Friendly Ice Cream Corporation Reports 67 Percent Increase in Second Quarter Net Income (7/01)

Friendly Ice Cream Corporation reported that net income for the second quarter of 2001 was $5.0 million, or $.68 per share, a 67% icrease as compared to net income of $3.0 million, or $.40 per share, for the quarter ended July 2, 2000. The growth in second quarter net income was the result of a 1.4% icrease in comparable Restaurant sales revenue, an improvement of 1.4 percentage points in restaurant margins and $3.8 million in gains from re-franchising sales. Exclusive of restructuring charges, write-downs, gains on Franchise sales and dispositions of other properties and equipment, income before income taxes increased by $1.1 million, or 35%, o $4.2 million for the second quarter of 2001 from $3.1 million in the same quarter of 2000.

Net income for the six months ended July 1, 2001 was $1.8 million, or $.25 per share. For the six months ended July 2, 2000, the net loss was $15.5 million, or $2.08 per share. On March 27, 2000, the company announced the strategic decision to immediately close 80 under-performing company owned restaurants and the future disposition of approximately 70 additional company owned restaurants over the next 24 months. The costs of this restructuring which were included in the six months ended July 2, 2000 were a pre-tax non-cash write-down of property and equipment of $17.0 million and pre-tax restructuring costs of $12.1 million related to the reorganization of the company's field and headquarters organization. Exclusive of the one-time items already mentioned, the loss before income taxes improved by $1.2 million, or 27%, o $3.2 million for the first six months of 2001 from a loss of $4.4 million in the first six months of 2000.

Friendly Ice Cream Corporation's Chairman and CEO Donald N. Smith commented, "We are pleased that results for the second quarter improved over the prior year and continue to evidence the positive results and outcome from the strategic restructuring of March 2000. Comparable restaurant revenues and margins were positive in the quarter and the first six months. Our continued and steady focus on guest satisfaction is also having a positive impact on our revenues and operating margins."

Total revenues for the second quarter ended July 1, 2001 were $152.2 million as compared to $159.2 million for the second quarter of 2000. During the quarter restaurant revenues were reduced due to the strategic decision to close under-performing and unprofitable restaurants as well as from the re-franchising initiatives. For the six months ended July 1, 2001 and July 2, 2000, total revenues were $278.3 million and $303.4 million respectively. Comparable restaurant revenues increased 1.2% fr the first six months of the year.

During the 2001 second quarter, pre-tax income in the restaurant segment increased by $0.2 million to $11.4 million, or 9.6% o restaurant revenues, from $11.2 million, or 8.2% o restaurant revenues, for the second quarter 2000. The increase in pre-tax income and especially in margin percentages for the restaurant segment emphasizes the benefits seen from the closure of under-performing restaurants. In addition, there has been an impact from the strategic change in transfer pricing from the Company's foodservice segment to the restaurants resulting in a transfer of profit to the restaurant segment from the foodservice segment.

Pre-tax income for the Company's foodservice segment declined $2.2 million in the 2001 second quarter to $4.0 million, or 6.1% o foodservice revenues, from $6.2 million, or 9.9% o foodservice revenues, in the prior year. The decline was mainly due to dairy commodity cost pressures and the strategic changes in inter-company transfer pricing as discussed above.

Pre-tax income in the franchise segment increased by $1.4 million in the second quarter of 2001. The improvement was due to an increase in the number of franchise restaurants and in initial fees as 35 franchise restaurants, 33 as a result of re-franchising and two new restaurants, were added to the system during the quarter. Six restaurants were added in the prior year quarter.

Corporate expenses were favorable by $1.7 million due to lower interest expense resulting from reduced debt levels and overall reductions in staffing and related overhead expenses.

On April 16, 2001, the Company announced that it had completed the sale of 31 Friendly's restaurants on Long Island, New York to a new franchisee, J&B Restaurant Partners Holding Company of Long Island LLC, for a price of approximately $20.0 million. As a result of this transaction, a gain on franchise sales of restaurant operations and properties of $3.9 million and franchise development fees of $0.9 million were reported in the second quarter of fiscal 2001. The sale includes a development plan to open 29 new units over the next 12 years.

Friendly Ice Cream Corporation currently has operations in 17 states with a high concentration in the Northeast with 403 company restaurants, 158 franchised restaurants and 5 franchised cafes. Friendly's offers its customers a unique dining experience by serving a variety of high-quality, reasonably-priced breakfast, lunch and dinner items, as well as its signature frozen desserts, in a fun neighborhood setting.