported-diluted               |                | $                    | .27            |                         |                | $     | .17            |  |   | $      | .62 |  |   | $      | .24 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Goodwill amortization, net of tax |                |                      |                |                         |                |       | .02            |  |   |        |     |  |   |        | .05 | 
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    
|                                         | As adjusted-diluted               |                | $                    | .27            |                         |                | $     | .19            |  |   | $      | .62 |  |   | $      | .29 | 
|                                         |                                   |                |                      |                |                         |                |       |                |  |   |        |     |  |   |        |    

In accordance with SFAS No. 142, the Company reclassified the long-term
deferred income tax liability associated with nondeductible goodwill, resulting
in a noncash reduction in goodwill and a corresponding reduction in the
deferred income tax liability of $10,166,000. Also in accordance with SFAS No.
142, the Company now presents goodwill separately from other intangibles in the
Consolidated Balance Sheet. In addition, the Company reclassified
$52,997,000

15



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##### Table of Contents



of acquisition-related intangibles with indefinite lives to goodwill at the
beginning of the first quarter of 2002. In accordance with this pronouncement,
the corresponding prior year amounts were not retroactively reclassified. The remaining change in goodwill since December 29, 2001
consists of acquisition goodwill.

Accounting for the Impairment or Disposal of Long-Lived Assets

In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No.
144). This pronouncement clarifies certain issues related to SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of and develops a single accounting model for long-lived assets
to be disposed of. The Company adopted SFAS No. 144 in the first quarter of
2002. The adoption of SFAS No. 144 did not impact the Companys financial
position, results of operations or cash flows.

RESULTS OF OPERATIONS

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

|                                                 |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |       |      |   |  |                  |       |             |  |        |       |  
|------------------------------------------------ | ------------------------------------ |  | -------------------- | ---- | ----------------------- |  | --------- | ---- | --------- |  | -------- | ---- | -------- |  | ----- | ---- | - |  | ---------------- | ----- | ----------- |  | ------ | ----- | -
|                                                 |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |       |      |   |  | Period-to-Period
|                                                 |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |       |      |   |  | Variance        
|                                                 |                                      |  | Percentage of Sales  |      | Favorable (Unfavorable)
|                                                 |                                      |  |                      |      |                        
|                                                 |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |       |      |   |  | Thirteen         |       | Thirty-nine
|                                                 |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |       |      |   |  | Weeks            |       | Weeks      
|                                                 |                                      |  | Thirteen Weeks Ended |      | Thirty-nine Weeks Ended |  | Ended     |      | Ended    
|                                                 |                                      |  |                      |      |                         |  | 2002      |      | 2002     
|                                                 |                                      |  | Sept. 28,            |      | Sept. 29,               |  | Sept. 28, |      | Sept. 29, |  | Compared |      | Compared
|                                                 |                                      |  | 2002                 |      | 2001                    |  | 2002      |      | 2001      |  | To 2001  |      | To 2001 
|                                                 |                                      |  |                      |      |                         |  |           |      |           |  |          |      |         
|Net sales                                        |                                      |  | 100.0                | %    |                         |  | 100.0     | %    |           |  | 100.0    | %    |          |  | 100.0 | %    |   |  | 6.1              | %     |             |  | 12.2   | %    
|                                                 |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |       |      |   |  |                  |       |             |  |        |      
|Costs and expenses:                              |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |       |      |   |  |                  |       |             |  |        |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Cost of goods sold                   |  |                      | 85.4 |                         |  |           | 88.7 |           |  |          | 86.9 |          |  |       | 88.8 |   |  |                  | (2.1  | )           |  |        | (9.8  | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Selling, general and administrative  |  |                      | 9.3  |                         |  |           | 8.0  |           |  |          | 8.6  |          |  |       | 9.0  |   |  |                  | (23.4 | )           |  |        | (7.5  | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Interest, net of amounts capitalized |  |                      | 0.5  |                         |  |           | 0.8  |           |  |          | 0.5  |          |  |       | 1.0  |   |  |                  | 30.8  |             |  |        | 35.8  |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Other expense (income)               |  |                      | (0.1 | )                       |  |           | (0.3 | )         |  |          |     |          |  |       | (0.3 | ) |  |                  | (44.1 | )           |  |        | (82.4 | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Merger transaction expenses          |  |                      | 0.7  |                         |  |           |      |           |  |          | 0.5  |          |  |       |      |   |  | NM               |       | NM         
|                                                 |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |       |      |   |  |                  |       |             |  |        |      
|                                                 |                                      |  | 95.8                 |      |                         |  | 97.2      |      |           |  | 96.5     |      |          |  | 98.5  |      |   |  | (4.5             | )     |             |  | (10.0  | )    
|                                                 |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |       |      |   |  |                  |       |             |  |        |      
|Income before income tax provision               |                                      |  | 4.2                  |      |                         |  | 2.8       |      |           |  | 3.5      |      |          |  | 1.5   |      |   |  | 62.3             |       |             |  | 156.0  |      
|                                                
|                                                
|                                                
|                                                
|Income tax provision                             |                                      |  | 1.5                  |      |                         |  | 1.1       |      |           |  | 1.3      |      |          |  | 0.6   |      |   |  | (49.1            | )     |             |  | (135.1 | )    
|                                                 |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |       |      |   |  |                  |       |             |  |        |      
|Net income                                       |                                      |  | 2.7                  |      |                         |  | 1.7       |      |           |  | 2.2      |      |          |  | 0.9   |      |   |  | 70.9             |       |             |  | 169.5  |      
|                                                
|                                                
|                                                
|                                                
|Accretion of preferred stock to redemption value |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |      |      |   |  |                  |       |             |  | NM     |      
|                                                
|                                                
|                                                
|                                                
|Preferred stock dividends                        |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |      |      |   |  |                  |       |             |  | NM     |      
|                                                 |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |       |      |   |  |                  |       |             |  |        |      
|Net income available to common stockholders      |                                      |  | 2.7                  | %    |                         |  | 1.7       | %    |           |  | 2.2      | %    |          |  | 0.9   | %    |   |  | 70.9             |       |             |  | 188.1  |      
|                                                 |                                      |  |                      |      |                         |  |           |      |           |  |          |      |          |  |       |      |   |  |                  |       |             |  |        |      

Thirteen Weeks ended September 28, 2002 Compared with Thirteen Weeks ended
September 29, 2001

Consolidated net sales for the third quarter of 2002 increased
$21,962,000, or six percent, to $383,598,000 from $361,636,000 for the same
quarter last year.

Net sales of the Companys branded products, including licensed and joint
venture products (company brands), increased $4,929,000, or two percent, to
$209,739,000 from $204,810,000 for the same quarter last year. Company brands
represented 55 percent of consolidated net sales in 2002 compared with 57
percent in the same quarter last year. The products that led this increase were
Dreyers and Edys® Grand Ice Cream and Whole Fruit Bars. The average price of
company brands, net of the effect of trade promotion expenses, increased by
five percent. Gallon sales of

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

Net sales of products distributed for other manufacturers (partner
brands), including Ben & Jerrys Homemade, Inc. (Ben & Jerrys), increased
$17,033,000, or 11 percent, to $173,859,000 from $156,826,000 for the same
quarter last year. This increase was driven primarily by increased sales of
distributed novelty products (including a significant increase in sales of
Silhouette Brands, Inc. (Silhouette) novelty products) and Ben & Jerrys
superpremium products. Sales of partner brands represented 45 percent of
consolidated net sales compared with 43 percent in the same quarter last year.
Average wholesale prices for partner brands increased approximately 14 percent.
Unit sales of partner brands decreased by three percent over the same quarter
last year.

Cost of goods sold increased $6,604,000, or two percent, to $327,624,000
from $321,020,000 for the same quarter last year. The Companys gross profit
increased by $15,358,000, or 38 percent, to $55,974,000 from $40,616,000,
representing a 14.6 percent gross margin compared with an 11.2 percent gross
margin for the same quarter last year. The improvement in gross profit was
primarily attributable to lower dairy raw material costs and higher volume,
partially offset by increases in distribution expenses. During the third
quarter of 2002, the decrease in dairy raw material costs accounted for a
$16,200,000 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 $6,748,000, or 23
percent, to $35,632,000 from $28,884,000 for the same quarter last year. The
increase in expenses from 2001 reflects higher marketing expenses and higher
administrative expenses, partially offset by a $1,100,000 reduction in
amortization of goodwill as a result of the adoption of SFAS No. 142. Selling,
general and administrative expenses represented nine and eight percent of
consolidated net sales in the third quarters of 2002 and 2001, respectively.

Interest expense decreased $867,000, or 31 percent, to $1,947,000 from
$2,814,000 for the same quarter last year, primarily due to lower interest
rates.

Other income, net, decreased $454,000, or 44 percent, to $575,000 from
$1,029,000 for the same quarter last year. Other income, net, includes
$746,000 of losses from butter trading activities. Decreases in other
income, net, were partially offset by an increase in earnings from joint ventures accounted
for under the equity method.

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

The income tax provision increased $1,914,000, or 49 percent, to
$5,813,000 from $3,899,000 for the same quarter last year. The effective tax
rate decreased to 36.0 percent from 39.2 percent for the same quarter last year
due primarily to the reversal of income taxes provided in prior periods, the
elimination of certain permanent differences in connection with the adoption of
SFAS No. 142 and the utilization of certain income tax credits.

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

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

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

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

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

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

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

Other income, net, decreased $1,812,000, or 82 percent, to $386,000 from
$2,198,000 for the same period last year. Other income, net, includes
$2,065,000 of losses from butter trading activities and a $1,093,000 impairment
of an investment in Momentx Corporation (Momentx), an e-market solution
provider for the dairy, food and beverage industries. During the second quarter
of 2002, the Company determined that Momentxs shortfalls to its business plan,
which plan called for a substantial acceleration of its sales growth which did
not occur, negatively impacted the recovery of the Companys investment.
Decreases in other income, net, were partially offset by an increase in earnings from
joint ventures accounted for under the equity method.

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

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

LIQUIDITY AND CAPITAL RESOURCES

Working capital at September 28, 2002 increased $9,339,000 from year-end
2001. The Companys cash flows from operating activities increased to
$39,336,000 from $11,888,000 for the same period last year. Cash flows from
operating activities for 2002 primarily consisted of net income of $23,330,000,
depreciation and amortization of $26,067,000, and an increase in accounts
payable and accrued liabilities of $17,854,000, partially offset by an increase
in trade accounts receivable of $26,919,000. Cash flows from operating
activities for 2001 primarily consisted of net income of $8,657,000,
depreciation and amortization of $26,940,000, and an increase in accounts
payable and accrued liabilities of $42,353,000, partially offset by an increase
in trade accounts receivable of $52,241,000.

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Cash flows used in investing activities totaled $40,397,000 and
$32,689,000, in 2002 and 2001, respectively. Cash flows used in investing
activities primarily consisted of property, plant and equipment purchases of
$37,927,000 and $29,218,000, in 2002 and 2001, respectively.

Cash flows from financing activities totaled $1,270,000 and $20,609,000,
in 2002 and 2001, respectively. Cash flows from financing activities for 2002
primarily consisted of issuance of common stock of $9,351,000 partially offset
by cash dividends paid of $6,230,000 and repurchases and retirements of common
stock of $1,752,000. Cash flows from financing activities for 2001 primarily
consisted of a net increase of $42,700,000 in the revolving line of credit,
partially offset by repayments of debt totaling $22,186,000.

At September 28, 2002, the Company had $1,859,000 in cash and cash
equivalents, and an unused credit line of $120,000,000. As discussed earlier,
the Company currently estimates that it will incur total merger transaction
expenses, including costs to be incurred to close the transactions, in the
range of $28,000,000 to $30,000,000. The Company believes that its credit
line, along with its liquid resources, internally-generated cash and financing
capacity, are adequate to meet both short-term and long-term operating and
capital requirements, including the merger transaction expenses. In connection
with the transactions contemplated by the Merger Agreement, the
Company is
currently in the process of negotiating modifications to its revolving line of
credit agreement, including modifications relating to dividends permitted under
such credit agreement.




ITEM 3.    QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.

This Item 3 should be read in conjunction with Item 7A of the Companys
2001 Annual Report on Form 10-K 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. The Company has elected
to not treat its investment in butter as a hedge for accounting purposes.
Consequently, it marks to market its investment at the end of each quarter
and records any resulting gain or loss in Other income, net. During the
thirteen and thirty-nine weeks ended September 28, 2002, the Company marked its
butter investments to market and recorded losses of $746,000 and $2,065,000,
respectively.

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

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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 conducted an evaluation of our disclosure controls and procedures, as
such term is defined under Rule 13a-14(c) promulgated under the Securities
Exchange Act of 1934, as amended (the Exchange Act), within 90 days
prior to the filing date of this report. Based on their evaluation, our
principal executive officer and principal accounting officer concluded
that our disclosure controls and procedures are effective.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referenced in paragraph
(a) above.                                                                                                                                                                                                                                                                      

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PART II:    OTHER INFORMATION




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



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

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                
|10.1        |  | Second Amendment dated October 18, 2002 to Credit Agreement
dated as of July 25, 2000 among Dreyers Grand Ice Cream,
Inc., the banks party to this agreement, Bank of America, N.A.
as Agent for the Banks, as Swing Line Bank and as Letter of
Credit Issuing Bank; Union Bank of California, N.A. as
Syndication Agent and Banc of America Securities LLC as Lead
Arranger and Book Manager.
|           
|           
|           
|           
|99.1        |  | Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                
|           
|           
|           
|           
|99.2        |  | Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                



|(b) |  | A Report on Form 8-K was filed on August 7, 2002, reporting the
submission of sworn statements by the Companys Principal Executive
Officer and Principal Financial Officer to the SEC pursuant to SEC Order
No. 4-460.                                                                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | A Report on Form 8-K was filed on October 25, 2002, reporting an amendment
to the Merger and Contribution Agreement dated June 16, 2002, to change
the name of the holding company resulting from the transactions
contemplated by the Merger and Contribution Agreement from Dreyers Grand
Ice Cream, Inc. to Dreyers Grand Ice Cream Holdings, Inc. and to
report the anticipated filing of the proxy statement/prospectus.
|   
|    |  | A Report on Form 8-K was filed on November 5, 2002 which includes the
information in Item 7-Managements Discussion and Analysis of Financial
Condition and Results of Operations and Item 8-Financial Statements and
Supplementary Data appearing in the Companys Form 10-K for the fiscal
year ended December 29, 2001, giving effect to the adoption of the
provisions of certain new accounting pronouncements.               

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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: November 12, 2002 |  | By:                            |  | /s/ Timothy F. Kahn                                                                                    
|                         |  |                                |  |                                                                                                        
|                         |  |                                |  | Timothy F. Kahn                                                                                        
|                         |  |                                |  | Vice President  Finance and Administration   and Chief Financial Officer (Principal Financial Officer)

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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
Corporation as of, and for, the periods presented in this quarterly report;

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

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

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

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

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

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

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

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

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

Dated: November 12, 2002

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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
Corporation as of, and for, the periods presented in this quarterly report;

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

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

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

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

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

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

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

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

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

Dated: November 12, 2002

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DREYERS GRAND ICE CREAM, INC.




INDEX OF EXHIBITS

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                
|10.1        |  | Second Amendment dated October 18, 2002 to Credit Agreement
dated as of July 25, 2000 among Dreyers Grand Ice Cream,
Inc., the banks party to this agreement, Bank of America, N.A.
as Agent for the Banks, as Swing Line Bank and as Letter of
Credit Issuing Bank; Union Bank of California, N.A. as
Syndication Agent and Banc of America Securities LLC as Lead
Arranger and Book Manager.
|           
|           
|           
|           
|99.1        |  | Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                
|           
|           
|           
|           
|99.2        |  | Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                

25