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 30, 2001

OR

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

Commission file number 0-14190

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

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

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

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

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

Yes [X]   No [   ]

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

	Shares Outstanding
	August 12, 2001
Common stock, $1 par value		34,385,000

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

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DREYER’S GRAND ICE CREAM, INC.

CONSOLIDATED BALANCE SHEET

			June 30, 2001			Dec. 30, 2000
($ in thousands, except per share amounts)			(Unaudited)
Assets
Current Assets:
		Cash and cash equivalents	$	5,251		$	2,721
		Trade accounts receivable, net of allowance for doubtful accounts of $1,102 in 2001 and $2,611 in 2000		134,929			77,310
		Other accounts receivable		20,621			18,353
		Inventories		84,866			68,801
		Deferred income taxes		4,292			4,584
		Prepaid expenses and other		7,629			6,950
		Total current assets		257,588			178,719
Property, plant and equipment, net				196,328			190,833
Goodwill, distribution rights and other intangibles, net				94,799			92,892
Other assets				6,240			6,007
Total assets			$	554,955		$	468,451
Liabilities and Stockholders’ Equity
Current Liabilities:
	Accounts payable and accrued liabilities		$	132,790		$	80,260
	Accrued payroll and employee benefits			19,415			24,759
	Current portion of long-term debt			11,643			15,043
	Total current liabilities			163,848			120,062
Long-term debt, less current portion				161,371			121,214
Deferred income taxes				26,281			26,263
Total liabilities				351,500			267,539
Commitments and contingencies
Redeemable convertible preferred stock, $1 par value - 1,008,000 shares authorized; no shares issued or outstanding in 2001; 1,008,000 shares issued and outstanding in 2000							100,540
Stockholders’ Equity:
	Preferred stock, $1 par value - 8,992,000 shares authorized; no shares issued or outstanding in 2001 and 2000
	Common stock, $1 par value - 60,000,000 shares authorized; 34,385,000 shares and 28,268,000 shares issued and outstanding in 2001 and 2000, respectively			34,385			28,268
	Capital in excess of par			157,110			58,396
	Notes receivable from stockholders			(2,304	)		(2,284	)
	Retained earnings			14,264			15,992
Total stockholders’ equity				203,455			100,372
Total liabilities and stockholders’ equity			$	554,955		$	468,451

See accompanying Notes to Consolidated Financial Statements.

2

DREYER’S GRAND ICE CREAM, INC.

CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

			Thirteen Weeks Ended				Twenty-six Weeks Ended
			June 30, 2001		June 24, 2000		June 30, 2001		June 24, 2000
($ in thousands, except per share amounts)
Revenues:
	Sales		$	384,833	$	323,820	$	656,862	$	564,239
	Other income			930		1,801		1,169		3,129
				385,763		325,621		658,031		567,368
Costs and expenses:
	Cost of goods sold			293,952		234,799		511,329		418,003
	Selling, general and administrative			77,096		67,627		136,132		119,205
	Interest, net of amounts capitalized			3,264		2,975		6,278		5,633
				374,312		305,401		653,739		542,841
Income before income tax provision				11,451		20,220		4,292		24,527
Income tax provision				4,410		7,704		1,683		9,345
Net income				7,041		12,516		2,609		15,182
Accretion of preferred stock to redemption value				106		106		212		212
Preferred stock dividends						174		348		348
Net income available to common stockholders			$	6,935	$	12,236	$	2,049	$	14,622
Net income per common share:
		Basic	$	.24	$	.44	$	.07	$	.52
		Diluted	$	.20	$	.35	$	.07	$	.44
Dividends per common share			$	.06	$	.03	$	.12	$	.06

See accompanying Notes to Consolidated Financial Statements.

3

DREYER’S GRAND ICE CREAM, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

											Notes			Retained
		Common Stock									Receivable			Earnings
								Capital in			From			(Accumulated
(In thousands)		Shares			Amount			Excess of Par			Stockholders			Deficit)			Total
Balances at December 25, 1999			27,871		$	27,871		$	53,172		$	(2,501	)	$	(4,848	)	$	73,694
	Net income														15,182			15,182
	Accretion of preferred stock to redemption value														(212	)		(212	)
	Preferred stock dividends declared														(348	)		(348	)
	Common stock dividends declared														(1,688	)		(1,688	)
	Issuance of common stock under employee stock plans, net		266			266			3,560			(597	)					3,229
	Repurchases and retirements of common stock								(3	)								(3	)
Balances at June 24, 2000			28,137		$	28,137		$	56,729		$	(3,098	)	$	8,086		$	89,854
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

See accompanying Notes to Consolidated Financial Statements.

4

DREYER’S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

				Twenty-six Weeks Ended
(In thousands)				June 30, 2001			June 24, 2000
Cash flows from operating activities:
	Net income			$	2,609		$	15,182
	Adjustments to reconcile net income to cash from operations:
		Depreciation and amortization			17,953			18,437
		Deferred income taxes			310			3,091
		Changes in assets and liabilities, net of amounts acquired:
			Trade accounts receivable		(57,619	)		(60,908	)
			Other accounts receivable		(2,268	)		(15,253	)
			Inventories		(16,065	)		(26,695	)
			Prepaid expenses and other		(679	)		(777	)
			Accounts payable and accrued liabilities		51,315			67,745
			Accrued payroll and employee benefits		(5,344	)		(10,567	)
					(9,788	)		(9,745	)
Cash flows from investing activities:
	Acquisition of property, plant and equipment				(21,485	)		(14,280	)
	Retirement of property, plant and equipment				703			1,386
	Purchase of common stock of Cherokee Cream Company, Inc., net of cash acquired							(7,651	)
	(Increase) decrease in goodwill, distribution rights and other intangibles, net				(4,270	)		781
	Increase in other assets				(536	)		(2,079	)
					(25,588	)		(21,843	)
Cash flows from financing activities:
	Proceeds from long-term debt, net				47,300			51,252
	Repayments of long-term debt				(10,543	)		(18,721	)
	Issuance of common stock under employee stock plans, net				6,229			3,229
	Repurchases and retirements of common stock				(2,170	)		(3	)
	Cash dividends paid				(2,910	)		(2,022	)
					37,906			33,735
Increase in cash and cash equivalents					2,530			2,147
Cash and cash equivalents, beginning of period					2,721			3,158
Cash and cash equivalents, end of period				$	5,251		$	5,305
Supplemental cash flow information:
	Cash paid (refunded) during the period for:
			Interest (net of amounts capitalized)	$	5,565		$	5,855
			Income taxes (net of refunds)	$	46		$	1,021
Supplemental schedule of noncash investing and financing activities:
	Conversion of redeemable convertible preferred stock to common stock			$	100,752
	Fair value of assets acquired						$	19,052
	Cash paid for common stock							(7,855	)
	Liabilities assumed						$	11,197

See accompanying Notes to Consolidated Financial Statements.

5

DREYER’S GRAND ICE CREAM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 — Operations and Financial Statement Presentation

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

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

     The consolidated financial statements for the thirteen and twenty-six weeks ended June 30, 2001 and June 24, 2000 have not been audited by independent public accountants, but include all adjustments, such as normal recurring accruals, which management considers necessary for a fair presentation of the consolidated operating results for the interim periods. The statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosure normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of results to be expected for an entire year. The aforementioned statements should be read in conjunction with the Consolidated Financial Statements for the year ended December 30, 2000, appearing in the Company’s 2000 Annual Report to Stockholders. Certain reclassifications have been made to prior years’ financial statements to conform to the current year presentation.

NOTE 2 — Inventories

Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. Inventories at June 30, 2001 and December 30, 2000 consisted of the following:

(In thousands)	June 30, 2001		Dec. 30, 2000
Raw materials	$	9,809	$	8,368
Finished goods		75,057		60,433
	$	84,866	$	68,801

NOTE 3 — Goodwill, distribution rights and other intangibles, net

On October 25, 2000, the Company announced that it signed a new, long-term distribution agreement with Ben & Jerry’s Homemade, Inc. (Ben & Jerry’s), a subsidiary of Unilever United States, Inc. Under this agreement, the Company became the distributor of Ben & Jerry’s products for the grocery channel in all of its company-operated markets across the country as of the effective date of March 5, 2001. The Company and Ben & Jerry’s are expanding the Company’s role as a Ben & Jerry’s distributor in other non-grocery channels, such as convenience stores. The agreement has a term of five years, and automatically renews for two additional five-year terms unless terminated by either party at the end of each five-year term.

6

NOTE 4 — Redeemable Convertible Preferred Stock

The Company’s Series A redeemable convertible preferred stock, redemption value $100,752,000, was converted by the holder into 5,800,000 shares of common stock in June 2001.

NOTE 5 — Net Income Per Common Share

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

		Thirteen Weeks Ended				Twenty-six Weeks Ended
(In thousands, except per share amounts)		June 30, 2001		June 24, 2000		June 30, 2001		June 24, 2000
Net income available to common stockholders-basic		$	6,935	$	12,236	$	2,049	$	14,622
Add: preferred dividends and accretion			106		280		560		560
Net income available to common stockholders-diluted		$	7,041	$	12,516	$	2,609	$	15,182
Weighted-average shares-basic			29,275		28,119		28,822		27,949
Dilutive effect of options			1,733		1,535		1,923		1,106
Dilutive effect of preferred stock			5,099		5,800		5,449		5,800
Weighted-average shares-diluted			36,107		35,454		36,194		34,855
Net income per common share:
	Basic	$	.24	$	.44	$	.07	$	.52
	Diluted	$	.20	$	.35	$	.07	$	.44

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. These securities, stated in absolute equivalent shares of common stock, consisted of 774,000 and 71,000 stock options during the thirteen-weeks ended June 30, 2001 and June 24, 2000, respectively, and 753,000 and 689,000 stock options during the twenty-six weeks ended June 30, 2001 and June 24, 2000, respectively.

Dividends per common share

     On February 14, 2001, the Board of Directors, subject to compliance with applicable law, contractual provisions, and future review of the condition of the Company, declared its intention to increase the regular quarterly dividend from $.03 per common share to $.06 per common share starting with the first quarter of 2001.

NOTE 6 — New Accounting Pronouncements

Accounting for Certain Sales Incentives and Vendor Consideration

In July 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF), issued EITF 00-14, “Accounting for Certain Sales Incentives” (EITF 00-14). This pronouncement

7

requires that discounts and other sales incentives be recorded as a reduction of revenue at the date of sale. At the present time, the Company classifies these incentives (including variable trade promotion expenses and coupon redemption costs) as a selling, general and administrative expense.

     In April 2001, the EITF issued EITF 00-25, “Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer” (EITF 00-25). This pronouncement requires that fees paid to retailers to obtain space for their products on the retailer’s store shelves (slotting fees) and amounts paid to retailers to advertise a company’s products be recorded as a reduction of revenue. At the present time, the Company classifies these costs (including fixed trade promotion expenses and slotting fees) as a selling, general and administrative expense.

     The expenses defined in EITF 00-14 and EITF 00-25 totaled approximately $47,700,000 and $37,900,000, for the thirteen-weeks ended June 30, 2001 and June 24, 2000, respectively. For the twenty-six weeks ended June 30, 2001 and June 24, 2000, these expenses totaled approximately $78,900,000 and $64,300,000, respectively. The reclassification of these expenses will result in a decrease in total sales, company brand sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses and will, therefore, have no effect on net income (loss) as previously reported. The Company will implement EITF 00-14 and EITF 00-25 in the first quarter of 2002. Reclassification of prior period financial statements is required.

Accounting for Business Combinations

In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (SFAS No. 141). This statement requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting. Use of the pooling-of-interests method is no longer permitted.

     In July 2001, the Financial Accounting Standards Board also issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). This statement continues to require recognition of goodwill as an asset, but amortization of goodwill as currently required by APB Opinion No. 17, “Intangible Assets”, is no longer permitted. In lieu of amortization, goodwill must be tested for impairment using a fair-value-based approach. The Company is currently assessing the impact that this new pronouncement will have on the recorded amounts of goodwill and distribution rights. Amortization of goodwill and distribution rights totaled approximately $980,000 and $1,100,000, for the thirteen-weeks ended June 30, 2001 and June 24, 2000, respectively, and approximately $2,100,000 and $1,900,000, for the twenty-six weeks ended June 30, 2001 and June 24, 2000, respectively. The Company will implement SFAS No. 141 and SFAS No. 142 in the first quarter of 2002.

8

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

Forward-Looking Statements

The Company may from time to time make written or oral forward-looking statements. Written forward-looking statements may appear in documents filed with the Securities and Exchange Commission, in press releases, and in reports to stockholders. The Private Securities Litigation Reform Act of 1995 contains a “safe harbor” for forward-looking statements upon which the Company relies in making such disclosures. In accordance with this “safe harbor” provision, we have identified that forward-looking statements are contained in this Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

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

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Management’s Discussion and Analysis for the year ended December 30, 2000, appearing in the Company’s 2000 Annual Report to Stockholders.

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 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
														2001			2001
		June 30,			June 24,			June 30,			June 24,			Compared			Compared
		2001			2000			2001			2000			To 2000			To 2000
Revenues:
	Sales		100.0	%		100.0	%		100.0	%		100.0	%		18.8	%		16.4	%
	Other income		0.2			0.6			0.2			0.6			(48.4	)		(62.6	)
			100.2			100.6			100.2			100.6			18.5			16.0
Costs and expenses:
	Cost of goods sold		76.4			72.6			77.8			74.1			(25.2	)		(22.3	)
	Selling, general and administrative		20.0			20.9			20.7			21.1			(14.0	)		(14.2	)
	Interest, net of amounts capitalized		0.9			0.9			1.0			1.0			(9.7	)		(11.5	)
			97.3			94.4			99.5			96.2			(22.6	)		(20.4	)
Income before income tax provision			2.9			6.2			0.7			4.4			(43.4	)		(83.0	)
Income tax provision			1.1			2.4			0.3			1.7			42.8			(82.0	)
Net income			1.8			3.8			0.4			2.7			(43.7	)		(82.8	)
Accretion of preferred stock to redemption value			—			—			—			—			—			—
Preferred stock dividends			—			0.1			0.1			0.1			—			—
Net income available to common stockholders			1.8	%		3.7	%		0.3	%		2.6	%		(43.3	)		(86.0	)

9

Thirteen Weeks ended June 30, 2001 Compared with Thirteen Weeks ended June 24, 2000

Consolidated sales for the second quarter of 2001 increased $61,013,000, or 19 percent, to $384,833,000 from $323,820,000 for the same quarter last year.

     Sales of the Company’s branded products, including licensed and joint venture products (company brands), increased $8,885,000, or four percent, to $239,156,000 from $230,271,000 for the same quarter last year. Company brands represented 62 percent of consolidated sales in 2001 compared with 71 percent in the same quarter last year. Gallon sales of the Company’s branded products, including novelties, increased approximately 600,000 gallons, or two percent, to approximately 30,200,000 gallons. The products that led this increase were Dreyer’s and Edy’s Grand Ice Cream, Whole Fruit Bars, and the “better for you” portfolio. Sales of the Company’s superpremium portfolio declined slightly compared to the same quarter last year. The average price of the Company’s branded products increased two percent before the effect of increased trade promotion expenses, which are presently classified as selling, general and administrative expenses.

     Sales of products distributed for other manufacturers (partner brands), including Ben & Jerry’s Homemade, Inc. (Ben & Jerry’s), increased $52,128,000, or 56 percent, to $145,677,000 from $93,549,000 for the same quarter last year. This increase was driven largely by the acquisition of independent distributors in 2000 and by increased sales of Ben & Jerry’s superpremium products. Sales of partner brands represented 38 percent of consolidated sales compared with 29 percent in the same quarter last year. Unit sales of partner brands increased by 49 percent over the same quarter last year. The Company began distributing Ben & Jerry’s products to a larger distribution territory in March 2001 and distributes Ben & Jerry’s products for the grocery channel in all of the Company’s company-owned markets across the country. Average wholesale prices for partner brands increased approximately five percent.

     Cost of goods sold increased $59,153,000, or 25 percent, over the same quarter last year. The Company’s gross profit increased by $1,860,000 to $90,881,000, representing a 24 percent gross margin for the second quarter of 2001 compared with a 27 percent gross margin for the second quarter of 2000. The cost of cream, the Company’s primary ingredient, and the cost of certain other ingredients, including vanilla and other flavorings, rose sharply during the quarter. During the second quarter of 2001, the increase in dairy raw material costs unfavorably impacted gross profit by approximately $10,000,000 as compared to the second quarter of 2000. Gross margin was also unfavorably affected by integration and other costs associated with recent acquisitions, higher energy costs and increased distribution expenses incurred in the rollout of additional distribution territories for Ben & Jerry’s products.

     Other income decreased $871,000 primarily due to a decrease in earnings from joint ventures accounted for under the equity method.

     Selling, general and administrative expenses increased $9,469,000, or 14 percent, to $77,096,000 from $67,627,000. The increase primarily reflects increased trade promotion expenses for both new and existing products and increased administrative expenses. Selling, general and administrative expenses represented 20 percent of consolidated sales in the second quarter of 2001 and 21 percent in 2000.

     Interest expense increased $289,000, or 10 percent, to $3,264,000, primarily attributable to higher average borrowings required for funding acquisitions, slightly offset by lower interest rates.

     The effective tax rate was 38.5 percent for the second quarter of 2001 and 38.1 percent for the same quarter last year.

Twenty-six Weeks ended June 30, 2001 Compared with Twenty-six Weeks ended June 24, 2000

Consolidated sales for first twenty-six weeks of 2001 increased $92,623,000, or 16 percent, to $656,862,000 from $564,239,000 for the same period last year.

     Sales of the Company’s branded products, including licensed and joint venture products (company brands), increased $14,582,000, or four percent, to $417,188,000 from $402,606,000 for the same period last year. Company brands represented 64 percent of consolidated sales in 2001 compared with 71 percent in the same quarter last year. Gallon sales of the Company’s branded products, including novelties, increased approximately 1,000,000 gallons, or two percent, to approximately 53,100,000 gallons. The products that led this increase were Dreyer’s and Edy’s Grand Ice Cream, Whole Fruit Bars, and the “better for you” portfolio. Sales of the Company’s superpremium portfolio declined slightly compared to the same period last year. The average price of the Company’s branded products increased two

10

percent before the effect of increased trade promotion expenses, which are presently classified as selling, general and administrative expenses.

     Sales of products distributed for other manufacturers (partner brands), including Ben & Jerry’s Homemade, Inc. (Ben & Jerry’s), increased $78,041,000, or 48 percent, to $239,674,000 from $161,633,000 for the same period last year. This increase was driven largely by the acquisition of independent distributors in 2000 and by increased sales of Ben & Jerry’s superpremium products. Sales of partner brands represented 36 percent of consolidated sales compared with 29 percent in the same period last year. Unit sales of partner brands increased by 39 percent over the same period last year. The Company began distributing Ben & Jerry’s products to a larger distribution territory during March 2001 and distributes Ben & Jerry’s products for the grocery channel in all of the Company’s company-owned markets across the country. Average wholesale prices for partner brands increased approximately seven percent.

     Cost of goods sold increased $93,326,000, or 22 percent, over the same period last year. The Company’s gross profit decreased by $703,000 to $145,533,000, representing a 22 percent gross margin for the first twenty-six weeks of 2001 compared with a 26 percent gross margin for the same period of 2000. The cost of cream, the Company’s primary ingredient, rose and remained high. During the first twenty-six weeks of 2001, the increase in dairy raw material costs unfavorably impacted gross profit by approximately $15,000,000 as compared to the same period of 2000. Gross margin was also unfavorably affected by integration and other costs associated with recent acquisitions, higher energy costs and increased distribution expenses incurred in the rollout of additional distribution territories for Ben & Jerry’s products.

     Other income decreased $1,960,000 primarily due to a decrease in earnings from joint ventures accounted for under the equity method.

     Selling, general and administrative expenses increased $16,927,000, or 14 percent, to $136,132,000 from $119,205,000. The increase primarily reflects increased trade promotion expenses for both new and existing products and, to a lesser extent, increased administrative expenses. Selling, general and administrative expenses represented 21 percent of consolidated sales in 2001 and 2000.

     Interest expense increased $645,000, or 11 percent, to $6,278,000, primarily attributable to higher average borrowings required for funding acquisitions, slightly offset by lower interest rates.

     The effective tax rate was 39.2 percent and 38.1 percent for the twenty-six weeks ended 2001 and 2000, respectively.

FINANCIAL CONDITION-LIQUIDITY AND CAPITAL RESOURCES

Working capital at June 30, 2001 increased $35,083,000 from year-end 2000. The Company’s cash flows used in operating activities increased slightly to $9,788,000 from $9,745,000 for the same period last year. These increases were primarily comprised of increases in accounts receivable and inventories, partially offset by increases in accounts payable and accrued liabilities, and resulted from both seasonality and the additional Ben & Jerry’s business.

     Cash flows used in investing activities totaled $25,588,000 and $21,843,000, in 2001 and 2000, respectively. Cash flows used in investing activities during the first twenty-six weeks of 2001 consisted primarily of purchases of $21,485,000 in property, plant and equipment. Cash flows used in investing activities during the first twenty six-weeks of 2000 consisted primarily of purchases of $14,280,000 of property, plant and equipment and the $7,651,000 payment for the purchase of the remaining 84 percent of the outstanding common stock of Cherokee Cream Company, Inc.

     Cash flows from financing activities totaled $37,906,000 and $33,735,000, in 2001 and 2000, respectively. Cash flows from financing activities for the first twenty-six weeks of 2001 primarily consisted of a net increase of $47,300,000 in the Company’s revolving line of credit, partially offset by repayments of debt totaling $10,543,000. Cash flows from financing activities for the first twenty-six weeks of 2000 primarily consisted of a net increase of $51,252,000 in the revolving line of credit, partially offset by repayments of debt totaling $18,721,000.

     The Company’s Series A redeemable convertible preferred stock, redemption value $100,752,000, was converted by the holder into 5,800,000 shares of common stock in June 2001.

     On February 14, 2001, the Board of Directors, subject to compliance with applicable law, contractual provisions, and future review of the condition of the Company, declared its intention to increase the regular quarterly dividend from $.03 per common share to $.06 per common share starting with the first quarter of 2001.

     At June 30, 2001, the Company had $5,251,000 in cash and cash equivalents, and an unused credit line of $107,200,000. 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.

11

New Accounting Pronouncements

Accounting for Certain Sales Incentives and Vendor Consideration

In July 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF), issued EITF 00-14, “Accounting for Certain Sales Incentives” (EITF 00-14). This pronouncement requires that discounts and other sales incentives be recorded as a reduction of revenue at the date of sale. At the present time, the Company classifies these incentives (including variable trade promotion expenses and coupon redemption costs) as a selling, general and administrative expense.

     In April 2001, the EITF issued EITF 00-25, “Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer” (EITF 00-25). This pronouncement requires that fees paid to retailers to obtain space for their products on the retailer’s store shelves (slotting fees) and amounts paid to retailers to advertise a company’s products be recorded as a reduction of revenue. At the present time, the Company classifies these costs (including fixed trade promotion expenses and slotting fees) as a selling, general and administrative expense.

     The expenses defined in EITF 00-14 and EITF 00-25 totaled approximately $47,700,000 and $37,900,000, for the thirteen-weeks ended June 30, 2001 and June 24, 2000, respectively. For the twenty-six weeks ended June 30, 2001 and June 24, 2000, these expenses totaled approximately $78,900,000 and $64,300,000, respectively. The reclassification of these expenses will result in a decrease in total sales, company brand sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses and will, therefore, have no effect on net income (loss) as previously reported. The Company will implement EITF 00-14 and EITF 00-25 in the first quarter of 2002. Reclassification of prior period financial statements is required.

Accounting for Business Combinations

In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (SFAS No. 141). This statement requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting. Use of the pooling-of-interests method is no longer permitted.

     In July 2001, the Financial Accounting Standards Board also issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). This statement continues to require recognition of goodwill as an asset, but amortization of goodwill as currently required by APB Opinion No. 17, “Intangible Assets”, is no longer permitted. In lieu of amortization, goodwill must be tested for impairment using a fair-value-based approach. The Company is currently assessing the impact that this new pronouncement will have on the recorded amounts of goodwill and distribution rights. Amortization of goodwill and distribution rights totaled approximately $980,000 and $1,100,000, for the thirteen-weeks ended June 30, 2001 and June 24, 2000, respectively, and approximately $2,100,000 and $1,900,000, for the twenty-six weeks ended June 30, 2001 and June 24, 2000, respectively. The Company will implement SFAS No. 141 and SFAS No. 142 in the first quarter of 2002.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.

Since December 30, 2000, there have been no material changes in the Company’s market risk exposure.

12

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 9, 2001. A total of 25,624,908 shares (89.7 percent) of the outstanding common shares and 1,007,522 shares (100.0 percent) of the outstanding Series A convertible preferred shares (convertible into 5,800,000 common shares) were represented at the meeting whether in person or by proxy. The following matters were voted upon by the stockholders:

(a) Election of three directors to Class I of the Board of Directors

The following persons, who were the only nominees, were re-elected as directors of Class I of the Board of Directors until the 2004 Annual Meeting of Stockholders or until their respective successors are elected and qualified, and received the following number of votes:

Nominee	For		Withheld
Jan L. Booth		31,140,240		284,668
John W. Larson		31,139,910		284,998
Jack O. Peiffer		31,137,498		287,410

(b) Approving the amendment to the Company’s Stock Option Plan (1993) to increase the number of shares reserved for issuance thereunder by 848,425 shares on the date of each annual meeting of stockholders, beginning in 2001 and ending with the 2005 annual meeting, for a total increase over the five-year period of 4,242,125 shares:

	Votes
For		19,450,370
Against		8,743,409
Abstain		21,103
Broker non-votes		3,210,026

and

(c) Approving the appointment of PricewaterhouseCoopers LLP as independent public accountants for the fiscal year 2001 and thereafter until its successor is appointed:

	Votes
For		31,412,674
Against		4,539
Abstain		7,689
Broker non-votes		6

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

(a) The following exhibits are filed herewith:

          None.

(b) A Report on Form 8-K announcing that the Company’s earnings for the second quarter of 2001 and for fiscal year 2001 would be below expectations was filed on April 2, 2001.

13

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 14, 2001	By:	/s/ Timothy F. Kahn
		Timothy F. Kahn Vice President — Finance and Administration and Chief Financial Officer (Principal Financial Officer)

14 -----END PRIVACY-ENHANCED MESSAGE-----