##### 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 June 29, 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 | 
|                           |  | August 11, 2002    | 
|                           |  |                    | 
|Common stock, $1 par value |  | 34,797,000         | 





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TABLE OF CONTENTS



|                              |                                                                                                             |                                                           |  |  |  |  |  | 
|----------------------------- | ----------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|PART I: FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS.                                                                              
|                              |                                                                                                             | CONSOLIDATED BALANCE SHEET                               
|                              |                                                                                                             | CONSOLIDATED STATEMENT OF INCOME                         
|                              |                                                                                                             | CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
|                              |                                                                                                             | CONSOLIDATED STATEMENT OF CASH FLOWS                     
|                              |                                                                                                             | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS               
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|                              | ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.                                        
|PART II: OTHER INFORMATION   
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                               
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.                                                                  
|SIGNATURE                    
|INDEX OF EXHIBITS            
|Exhibit 99.1                 
|Exhibit 99.2                 



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##### Table of Contents






PART I: FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS.




DREYERS GRAND ICE CREAM, INC.

CONSOLIDATED BALANCE SHEET

|                                           |                                                                                                                                                          |                      |         |               |         |   |               |         |         | 
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------- | ------------- | ------- | - | ------------- | ------- | ------- | 
|                                           |                                                                                                                                                          |                      |         | June 29, 2002 |         |   | Dec. 29, 2001 |        
|                                           |                                                                                                                                                          |                      |         |               |         |   |               |        
|($ in thousands, except per share amounts) |                                                                                                                                                          | (Unaudited)          |         |               |         |   |              
|                                          
|Assets                                     |                                                                                                                                                          |                      |         |               |         |   |               |        
|Current Assets:                            |                                                                                                                                                          |                      |         |               |         |   |               |        
|                                           | Cash and cash equivalents                                                                                                                                |                      | $       | 1,700         |         |   | $             | 1,650   |        
|                                           | Trade accounts receivable, net of allowance for doubtful accounts of
$1,755 in 2002 and $1,024 in 2001                                                   |                      |         | 145,374       |         |   |               | 89,721  |        
|                                           | Other accounts receivable                                                                                                                                |                      |         | 14,578        |         |   |               | 16,116  |        
|                                           | Inventories                                                                                                                                              |                      |         | 96,227        |         |   |               | 81,298  |        
|                                           | Deferred income taxes                                                                                                                                    |                      |         | 2,517         |         |   |               | 3,547   |        
|                                           | Prepaid expenses and other                                                                                                                               |                      |         | 29,614        |         |   |               | 8,849   |        
|                                           |                                                                                                                                                          |                      |         |               |         |  
|                                           |                                                                                                                                                          | Total current assets |         |               | 290,010 |   |               |         | 201,181 | 
|                                          
|                                          
|                                          
|                                          
|Property, plant and equipment, net         |                                                                                                                                                          |                      | 210,004 |               |         |   | 198,565       |        
|Goodwill                                   |                                                                                                                                                          |                      | 84,856  |               |         |   | 39,114        |        
|Other intangibles, net                     |                                                                                                                                                          |                      | 2,019   |               |         |   | 55,354        |        
|Other assets                               |                                                                                                                                                          |                      | 3,138   |               |         |   | 4,475         |        
|                                           |                                                                                                                                                          |                      |         |               |         |  
|Total assets                               |                                                                                                                                                          | $                    | 590,027 |               |         | $ | 498,689       |        
|                                           |                                                                                                                                                          |                      |         |               |         |  
|Liabilities and Stockholders Equity       |                                                                                                                                                          |                      |         |               |         |   |               |        
|Current Liabilities:                       |                                                                                                                                                          |                      |         |               |         |   |               |        
|                                           | Accounts payable and accrued liabilities                                                                                                                 |                      | $       | 128,290       |         |   | $             | 91,794  |        
|                                           | Accrued payroll and employee benefits                                                                                                                    |                      |         | 24,514        |         |   |               | 25,369  |        
|                                           | Current portion of long-term debt                                                                                                                        |                      |         | 2,143         |         |   |               |         |        
|                                           |                                                                                                                                                          |                      |         |               |         |  
|                                           | Total current liabilities                                                                                                                                |                      |         | 154,947       |         |   |               | 117,163 |        
|                                          
|                                          
|                                          
|                                          
|Long-term debt, less current portion       |                                                                                                                                                          |                      | 199,429 |               |         |   | 148,671       |        
|Deferred income taxes                      |                                                                                                                                                          |                      | 14,404  |               |         |   | 24,490        |        
|                                           |                                                                                                                                                          |                      |         |               |         |  
|Total liabilities                          |                                                                                                                                                          |                      | 368,780 |               |         |   | 290,324       |        
|                                           |                                                                                                                                                          |                      |         |               |         |  
|                                          
|Commitments and contingencies              |                                                                                                                                                          |                      |         |               |         |   |               |        
|                                          
|Stockholders Equity:                      |                                                                                                                                                          |                      |         |               |         |   |               |        
|                                           | Preferred
stock, $1 par value  10,000,000 shares authorized;
no shares issued or outstanding in 2002 and 2001                                           |                      |         |               |         |   |               |         |        
|
|                                           | Common stock, $1 par value  60,000,000 shares authorized;
34,746,000 shares and 34,461,000 shares issued and outstanding
in 2002 and 2001, respectively |                      |         | 34,746        |         |   |               | 34,461  |        
|                                           | Capital in excess of par                                                                                                                                 |                      |         | 163,809       |         |   |               | 160,103 |        
|                                           | Notes receivable from stockholders                                                                                                                       |                      |         | (2,489        | )       |   |               | (2,546  | )      
|                                           | Retained earnings                                                                                                                                        |                      |         | 25,181        |         |   |               | 16,347  |        
|                                           |                                                                                                                                                          |                      |         |               |         |  
|Total stockholders equity                 |                                                                                                                                                          |                      | 221,247 |               |         |   | 208,365       |        
|                                           |                                                                                                                                                          |                      |         |               |         |  
|Total liabilities and stockholders equity |                                                                                                                                                          | $                    | 590,027 |               |         | $ | 498,689       |        
|                                           |                                                                                                                                                          |                      |         |               |         |  

See accompanying Notes to Consolidated Financial Statements.

2



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DREYERS GRAND ICE CREAM, INC.

CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

|                                                 |                                      |               |         |                      |               |   |                        |               |   |   |               |         |  |   |         |         |   | 
|------------------------------------------------ | ------------------------------------ | ------------- | ------- | -------------------- | ------------- | - | ---------------------- | ------------- | - | - | ------------- | ------- |  | - | ------- | ------- | - | 
|                                                 |                                      |               |         | Thirteen Weeks Ended |               |   | Twenty-six Weeks Ended |              
|                                                 |                                      |               |         |                      |               |   |                        |              
|($ in thousands, except per share amounts)       |                                      | June 29, 2002 |         |                      | June 30, 2001 |   |                        | June 29, 2002 |   |   | June 30, 2001 |        
|                                                 |                                      |               |         |                      |               |   |                        |               |   |   |               |        
|                                                 |                                      |               |         |                      |               |   |                        |               |   |   |               |         |  |   |         |        
|Net sales                                        |                                      | $             | 376,811 |                      |               | $ | 335,424                |               |   | $ | 667,225       |         |  | $ | 574,837 |        
|                                                 |                                      |               |         |                      |               |   |                        |               |   |   |               |        
|                                                
|                                                
|                                                
|                                                
|Costs and expenses:                              |                                      |               |         |                      |               |   |                        |               |   |   |               |         |  |   |         |        
|                                                 | Cost of goods sold                   |               |         | 322,865              |               |   |                        | 293,326       |   |   |               | 585,026 |  |   |         | 510,116 |  
|                                                 | Selling, general and administrative  |               |         | 29,370               |               |   |                        | 28,313        |   |   |               | 54,928  |  |   |         | 55,320  |  
|                                                 | Interest, net of amounts capitalized |               |         | 2,102                |               |   |                        | 3,264         |   |   |               | 3,888   |  |   |         | 6,278   |  
|                                                 | Other expense (income)               |               |         | 1,327                |               |   |                        | (930          | ) |   |               | 189     |  |   |         | (1,169  | )
|                                                 | Merger transaction expenses          |               |         | 2,888                |               |   |                        |               |   |   |               | 2,888   |  |   |         |         |  
|                                                 |                                      |               |         |                      |               |   |                        |               |   |   |               |        
|                                                 |                                      |               | 358,552 |                      |               |   | 323,973                |               |   |   | 646,919       |         |  |   | 570,545 |        
|                                                 |                                      |               |         |                      |               |   |                        |               |   |   |               |        
|                                                
|Income before income tax provision               |                                      |               | 18,259  |                      |               |   | 11,451                 |               |   |   | 20,306        |         |  |   | 4,292   |        
|                                                
|Income tax provision                             |                                      |               | 6,573   |                      |               |   | 4,410                  |               |   |   | 7,310         |         |  |   | 1,683   |        
|                                                 |                                      |               |         |                      |               |   |                        |               |   |   |               |        
|                                                
|Net income                                       |                                      |               | 11,686  |                      |               |   | 7,041                  |               |   |   | 12,996        |         |  |   | 2,609   |        
|                                                
|Accretion of preferred stock to redemption value |                                      |               |         |                      |               |   | 106                    |               |   |   |               |         |  |   | 212     |        
|Preferred stock dividends                        |                                      |               |         |                      |               |   |                        |               |   |   |               |         |  |   | 348     |        
|                                                 |                                      |               |         |                      |               |   |                        |               |   |   |               |        
|Net income available to common stockholders      |                                      | $             | 11,686  |                      |               | $ | 6,935                  |               |   | $ | 12,996        |         |  | $ | 2,049   |        
|                                                 |                                      |               |         |                      |               |   |                        |               |   |   |               |        
|                                                
|Net income per common share:                     |                                      |               |         |                      |               |   |                        |               |   |   |               |         |  |   |         |        
|                                                 | Basic                                |               | $       | .34                  |               |   | $                      | .24           |   |   | $             | .38     |  |   | $       | .07     |  
|                                                 |                                      |               |         |                      |               |   |                        |               |   |   |               |        
|                                                 | Diluted                              |               | $       | .31                  |               |   | $                      | .20           |   |   | $             | .35     |  |   | $       | .07     |  
|                                                 |                                      |               |         |                      |               |   |                        |               |   |   |               |        
|                                                
|Dividends per common share                       |                                      | $             | .06     |                      |               | $ | .06                    |               |   | $ | .12           |         |  | $ | .12     |        
|                                                 |                                      |               |         |                      |               |   |                        |               |   |   |               |        

See accompanying Notes to Consolidated Financial Statements.

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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                                                                       |        |              |       |        |            |        |               |      |            |              |          |   |          |        |      |       |   |        | 2,609  |   |   |         | 2,609   |  
|                              | Accretion of preferred stock to
redemption value                                 |        |              |       |        |            |        |               |      |            |              |          |   |          |        |      |       |   |        | (212   | ) |   |         | (212    | )
|                              | Preferred stock dividends declared                                               |        |              |       |        |            |        |               |      |            |              |          |   |          |        |      |       |   |        | (348   | ) |   |         | (348    | )
|                              | Common stock dividends declared                                                  |        |              |       |        |            |        |               |      |            |              |          |   |          |        |      |       |   |        | (3,777 | ) |   |         | (3,777  | )
|                              | Conversion of mandatorily
redeemable convertible preferred
stock to common stock |        |              | 5,800 |        |            |        | 5,800         |      |            |              | 94,952   |   |          |        |      |       |   |        |        |   |   |         | 100,752 |  
|                              | Issuance of common stock under
employee stock plans, net                         |        |              | 391   |        |            |        | 391           |      |            |              | 5,858    |   |          |        | (20  | )     |   |        |        |   |   |         | 6,229   |  
|                              | Repurchases and retirements of
common stock                                      |        |              | (74   | )      |            |        | (74           | )    |            |              | (2,096   | ) |          |        |      |       |   |        |        |   |   |         | (2,170  | )
|                              |                                                                                  |        |              |       |        |            |        |               |      |            |              |          |   |          |        |      |       |  
|                             
|Balances at June 30, 2001     |                                                                                  |        | 34,385       |       |        | $          | 34,385 |               |      | $          | 157,110      |          |   | $        | (2,304 | )    |       | $ | 14,264 |        |   | $ | 203,455 |        
|                              |                                                                                  |        |              |       |        |            |        |               |      |            |              |          |   |          |        |      |       |  
|                             
|Balances at December 29, 2001 |                                                                                  |        | 34,461       |       |        | $          | 34,461 |               |      | $          | 160,103      |          |   | $        | (2,546 | )    |       | $ | 16,347 |        |   | $ | 208,365 |        
|                              | Net income                                                                       |        |              |       |        |            |        |               |      |            |              |          |   |          |        |      |       |   |        | 12,996 |   |   |         | 12,996  |  
|                              | Common stock dividends declared                                                  |        |              |       |        |            |        |               |      |            |              |          |   |          |        |      |       |   |        | (4,162 | ) |   |         | (4,162  | )
|                              | Issuance of common stock under
employee stock plans, net                         |        |              | 338   |        |            |        | 338           |      |            |              | 5,776    |   |          |        | (339 | )     |   |        |        |   |   |         | 5,775   |  
|                              | Repurchases and retirements of
common stock                                      |        |              | (53   | )      |            |        | (53           | )    |            |              | (2,070   | ) |          |        | 396  |       |   |        |        |   |   |         | (1,727  | )
|                              |                                                                                  |        |              |       |        |            |        |               |      |            |              |          |   |          |        |      |       |  
|                             
|Balances at June 29, 2002     |                                                                                  |        | 34,746       |       |        | $          | 34,746 |               |      | $          | 163,809      |          |   | $        | (2,489 | )    |       | $ | 25,181 |        |   | $ | 221,247 |        
|                              |                                                                                  |        |              |       |        |            |        |               |      |            |              |          |   |          |        |      |       |  

See accompanying Notes to Consolidated Financial Statements.

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DREYERS GRAND ICE CREAM, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

|                                                                     |                                                                      |                                                             |                                          |         |                        |         |         |         |        |         |  
|-------------------------------------------------------------------- | -------------------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------- | ------- | ---------------------- | ------- | ------- | ------- | ------ | ------- | -
|                                                                     |                                                                      |                                                             |                                          |         | Twenty-six Weeks Ended |        
|                                                                     |                                                                      |                                                             |                                          |         |                        |        
|(In thousands)                                                       |                                                                      | June 29, 2002                                               |                                          |         | June 30, 2001          |        
|                                                                     |                                                                      |                                                             |                                          |         |                        |        
|Cash flows from operating activities:                                |                                                                      |                                                             |                                          |         |                        |         |         |        
|                                                                     | Net income                                                           |                                                             | $                                        | 12,996  |                        |         | $       | 2,609   |       
|                                                                     | Adjustments to reconcile net income to cash flows from operations:   |                                                             |                                          |         |                        |         |         |         |       
|                                                                     |                                                                      | Depreciation and amortization                               |                                          |         | 17,058                 |         |         |         | 17,953 |        
|                                                                     |                                                                      | Deferred income taxes                                       |                                          |         | 1,110                  |         |         |         | 310    |        
|                                                                     |                                                                      | Impairment of investment in Momentx Corporation             |                                          |         | 1,093                  |         |         |         |        |        
|                                                                     |                                                                      | Changes in assets and liabilities, net of amounts acquired: |                                          |         |                        |         |         |         |        |        
|                                                                     |                                                                      |                                                             | Trade accounts receivable                |         |                        | (55,653 | )       |         |        | (57,619 | )
|                                                                     |                                                                      |                                                             | Other accounts receivable                |         |                        | 1,538   |         |         |        | (2,268  | )
|                                                                     |                                                                      |                                                             | Inventories                              |         |                        | (14,929 | )       |         |        | (16,065 | )
|                                                                     |                                                                      |                                                             | Prepaid expenses and other               |         |                        | (20,765 | )       |         |        | (679    | )
|                                                                     |                                                                      |                                                             | Accounts payable and accrued liabilities |         |                        | 36,479  |         |         |        | 51,315  |  
|                                                                     |                                                                      |                                                             | Accrued payroll and employee benefits    |         |                        | (855    | )       |         |        | (5,344  | )
|                                                                     |                                                                      |                                                             |                                          |         |                        |        
|                                                                     |                                                                      |                                                             | (21,928                                  | )       |                        |         | (9,788  | )      
|                                                                     |                                                                      |                                                             |                                          |         |                        |        
|Cash flows from investing activities:                                |                                                                      |                                                             |                                          |         |                        |         |         |        
|                                                                     | Acquisition of property, plant and equipment                         |                                                             |                                          | (28,416 | )                      |         |         | (21,485 | )     
|                                                                     | Retirement of property, plant and equipment                          |                                                             |                                          | 348     |                        |         |         | 703     |       
|                                                                     | Purchase of independent distributors and other intangibles           |                                                             |                                          | (2,913  | )                      |         |         | (4,270  | )     
|                                                                     | Increase in other assets                                             |                                                             |                                          | 155     |                        |         |         | (536    | )     
|                                                                     |                                                                      |                                                             |                                          |         |                        |        
|                                                                     |                                                                      |                                                             | (30,826                                  | )       |                        |         | (25,588 | )      
|                                                                     |                                                                      |                                                             |                                          |         |                        |        
|Cash flows from financing activities:                                |                                                                      |                                                             |                                          |         |                        |         |         |        
|                                                                     | Proceeds from long-term debt, net                                    |                                                             |                                          | 52,901  |                        |         |         | 47,300  |       
|                                                                     | Repayments of long-term debt                                         |                                                             |                                          |         |                        |         |         | (10,543 | )     
|                                                                     | Issuance of common stock under employee stock plans, net             |                                                             |                                          | 5,775   |                        |         |         | 6,229   |       
|                                                                     | Repurchases and retirements of common stock                          |                                                             |                                          | (1,727  | )                      |         |         | (2,170  | )     
|                                                                     | Cash dividends paid                                                  |                                                             |                                          | (4,145  | )                      |         |         | (2,910  | )     
|                                                                     |                                                                      |                                                             |                                          |         |                        |        
|                                                                     |                                                                      |                                                             | 52,804                                   |         |                        |         | 37,906  |        
|                                                                     |                                                                      |                                                             |                                          |         |                        |        
|Increase in cash and cash equivalents                                |                                                                      |                                                             | 50                                       |         |                        |         | 2,530   |        
|Cash and cash equivalents, beginning of period                       |                                                                      |                                                             | 1,650                                    |         |                        |         | 2,721   |        
|                                                                     |                                                                      |                                                             |                                          |         |                        |        
|Cash and cash equivalents, end of period                             |                                                                      | $                                                           | 1,700                                    |         |                        | $       | 5,251   |        
|                                                                     |                                                                      |                                                             |                                          |         |                        |        
|Supplemental cash flow information:                                  |                                                                      |                                                             |                                          |         |                        |         |         |        
|                                                                     | Cash paid during the period for:                                     |                                                             |                                          |         |                        |         |         |         |       
|                                                                     |                                                                      |                                                             | Interest (net of amounts capitalized)    |         | $                      | 4,249   |         |         | $      | 5,565   |  
|                                                                     |                                                                      |                                                             |                                          |         |                        |        
|                                                                     |                                                                      |                                                             | Income taxes (net of refunds)            |         | $                      | 343     |         |         | $      | 46      |  
|                                                                     |                                                                      |                                                             |                                          |         |                        |        
|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.

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DREYERS GRAND ICE CREAM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1  Operations and Financial Statement Presentation

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

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

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

NOTE 2  Significant Accounting Assumptions and Estimates

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

NOTE 3  Merger and Contribution Agreement with Nestlé Holdings, Inc.

On June 16, 2002, the Company entered into an Agreement and Plan of Merger
and Contribution (the Merger Agreement) with Nestlé Holdings, Inc. (Nestlé) and
NICC Holdings, Inc., a wholly-owned subsidiary of Nestlé, to combine the
Company with Nestlés United States frozen dessert business. The combination
will result in both the Company and Nestlé Ice Cream Company, LLC (NICC), which
holds Nestlés United States frozen dessert business, becoming wholly-owned
subsidiaries of a newly formed Delaware corporation (New Dreyers). 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
the acquirer for accounting purposes only, and the Company will be treated as
the acquiree. As a result, the Company will expense all merger
transaction expenses as incurred. These expenses totaled $2,888,000 for the
thirteen and twenty-six weeks ended June 29, 2002.

6



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If the transactions contemplated by the Merger Agreement are completed,
each stockholder who holds shares of the Companys common stock at the
effective time of the merger will receive one share of class A callable
puttable common stock of New Dreyers. Under the amended and restated
certificate of incorporation of New Dreyers, subject to the terms set forth
therein, the holders of New Dreyers class A callable puttable stock will be
permitted to sell (put) some or all of their shares to New Dreyers for $83.00
per share during two periods, the first beginning on December 1, 2005 and
ending on January 13, 2006, and the second beginning on April 3, 2006 and
ending on May 12, 2006. The New Dreyers class A callable puttable common
stock will also be subject to redemption (call) by New Dreyers at the request
of Nestlé at $88.00 per share during a six-month period beginning January 1,
2007. For the contribution of its ownership interest of NICC, Nestlé will
receive approximately 55 million shares of class B common stock of New
Dreyers. The class B common shares are similar to the class A common shares, except that they lack the call and put features.
The shares of the Companys common stock currently held by Nestlé
will be converted into the same number of shares of class B common stock of New
Dreyers. As of June 29, 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 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 Improvement Act of 1976,
as amended (the HSR Act), and the rules promulgated thereunder by the
United States Federal Trade Commission (the FTC), the transactions
cannot be completed until notifications have been given and
information has been furnished to the FTC and the Antitrust Division,
of the Unites 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.                                                                               
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | New Dreyers must file with the SEC a registration statement on
Form S-4 which will include a proxy statement/prospectus. 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.

NOTE 4  Inventories

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

|               |  |               |        |  |               |   |        | 
|-------------- |  | ------------- | ------ |  | ------------- | - | ------ | 
|(In thousands) |  | June 29, 2002 |        |  | Dec. 29, 2001 |  
|               |  |               |        |  |               |  
|Raw materials  |  | $             | 8,611  |  |               | $ | 9,099  | 
|Finished goods |  |               | 87,616 |  |               |   | 72,199 | 
|               |  |               |        |  |               |  
|               |  | $             | 96,227 |  |               | $ | 81,298 | 
|               |  |               |        |  |               |  

NOTE 5  Butter Investment

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

Investments in butter, included in Prepaid Expenses and Other at June 29,
2002 consisted of the following:

|                         |  |               |       | 
|------------------------ |  | ------------- | ----- | 
|(In thousands)           |  | June 29, 2002 |      
|                         |  |               |      
|Butter                   |  | $             | 5,406 | 
|Butter futures contracts |  |               | 180   | 
|                         |  |               |      
|                         |  | $             | 5,586 | 
|                         |  |               |      

During the thirteen and twenty-six weeks ended June 29, 2002, the Company
recorded expense of $1,147,000 and $1,319,000, respectively. During 2001, the
Company made no investments in butter.

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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 effects of potentially dilutive securities which include stock options
and redeemable convertible preferred stock.

|                                                      |         |               |                      |     |               |                        |        |               |  |   |               |     |  |   |        |     | 
|----------------------------------------------------- | ------- | ------------- | -------------------- | --- | ------------- | ---------------------- | ------ | ------------- |  | - | ------------- | --- |  | - | ------ | --- | 
|                                                      |         |               | Thirteen Weeks Ended |     |               | Twenty-six Weeks Ended |       
|                                                      |         |               |                      |     |               |                        |       
|(In thousands, except per share amounts)              |         | June 29, 2002 |                      |     | June 30, 2001 |                        |        | June 29, 2002 |  |   | June 30, 2001 |    
|                                                      |         |               |                      |     |               |                        |        |               |  |   |               |    
|Net income available to common
stockholders  basic   |         | $             | 11,686               |     |               | $                      | 6,935  |               |  | $ | 12,996        |     |  | $ | 2,049  |    
|Add: preferred dividends and accretion                |         |               |                      |     |               |                        | 106    |               |  |   |               |     |  |   | 560    |    
|                                                      |         |               |                      |     |               |                        |        |               |  |   |               |    
|Net income available to common
stockholders  diluted |         | $             | 11,686               |     |               | $                      | 7,041  |               |  | $ | 12,996        |     |  | $ | 2,609  |    
|                                                      |         |               |                      |     |               |                        |        |               |  |   |               |    
|                                                     
|Weighted-average
shares  basic                       |         |               | 34,685               |     |               |                        | 29,275 |               |  |   | 34,598        |     |  |   | 28,822 |    
|Dilutive effect of options                            |         |               | 2,923                |     |               |                        | 1,733  |               |  |   | 2,795         |     |  |   | 1,923  |    
|Dilutive effect of preferred stock                    |         |               |                      |     |               |                        | 5,099  |               |  |   |               |     |  |   | 5,449  |    
|                                                      |         |               |                      |     |               |                        |        |               |  |   |               |    
|Weighted-average
shares  diluted                     |         |               | 37,608               |     |               |                        | 36,107 |               |  |   | 37,393        |     |  |   | 36,194 |    
|                                                      |         |               |                      |     |               |                        |        |               |  |   |               |    
|                                                     
|Net income per common share:                          |         |               |                      |     |               |                        |        |               |  |   |               |     |  |   |        |    
|                                                      | Basic   |               | $                    | .34 |               |                        | $      | .24           |  |   | $             | .38 |  |   | $      | .07 | 
|                                                      |         |               |                      |     |               |                        |        |               |  |   |               |    
|                                                      | Diluted |               | $                    | .31 |               |                        | $      | .20           |  |   | $             | .35 |  |   | $      | .07 | 
|                                                      |         |               |                      |     |               |                        |        |               |  |   |               |    

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

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 twenty-six weeks ended June 29, 2002.
Potentially dilutive securities, stated in absolute equivalent shares of common
stock, consisted of 774,000 and 753,000 stock options during the thirteen and
twenty-six weeks ended June 30, 2001, respectively.

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. The
Company presented expenses of $63,038,000 and $110,708,000, respectively, in
accordance with this pronouncement for the thirteen and twenty-six weeks ended
June 29, 2002. The Company retroactively reclassified expenses of $49,410,000
and $82,026,000, respectively, for the thirteen and twenty-six weeks ended June
30, 2001. The retroactive reclassification of these expenses resulted in a

8



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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.

A reconciliation of reported net income and net income per common share to
the amounts adjusted for the exclusion of goodwill amortization of $980,000 and
$2,093,000, respectively, for the thirteen and twenty-six weeks ended June 30,
2001, net of the related income tax effects of $382,000 and $806,000,
respectively, follows:

|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |     |  |   |       |     | 
|---------------------------------------- | --------------------------------- | ------------- | -------------------- | --- | ------------- | ---------------------- | ----- | ------------- |  | - | ------------- | --- |  | - | ----- | --- | 
|                                         |                                   |               | Thirteen Weeks Ended |     |               | Twenty-six Weeks Ended |      
|                                         |                                   |               |                      |     |               |                        |      
|(In thousands, except per share amounts) |                                   | June 29, 2002 |                      |     | June 30, 2001 |                        |       | June 29, 2002 |  |   | June 30, 2001 |    
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    
|Reported net income                      |                                   | $             | 11,686               |     |               | $                      | 6,935 |               |  | $ | 12,996        |     |  | $ | 2,049 |    
|Goodwill amortization, net of tax        |                                   |               |                      |     |               |                        | 598   |               |  |   |               |     |  |   | 1,287 |    
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    
|Adjusted net income                      |                                   | $             | 11,686               |     |               | $                      | 7,533 |               |  | $ | 12,996        |     |  | $ | 3,336 |    
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    
|                                        
|Net income per common share:             |                                   |               |                      |     |               |                        |       |               |  |   |               |     |  |   |       |    
|                                         | Reported basic                    |               | $                    | .34 |               |                        | $     | .24           |  |   | $             | .38 |  |   | $     | .07 | 
|                                         | Goodwill amortization, net of tax |               |                      |     |               |                        |       | .02           |  |   |               |     |  |   |       | .05 | 
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    
|                                         | Adjusted basic                    |               | $                    | .34 |               |                        | $     | .26           |  |   | $             | .38 |  |   | $     | .12 | 
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    
|                                        
|                                         | Reported diluted                  |               | $                    | .31 |               |                        | $     | .20           |  |   | $             | .35 |  |   | $     | .07 | 
|                                         | Goodwill amortization, net of tax |               |                      |     |               |                        |       | .01           |  |   |               |     |  |   |       | .04 | 
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    
|                                         | Adjusted diluted                  |               | $                    | .31 |               |                        | $     | .21           |  |   | $             | .35 |  |   | $     | .11 | 
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    

In accordance with SFAS No. 142, the Company reclassified the long-term
deferred income tax liability associated with nondeductible goodwill, resulting
in a noncash reduction in goodwill and a corresponding reduction in the
deferred income tax liability of $10,166,000. Also in accordance with SFAS No.
142, the Company now presents goodwill separately from other intangibles in the
Consolidated Balance Sheet. In addition, the Company reclassified $53,927,000
of acquisition-related intangibles with indefinite lives to goodwill at the
beginning of the first quarter of 2002. Fiscal 2001 acquisition-related
intangibles are included in Other Intangibles, Net, in the Consolidated Balance
Sheet.

Accounting for the Impairment or Disposal of Long-Lived Assets

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

9



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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 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.

10



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##### Table of Contents






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

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, which contains a safe
harbor for forward-looking statements upon which the Company relies in making
such disclosures. These forward-looking statements are based on the Companys
current expectations and projections about future events. These
forward-looking statements are subject to risks, uncertainties and assumptions
about us, including:



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

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 Item 7  Managements Discussion and Analysis of
Financial Condition and Results of Operations and Item 7A  Qualitative and
Quantitative Disclosures About Market Risk in the Companys Form 10-K Report
for the fiscal year ended December 29, 2002.

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 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                                                                                                                                                                                                     

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

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

MERGER AND CONTRIBUTION AGREEMENT WITH NESTLÉ HOLDINGS, INC.

The Company entered into an Agreement and Plan of Merger and Contribution
(the Merger Agreement) with Nestlé Holdings, Inc. (Nestlé) and NICC Holdings,
Inc., a wholly-owned subsidiary of Nestlé, to combine the Company with Nestlés
United States frozen dessert business. The combination will result in both the
Company and Nestlé Ice Cream Company, LLC (NICC), which holds Nestlés United
States frozen dessert business, becoming wholly-owned subsidiaries of a newly
formed Delaware corporation (New Dreyers). 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 the
acquirer for accounting purposes only, and the Company will be treated as the
acquiree. As a result, the Company will expense all merger transaction
expenses as incurred. These expenses totaled $2,888,000 for the thirteen and
twenty-six weeks ended June 29, 2002.

If the transactions contemplated by the Merger Agreement are completed,
each stockholder who holds shares of the Companys common stock at the
effective time of the merger will receive one share of class A callable
puttable common stock of New Dreyers. Under the amended and restated
certificate of incorporation of New Dreyers, subject to the terms set forth
therein, the holders of New Dreyers class A callable puttable stock will be
permitted to sell (put) some or all of their shares to New Dreyers for $83.00
per share during two periods, the first beginning on December 1, 2005 and
ending on January 13, 2006, and the second beginning on April 3, 2006 and
ending on May 12, 2006. The New Dreyers class A callable puttable common
stock will also be subject to redemption (call) by New Dreyers at the request
of Nestlé at $88.00 per share during a six-month period beginning January 1,
2007. For the contribution of its ownership interest of NICC, Nestlé Holdings,
Inc. will receive approximately 55 million shares of class B common stock of
New Dreyers. The class B common shares are similar to the class A common shares, except that they lack the call and put
features. The shares of the Companys common stock currently held by
Nestlé will be converted into the same number of shares of class B common stock
of New Dreyers. As of June 29, 2002, Nestlé owned approximately 23 percent of
the Companys common stock on a diluted basis. If the transactions
contemplated by the Merger Agreement are completed, Nestlé and NICC Holdings,
Inc. will own approximately 67 percent of the diluted common stock of New
Dreyers.

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. In
connection with the execution of the Merger Agreement, certain executive
officers entered into employment agreements which, among other things, waived
the accelerated vesting of such officers unvested stock options as a result of
the approval of the transactions by the

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

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



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

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 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 Improvement Act of 1976,
as amended (the HSR Act), and the rules promulgated thereunder by the
United States Federal Trade Commission (the FTC), the transactions
cannot be completed until notifications have been given and
information has been furnished to the FTC and the Antitrust Division,
of the Unites 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.                                                                               
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | New Dreyers must file with the SEC a registration statement on
Form S-4 which will include a proxy statement/prospectus. 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.

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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. The
Company presented expenses of $63,038,000 and $110,708,000, respectively, in
accordance with this pronouncement for the thirteen and twenty-six weeks ended
June 29, 2002. The Company retroactively reclassified expenses of $49,410,000
and $82,026,000, respectively, for the thirteen and twenty-six weeks ended June
30, 2001. 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.

A reconciliation of reported net income and net income per common share to
the amounts adjusted for the exclusion of goodwill amortization of $980,000 and
$2,093,000, respectively, for the thirteen and twenty-six weeks ended June 30,
2001, net of the related income tax effects of $382,000 and $806,000,
respectively, follows:

|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |     |  |   |       |     | 
|---------------------------------------- | --------------------------------- | ------------- | -------------------- | --- | ------------- | ---------------------- | ----- | ------------- |  | - | ------------- | --- |  | - | ----- | --- | 
|                                         |                                   |               | Thirteen Weeks Ended |     |               | Twenty-six Weeks Ended |      
|                                         |                                   |               |                      |     |               |                        |      
|(In thousands, except per share amounts) |                                   | June 29, 2002 |                      |     | June 30, 2001 |                        |       | June 29, 2002 |  |   | June 30, 2001 |    
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    
|Reported net income                      |                                   | $             | 11,686               |     |               | $                      | 6,935 |               |  | $ | 12,996        |     |  | $ | 2,049 |    
|Goodwill amortization, net of tax        |                                   |               |                      |     |               |                        | 598   |               |  |   |               |     |  |   | 1,287 |    
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    
|Adjusted net income                      |                                   | $             | 11,686               |     |               | $                      | 7,533 |               |  | $ | 12,996        |     |  | $ | 3,336 |    
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    
|Net income per common share:             |                                   |               |                      |     |               |                        |       |               |  |   |               |     |  |   |       |    
|                                         | Reported basic                    |               | $                    | .34 |               |                        | $     | .24           |  |   | $             | .38 |  |   | $     | .07 | 
|                                         | Goodwill amortization, net of tax |               |                      |     |               |                        |       | .02           |  |   |               |     |  |   |       | .05 | 
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    
|                                         | Adjusted basic                    |               | $                    | .34 |               |                        | $     | .26           |  |   | $             | .38 |  |   | $     | .12 | 
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |     |  |   |       |    
|                                         | Reported diluted                  |               | $                    | .31 |               |                        | $     | .20           |  |   | $             | .35 |  |   | $     | .07 | 
|                                         | Goodwill amortization, net of tax |               |                      |     |               |                        |       | .01           |  |   |               |     |  |   |       | .04 | 
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    
|                                         | Adjusted diluted                  |               | $                    | .31 |               |                        | $     | .21           |  |   | $             | .35 |  |   | $     | .11 | 
|                                         |                                   |               |                      |     |               |                        |       |               |  |   |               |    

In accordance with SFAS No. 142, the Company reclassified the long-term
deferred income tax liability associated with nondeductible goodwill, resulting
in a noncash reduction in goodwill and a corresponding reduction in the
deferred income tax liability of $10,166,000. Also in accordance with SFAS No.
142, the Company now presents goodwill separately from other intangibles in the
Consolidated Balance Sheet. In addition, the Company reclassified $53,927,000
of acquisition-related intangibles with indefinite lives to goodwill at the
beginning of the first quarter of 2002. Fiscal 2001 acquisition-related
intangibles are included in Other Intangibles, Net, in the Consolidated Balance
Sheet.

Accounting for the Impairment or Disposal of Long-Lived Assets

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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.

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##### Table of Contents



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         |        |    | Twenty-six |       
|                                                 |                                      |  |                      |       |   |                         |      |       |          |  |      |          |   |  |          |       |   |          | Weeks            |        |    | Weeks      |       
|                                                 |                                      |  | Thirteen Weeks Ended |       |   | Twenty-six Weeks Ended  |      |       | Ended    |  |      | Ended    |  
|                                                 |                                      |  |                      |       |   |                         |      |       | 2002     |  |      | 2002     |  
|                                                 |                                      |  | June 29,             |       |   | June 30,                |      |       | June 29, |  |      | June 30, |   |  | Compared |       |   | Compared |                 
|                                                 |                                      |  | 2002                 |       |   | 2001                    |      |       | 2002     |  |      | 2001     |   |  | To 2001  |       |   | To 2001  |                 
|                                                 |                                      |  |                      |       |   |                         |      |       |          |  |      |          |   |  |          |       |   |          |                 
|                                                 |                                      |  |                      |       |   |                         |      |       |          |  |      |          |   |  |          |       |   |          |                  |        |    |            |        |       
|Net sales                                        |                                      |  |                      | 100.0 | % |                         |      | 100.0 | %        |  |      | 100.0    | % |  |          | 100.0 | % |          |                  | 12.3   | %  |            |        | 16.1   | %
|                                                 |                                      |  |                      |       |   |                         |      |       |          |  |      |          |   |  |          |      
|Costs and expenses:                              |                                      |  |                      |       |   |                         |      |       |          |  |      |          |   |  |          |       |   |          |                  |        |    |            |        |       
|                                                 | Cost of goods sold                   |  |                      | 85.7  |   |                         |      | 87.5  |          |  |      | 87.7     |   |  |          | 88.8  |   |          |                  | (10.1  | )  |            |        | (14.7  | )
|                                                 | Selling, general and administrative  |  |                      | 7.8   |   |                         |      | 8.4   |          |  |      | 8.2      |   |  |          | 9.6   |   |          |                  | (3.7   | )  |            |        | 0.7    |  
|                                                 | Interest, net of amounts capitalized |  |                      | 0.6   |   |                         |      | 1.0   |          |  |      | 0.6      |   |  |          | 1.1   |   |          |                  | 35.6   |    |            |        | 38.1   |  
|                                                 | Other expense (income)               |  |                      | 0.3   |   |                         |      | (0.3  | )        |  |      | 0.1      |   |  |          | (0.2  | ) |          |                  | (242.7 | )  |            |        | (116.2 | )
|                                                 | Merger transaction expenses          |  |                      | 0.8   |   |                         |      |      |          |  |      | 0.4      |   |  |          |      |   |          | NM               |        | NM
|                                                 |                                      |  |                      |       |   |                         |      |       |          |  |      |          |   |  |          |      
|                                                
|                                                 |                                      |  | 95.2                 |       |   |                         | 96.6 |       |          |  | 97.0 |          |   |  | 99.3     |       |   |          | (10.7            | )      |    |            | (13.4  | )     
|                                                 |                                      |  |                      |       |   |                         |      |       |          |  |      |          |   |  |          |      
|                                                
|Income before income tax provision               |                                      |  | 4.8                  |       |   |                         | 3.4  |       |          |  | 3.0  |          |   |  | 0.7      |       |   |          | 59.5             |        |    |            | 373.1  |       
|                                                
|Income tax provision                             |                                      |  | 1.7                  |       |   |                         | 1.3  |       |          |  | 1.1  |          |   |  | 0.3      |       |   |          | (49.0            | )      |    |            | (334.3 | )     
|                                                
|                                                 |                                      |  |                      |       |   |                         |      |       |          |  |      |          |   |  |          |      
|                                                
|Net income                                       |                                      |  | 3.1                  |       |   |                         | 2.1  |       |          |  | 1.9  |          |   |  | 0.4      |       |   |          | 66.0             |        |    |            | 398.1  |       
|                                                
|Accretion of preferred stock to redemption value |                                      |  |                     |       |   |                         |     |       |          |  |     |          |   |  |         |       |   |          |                 |        |    |            |       |       
|                                                
|Preferred stock dividends                        |                                      |  |                     |       |   |                         |     |       |          |  |     |          |   |  |         |       |   |          |                 |        |    |            |       |       
|                                                 |                                      |  |                      |       |   |                         |      |       |          |  |      |          |   |  |          |      
|                                                
|Net income available to common stockholders      |                                      |  | 3.1                  | %     |   |                         | 2.1  | %     |          |  | 1.9  | %        |   |  | 0.4      | %     |   |          | 68.5             |        |    |            | 534.3  |       
|                                                 |                                      |  |                      |       |   |                         |      |       |          |  |      |          |   |  |          |      

Thirteen Weeks ended June 29, 2002 Compared with Thirteen Weeks ended June 30,
2001

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

Net sales of the Companys branded products, including licensed and joint
venture products (company brands), increased $10,818,000, or six percent, to
$204,603,000 from $193,785,000 for the same quarter last year. Company brands
represented 54 percent of consolidated net sales in 2002 compared with 58
percent in the same quarter last year. Gallon sales of the Companys branded
products, including novelties, increased approximately 700,000 gallons, or two
percent, to approximately 30,900,000 gallons. The products that led this
increase were Dreyers and Edys® Grand Ice Cream, the Companys superpremium
portfolio and Whole Fruit Bars. The average price of the Companys branded
products, net of the effect of trade promotion expenses (which are classified
as a reduction of sales), increased by four percent.

Net sales of products distributed for other manufacturers (partner
brands), including Ben & Jerrys Homemade, Inc. (Ben & Jerrys), increased
$30,569,000, or 22 percent, to $172,208,000 from $141,639,000 for the same
quarter last year. This increase was driven largely by increased sales of
distributed novelty products, Ben & Jerrys superpremium products and Healthy
Choice ice cream. Sales of partner brands represented 46 percent of
consolidated net sales compared with

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42 percent in the same quarter last year.
Average wholesale prices for partner brands increased approximately 16 percent.
Unit sales of partner brands increased by four percent over the same quarter
last year.

Cost of goods sold increased $29,539,000, or 10 percent, to $322,865,000
from $293,326,000 for the same quarter last year. The Companys gross profit
increased by $11,848,000, or 28 percent, to $53,946,000 from $42,098,000,
representing a 14.3 percent gross margin compared with a 12.6 percent gross
margin for the same quarter last year. The improvement in gross profit was
primarily attributable to lower dairy raw material costs and higher volume,
partially offset by increases in distribution expenses. During the second
quarter of 2002, the decrease in dairy raw material costs accounted for a
$11,400,000 pre-tax benefit (excluding the results of butter trading activities,
which are included in Other Expense (Income) and discussed below) as compared
to the same quarter last year.

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

Interest expense decreased $1,162,000, or 36 percent, to $2,102,000 from
$3,264,000 for the same quarter last year, primarily due to lower interest
rates, partially offset by higher borrowings.

Other income decreased $2,257,000, or 243 percent, to an expense of
$1,327,000 from income of $(930,000) for the same quarter last year. Other
expense includes $1,147,000 of expense from butter trading activities and a
$1,093,000 write-off of a cost method investment in Momentx Corporation
(Momentx), an e-market solution provider for the dairy, food and beverage
industries. During the second quarter of 2002, the Company determined that
Momentxs shortfalls to its business plan, which called for a substantial
acceleration of its sales growth which did not occur, negatively impacted the
recovery of the Companys investment. Decreases in other income were partially
offset by an increase in earnings from joint ventures accounted for under the
equity method.

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

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

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

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

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

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

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

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

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

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

Other income decreased $1,358,000, or 116 percent, to an expense of
$189,000 from income of $(1,169,000) for the same period last year. Other
expense includes $1,319,000 of expense from butter trading activities and a
$1,093,000 write-off of a cost method investment in Momentx Corporation
(Momentx), an e-market solution provider for the dairy, food and beverage
industries. During the second quarter of 2002, the Company determined that
Momentxs shortfalls to its business plan, which called for a substantial
acceleration of its sales growth which did not occur, negatively impacted the
recovery of the Companys investment. Decreases in other income were partially
offset by an increase in earnings from joint ventures accounted for under the
equity method.

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

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

LIQUIDITY AND CAPITAL RESOURCES

Working capital at June 29, 2002 increased $51,045,000 from year-end 2001.
The Companys cash flows used in operating activities increased to $21,928,000
from $9,788,000 for the same period last year. The increase in cash flows used
in operating activities were primarily comprised of an increase in prepaid
expenses and other of $20,086,000 and in accounts payable and accrued
liabilities of $14,836,000, partially offset by an increase in net income of
$10,387,000.

Cash flows used in investing activities totaled $30,826,000 and
$25,588,000, in 2002 and 2001, respectively. Cash flows used in investing
activities primarily consisted of property, plant and equipment purchases of
$28,416,000 and $21,485,000, in 2002 and 2001, respectively.

Cash flows from financing activities totaled $52,804,000 and $37,906,000,
in 2002 and 2001, respectively. Cash flows from financing activities for 2002
primarily consisted of a net increase of $52,901,000 in the Companys revolving
line of

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credit. Cash flows from financing activities for 2001 primarily
consisted of a net increase of $47,300,000 in the revolving line of credit,
partially offset by repayments of debt totaling $10,543,000.

At June 29, 2002, the Company had $1,700,000 in cash and cash equivalents,
and an unused credit line of $67,000,000. As discussed earlier, the Company
currently estimates that it will incur total merger transaction
expenses for fiscal 2002 in the range of $23,000,000 to $26,000,000. The
Company believes that its credit line, along with its liquid resources,
internally-generated cash and financing capacity, are adequate to meet both
short-term and long-term operating and capital requirements, including the
merger transaction expenses. The Company also believes that New
Dreyers, the new company that would be created upon the consummation of the
transactions contemplated by the Merger Agreement, would have sufficient liquid
resources, internally-generated cash and financing capacity to meet its
short-term and long-term operating and capital requirements.




ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.

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

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

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

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PART II: OTHER INFORMATION




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

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



|(a) |  | Election of three directors to Class II of the Board of Directors
|--- |  | -----------------------------------------------------------------

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

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

and



|(b) |  | Approving the appointment of PricewaterhouseCoopers LLP as independent
public accountants for the fiscal year 2002 and thereafter until its
successor is appointed:
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

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




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



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

| |             |  |                                                                                                                                                
| | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Exhibit No. |  | Description                                                                                                                                    
| |             |  |                                                                                                                                                
| | 99.1        |  | Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
| | 99.2        |  | Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.



|(b) |  | A Report on Form 8-K/A was filed on June 17, 2002, reporting the
Agreement and Plan of Merger and Contribution, dated as of June 16, 2002,
by and among Dreyers Grand Ice Cream, Inc., New December, Inc., December
Merger Sub, Inc., Nestlé Holdings, Inc. and NICC Holdings, Inc.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | A Report on Form 8-K was filed on August 7, 2002, reporting the submission
of sworn statements by the Companys Principal Executive Officer and
Principal Financial Officer to the SEC pursuant to SEC Order
No. 4-460.                                                             

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##### Table of Contents






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: August 13, 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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DREYERS GRAND ICE CREAM, INC.




INDEX OF EXHIBITS

|            |  |                                                                                                                                                
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                    
|            |  |                                                                                                                                                
|99.1        |  | Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|           
|           
|           
|           
|99.2        |  | Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

22