Friendly Ice Cream Corporation (AMEX:FRN) today reported net income for the third quarter of 2001 of $2.3 million, or $.32 per share, as compared to net income of $3.2 million, or $.44 per share, for the third quarter of 2000. Exclusive of write-downs, extraordinary items, gains on franchise sales and dispositions of other properties and equipment, income before income taxes increased by $0.8 million, or 24%, to $4.3 million for the third quarter of 2001 from $3.5 million in the same quarter of 2000. Comparable restaurant revenues increased 1.5% in the third quarter of 2001.

Net income for the nine months ended September 30, 2001 was $4.2 million, or $.57 per share. For the nine months ended October 1, 2000, the net loss was $12.3 million, or $1.65 per share. On March 27, 2000, the company announced the strategic decision to immediately close 80 under-performing company owned restaurants and to dispose of approximately 70 additional company owned restaurants over the next 24 months. The costs of this restructuring were included in the nine months ended October 1, 2000 representing 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 non-recurring gains and losses described above, income before income taxes improved by $2.0 million, or 205%, to $1.0 million for the first nine months of 2001 from a loss of $1.0 million in the first nine months of 2000.

Friendly Ice Cream Corporation's Chairman and CEO Donald N. Smith commented, "We are pleased that operating results for the third quarter improved over the prior year and continue to evidence the benefits of the Company's strategic initiatives. Changes in comparable restaurant revenues and margins were positive in the quarter and the first nine months. Our focus on guest satisfaction continues to have a positive impact on our revenues and operating margins."

Total revenues for the third quarter ended September 30, 2001 were $152.0 million as compared to $161.8 million for the third quarter of 2000. For the nine months ended September 30, 2001 and October 1, 2000, total revenues were $430.3 million and $465.3 million, respectively. Comparable restaurant revenues increased 1.3% for the first nine months of the year. The strategic decision to close under-performing and unprofitable restaurants as well as refranchising initiatives reduced both the quarter and year-to-date restaurant revenues.

During the 2001 third quarter, pre-tax income in the restaurant segment increased by $1.0 million to $12.0 million, or 10.1% of restaurant revenues, from $11.0 million, or 8.0% of restaurant revenues, for the third 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 $3.8 million in the 2001 third quarter to $1.8 million, or 2.7% of foodservice revenues, from $5.6 million, or 8.5% of 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 $0.9 million in the third quarter of 2001. The improvement was mainly due to an increase in the number of operating franchise locations versus the prior year. At the end of the 2001 third quarter, there were 166 franchise locations as compared to 115 franchise locations at the end of the 2000 third quarter.

Corporate expenses in the third quarter of 2001 decreased by $2.8 million as compared to the third quarter of 2000 due to lower interest expense resulting from reduced debt levels and due to overall reductions in staffing and related overhead expenses.

On September 3, 2001, the Company completed the sale of six Friendly's restaurants in the Allentown, Pennsylvania area to a new franchisee, Revere Restaurant Group, for a price of approximately $3.4 million. This transaction resulted in a gain on franchise sales of restaurant operations and properties of $0.3 million and franchise development fee income of $0.2 million for the third quarter of fiscal 2001. This refranchising transaction includes a development plan to open four additional restaurants over the next seven years.

On October 10, 2001, the Company had a reduction in its workforce of approximately 70 positions at corporate headquarters. This action should streamline functions and reduce redundancy among business segments. In addition, approximately 30 positions within the restaurant construction and fabrication areas will be eliminated by December 30, 2001. The reduction in the number of company owned restaurants and reduced capital spending were key factors in the Company's decision to outsource these activities in the future. The annual salaries and fringe benefits associated with these 100 positions is approximately $5.6 million. As a result of these reductions, the Company will report a pre-tax restructuring charge of approximately $2.5 - $3.0 million for severance pay, rent and inventory in the fourth quarter of 2001.

Friendly Ice Cream Corporation currently has operations in 17 states composed of 394 company restaurants, 160 franchised restaurants and 6 franchised cafes with a high concentration in the Northeast. 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. Additional information on Friendly Ice Cream Corporation can be found on the Company's website (www.friendlys.com).

                    Friendly Ice Cream Corporation
                 Consolidated Statements of Operations
            (In thousands, except per share and unit data)
                              (unaudited)

                               Quarter Ended       Nine Months Ended
                             Sep 30,    Oct 1,     Sep 30,    Oct 1,
                              2001       2000       2001       2000

Restaurant Revenues         $118,931   $137,462   $345,029   $399,685
Foodservice Revenues          30,549     22,616     78,069     59,771
Franchise Revenues             2,535      1,763      7,197      5,805

REVENUES                     152,015    161,841    430,295    465,261

COSTS AND EXPENSES:
  Cost of sales               54,840     54,081    149,757    149,146
  Labor and benefits          39,674     47,822    120,684    145,397
  Operating expenses          31,930     32,611     89,690     94,530
  General and
   administrative
   expenses                    8,393      8,857     27,070     30,424
  Restructuring costs           --         --         --       12,056
  Write-downs of
   property and
   equipment                      35        664        103     19,024
  Depreciation and
   amortization                7,037      7,426     21,686     23,166
(Gain) loss on
 franchise sales of
 restaurant operations
 and properties                 (219)        75     (4,042)    (1,923)
Gain on dispositions
 of other property
 and equipment                  (317)      (960)    (2,559)    (1,005)

OPERATING INCOME (LOSS)       10,642     11,265     27,906     (5,554)

Interest expense, net          6,464      7,594     20,967     23,495

INCOME (LOSS) BEFORE
 (PROVISION FOR) BENEFIT
 FROM INCOME TAXES AND
 EXTRAORDINARY ITEM            4,178      3,671      6,939    (29,049)

(Provision for) benefit
 from income taxes            (1,613)      (425)    (2,545)    16,790

INCOME (LOSS) BEFORE
 EXTRAORDINARY ITEM            2,565      3,246      4,394    (12,259)

Extraordinary item,
 net of income tax
 benefit of $153                (221)      --         (221)      --

NET INCOME (LOSS) AND
 COMPREHENSIVE
 INCOME (LOSS)                $2,344     $3,246     $4,173   $(12,259)

BASIC NET INCOME
 (LOSS) PER SHARE:
  Income (loss)
   before
   extraordinary item          $0.35      $0.44      $0.60     $(1.65)
  Extraordinary item,
   net of income
   tax benefit                 (0.03)      --        (0.03)      --
  Net income (loss)            $0.32      $0.44      $0.57     $(1.65)

DILUTED NET INCOME
 (LOSS) PER SHARE:
  Income (loss)
   before
   extraordinary item          $0.35      $0.44      $0.60     $(1.65)
  Extraordinary item,
   net of income
   tax benefit                 (0.03)      --        (0.03)      --
  Net income (loss)            $0.32      $0.44      $0.57     $(1.65)

WEIGHTED AVERAGE SHARES:
  Basic                        7,359      7,409      7,366      7,439
  Diluted                      7,416      7,437      7,382      7,439

NUMBER OF COMPANY UNITS:
Beginning of period              403        486        449        618
Openings                          --         --         --          2
Re-franchised                     (6)        --        (39)       (37)
Closings                          (3)       (15)       (16)      (112)
End of period                    394        471        394        471

NUMBER OF FRANCHISED UNITS:
Beginning of period              163        114        127         69
Re-franchised                      6         --         39         37
Openings                           1          3          4         13
Closings                          (4)        (2)        (4)        (4)
End of period                    166        115        166        115


                    Friendly Ice Cream Corporation
                 Consolidated Statements of Operations
                     Percentage of Total Revenues
                              (unaudited)

                                Quarter Ended      Nine Months Ended
                               Sep 30,    Oct 1,   Sep 30,    Oct 1,
                                2001      2000      2001       2000

Restaurant Revenues             78.2 %    84.9 %    80.2 %    85.9 %
Foodservice Revenues            20.1 %    14.0 %    18.1 %    12.9 %
Franchise Revenues               1.7 %     1.1 %     1.7 %     1.2 %

REVENUES                       100.0 %   100.0 %   100.0 %   100.0 %

COSTS AND EXPENSES:
  Cost of sales                 36.1 %    33.4 %    34.8 %    32.0 %
  Labor and benefits            26.1 %    29.5 %    28.0 %    31.3 %
  Operating expenses            21.0 %    20.2 %    20.8 %    20.3 %
  General and administrative
   expenses                      5.5 %     5.5 %     6.3 %     6.5 %
  Restructuring costs             --        --        --       2.6 %
  Write-downs of
   property and equipment         --       0.4 %      --       4.1 %
  Depreciation and amortization  4.6 %     4.6 %     5.0 %     5.0 %
(Gain) loss on franchise
 sales of restaurant
 operations and properties      (0.1)%      --      (0.9)%    (0.4)%
Gain on dispositions of
 other property and equipment   (0.2)%    (0.6)%    (0.6)%    (0.2)%

OPERATING INCOME (LOSS)          7.0 %     7.0 %     6.6 %    (1.2)%

Interest expense, net            4.3 %     4.7 %     4.9 %     5.0 %

INCOME (LOSS) BEFORE
 (PROVISION FOR) BENEFIT
 FROM INCOME TAXES AND
 EXTRAORDINARY ITEM              2.7 %     2.3 %     1.7 %    (6.2)%

(Provision for) benefit
 from income taxes              (1.1)%    (0.3)%    (0.6)%     3.6 %

INCOME (LOSS) BEFORE
 EXTRAORDINARY ITEM              1.6 %     2.0 %     1.1 %    (2.6)%

Extraordinary item, net
 of income tax benefit          (0.1)%      --      (0.1)%      --

NET INCOME (LOSS) AND
 COMPREHENSIVE INCOME (LOSS)     1.5 %     2.0 %     1.0 %    (2.6)%


                    Friendly Ice Cream Corporation
                 Condensed Consolidated Balance Sheets
                            (In thousands)


                                           September 30,  December 31,
                                               2001           2000
                                           (unaudited)

                     Assets

Current Assets:
  Cash and cash equivalents                   $ 7,557       $ 14,584
  Other current assets                         37,635         32,658

Total Current Assets                           45,192         47,242

Property and Equipment, net                   194,219        226,865

Intangibles and Other Assets, net              30,044         23,579

                                             $269,455       $297,686


            Liabilities and Stockholders' Deficit

Current Liabilities:
  Current maturities of debt, capital
    lease and finance obligations             $ 5,875       $ 15,172
  Other current liabilities                    70,510         67,499

Total Current Liabilities                      76,385         82,671

Deferred Income Taxes                          15,668         13,276

Capital Lease and Finance Obligations           6,722          8,223

Long-Term Debt                                251,350        275,435

Other Long-Term Liabilities                    14,905         18,064

Stockholders' Deficit                         (95,575)       (99,983)

                                             $269,455       $297,686


                    Friendly Ice Cream Corporation
                Selected Segment Reporting Information:
                            (In thousands)
                              (unaudited)

                         For the Three Months    For the Nine Months
                                 Ended                   Ended
                         Sept. 30,   Oct. 1,     Sept. 30,    Oct. 1,
                           2001      2000 (1)      2001       2000 (1)
Revenues:
 Restaurant              $118,931    $137,462    $345,029    $399,685
 Foodservice               64,905      65,501     177,712     183,439
 Franchise                  2,535       1,763       7,197       5,805

   Total                 $186,371    $204,726    $529,938    $588,929

Intersegment revenues:
 Foodservice             $(34,356)   $(42,885)   $(99,643)  $(123,668)

External revenues:
 Restaurant              $118,931    $137,462    $345,029    $399,685
 Foodservice               30,549      22,616      78,069      59,771
 Franchise                  2,535       1,763       7,197       5,805

   Total                 $152,015    $161,841    $430,295    $465,261

EBITDA (2):
 Restaurant (3)           $16,587     $16,085     $41,379     $39,643
 Foodservice (3)            2,617       6,406      10,505      18,991
 Franchise (3)              1,482         581       3,903       2,099
 Corporate (3)             (2,850)     (4,460)    (11,866)    (14,629)
 (Loss) gain on property
  and equipment, net          (55)        885       6,009       3,017
 Restructuring costs           --          --          --     (12,056)

   Total                  $17,781     $19,497     $49,930     $37,065

Interest expense, net      $6,464      $7,594     $20,967     $23,495

Depreciation and
 amortization:
 Restaurant                $4,618      $5,052     $14,277     $15,982
 Foodservice                  834         825       2,529       2,540
 Franchise                     62          90         183         273
 Corporate                  1,523       1,459       4,697       4,371

   Total                   $7,037      $7,426     $21,686     $23,166

Other non cash expenses:
Corporate                     $67        $142        $235        $429
Write-downs of property
 and equipment                 35         664         103      19,024

   Total                     $102        $806        $338     $19,453

Income (loss) before
 income taxes:
 Restaurant (3)           $11,969     $11,033     $27,102     $23,661
 Foodservice (3)            1,783       5,581       7,976      16,451
 Franchise (3)              1,420         491       3,720       1,826
 Corporate (3)            (10,904)    (13,655)    (37,765)    (42,924)
                            4,268       3,450       1,033        (986)
 (Loss) gain on property
  and equipment, net          (90)        221       5,906     (16,007)
 Restructuring costs           --          --          --     (12,056)

   Total                   $4,178      $3,671      $6,939    $(29,049)


(1) Certain amounts have been reclassified to conform with the
    current period presentation.

(2) EBITDA represents net income (loss) before (i) (provision for)
    benefit from income taxes, (ii) interest expense, net, (iii)
    depreciation and amortization, (iv) write-downs and all other
    non-cash items plus cash distributions from unconsolidated
    subsidiaries and (v) extraordinary item.

(3) Amounts are prior to gains (losses) on property and equipment and
    restructuring costs.