Friendly Ice Cream Corporation yesterday reported that net income for the second quarter of 2001 was $5.0 million, or $.68 per share, a 67% increase 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% increase 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%, to $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%, to $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% for 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% of restaurant revenues, from $11.2 million, or 8.2% of 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% of foodservice revenues, from $6.2 million, or 9.9% 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.

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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. Additional information on Friendly Ice Cream Corporation can be found on the Company’s website (www.friendlys.com).

Certain statements in this press release may be forward looking in nature, or “forward looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. All forward looking statements are subject to risks and uncertainties which could cause results to differ materially from those anticipated. These factors include the Company’s highly competitive business environment, uncertainty with respect to the Company’s ongoing compliance with covenants and its existing debt facilities and its ability to re-finance its existing debt facilities, exposure to commodity prices, risks associated with the food service industry, the ability to retain and attract new employees, government regulations, the Company’s high geographic concentration in the Northeast and its attendant weather patterns, conditions needed to meet re-imaging and new opening and franchising targets and costs associated with improved service and other initiatives.

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

Quarter Ended Six Months Ended
July 1, July 2, July 1, July 2,
2001 2000 2001 2000

Restaurant Revenues $ 118,953 $ 136,800 $ 226,098 $ 262,223
Foodservice Revenues 30,148 20,674 47,520 37,155
Franchise Revenues 3,101 1,766 4,662 4,042

REVENUES 152,202 159,240 278,280 303,420

COSTS AND EXPENSES:
Cost of sales 52,857 50,243 94,917 95,065
Labor and benefits 41,334 49,399 81,010 97,575
Operating expenses 30,307 30,968 57,760 61,919
General and
administrative expenses 9,345 10,191 18,677 21,567
Restructuring costs — (1) — 12,056
Write-downs of property
and equipment 68 688 68 18,360
Depreciation and amortization 7,097 7,319 14,649 15,740
(Gain) loss on franchise
sales of restaurant
operations and properties (3,823) 89 (3,823) (1,998)
Gain on dispositions of other
property and equipment (261) (509) (2,242) (45)

OPERATING INCOME (LOSS) 15,278 10,853 17,264 (16,819)

Interest expense, net 6,918 7,963 14,503 15,901

INCOME (LOSS) BEFORE
(PROVISION FOR) BENEFIT
FROM INCOME TAXES 8,360 2,890 2,761 (32,720)

(Provision for) benefit from
income taxes (3,328) 115 (932) 17,215

NET INCOME (LOSS) AND
COMPREHENSIVE $ 5,032 $ 3,005 $ 1,829 $ (15,505)
INCOME (LOSS)

NET INCOME (LOSS) PER SHARE:
Basic $ 0.68 $ 0.40 $ 0.25 $ (2.08)
Diluted $ 0.68 $ 0.40 $ 0.25 $ (2.08)
WEIGHTED AVERAGE SHARES:
Basic 7,364 7,438 7,370 7,454
Diluted 7,370 7,498 7,377 7,454

NUMBER OF COMPANY UNITS:
Beginning of period 438 502 449 618
Openings — 1 — 2
Re-franchised (33) (2) (33) (37)
Closings (2) (15) (13) (97)
End of period 403 486 403 486

NUMBER OF FRANCHISED UNITS:
Beginning of period 128 109 127 69
Re-franchised 33 2 33 37
Openings 2 4 3 10
Closings — (1) — (2)
End of period 163 114 163 114

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

Quarter Ended Six Months Ended
July 1, July 2, July 1, July 2,
2001 2000 2001 2000

Restaurant Revenues 78.2 % 85.9 % 81.2 % 86.4 %
Foodservice Revenues 19.8 % 13.0 % 17.1 % 12.3 %
Franchise Revenues 2.0 % 1.1 % 1.7 % 1.3 %

REVENUES 100.0 % 100.0 % 100.0 % 100.0 %

COSTS AND EXPENSES:
Cost of sales 34.8 % 31.6 % 34.1 % 31.3 %
Labor and benefits 27.2 % 31.0 % 29.1 % 32.2 %
Operating expenses 19.9 % 19.4 % 20.8 % 20.4 %
General and
administrative expenses 6.1 % 6.4 % 6.7 % 7.1 %
Restructuring costs — — — 4.0 %
Write-downs of property
and equipment — 0.4 % — 6.0 %
Depreciation and
amortization 4.7 % 4.6 % 5.3 % 5.2 %
(Gain) loss on franchise
sales of restaurant
operations and properties (2.5)% 0.1 % (1.4)% (0.7)%
Gain on dispositions of
other property and equipment (0.2)% (0.3)% (0.8)% —

OPERATING INCOME (LOSS) 10.0 % 6.8 % 6.2 % (5.5)%

Interest expense, net 4.5 % 5.0 % 5.2 % 5.3 %

INCOME (LOSS) BEFORE
(PROVISION FOR)
BENEFIT FROM INCOME TAXES 5.5 % 1.8 % 1.0 % (10.8)%

(Provision for) benefit from
income taxes (2.2)% 0.1 % (0.3)% 5.7 %

NET INCOME (LOSS) AND
COMPREHENSIVE
INCOME (LOSS) 3.3 % 1.9 % 0.7 % (5.1)%

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

July 1 December 31,
2001 2000
(unaudited)

Assets

Current Assets:
Cash and cash equivalents $ 10,346 $ 14,584
Other current assets 40,152 32,658
Total Current Assets 50,498 47,242

Property and Equipment, net 201,010 226,865

Intangibles and Other Assets, net 29,177 23,579

$ 280,685 $ 297,686

Liabilities and Stockholders’ Deficit

Current Liabilities:
Current maturities of debt, capital
lease and finance obligations $ 5,743 $ 15,172
Other current liabilities 71,120 67,499
Total Current Liabilities 76,863 82,671

Deferred Income Taxes 14,208 13,276

Capital Lease and Finance Obligations 7,190 8,223

Long-Term Debt 264,243 275,435

Other Long-Term Liabilities 16,167 18,064

Stockholders’ Deficit (97,986) (99,983)

$ 280,685 $ 297,686

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

For the For the
Three Months Ended Six Months Ended
July 1, July 2, July 1, July 2,
2001 2000(1) 2001 2000(1)
Revenues:
Restaurant $ 118,953 $ 136,800 $ 226,098 $ 262,223
Foodservice 64,627 62,947 112,807 117,940
Franchise 3,101 1,765 4,662 4,042
Total $ 186,681 $ 201,512 $ 343,567 $ 384,205

Intersegment revenues:
Foodservice $ (34,479) $ (42,272) $ (65,287) $ (80,785)

External revenues:
Restaurant $ 118,953 $ 136,800 $ 226,098 $ 262,223
Foodservice 30,148 20,675 47,520 37,155
Franchise 3,101 1,765 4,662 4,042
Total $ 152,202 $ 159,240 $ 278,280 $ 303,420

EBITDA (2):
Restaurant (3) $ 16,024 $ 16,090 $ 24,792 $ 23,558
Foodservice (3) 4,809 7,065 7,888 12,584
Franchise (3) 1,927 580 2,421 1,518
Corporate (3) (4,422) (5,240) (9,016) (10,169)
Subtotal 18,338 18,495 26,085 27,491
Gains on property
and equipment, net 4,180 509 6,064 2,132
Restructuring costs — 1 — (12,056)
Total $ 22,518 $ 19,005 $ 32,149 $ 17,567

Interest expense, net $ 6,918 $ 7,963 $ 14,503 $ 15,901

Depreciation and
amortization:
Restaurant $ 4,613 $ 4,895 $ 9,659 $ 10,930
Foodservice 841 856 1,695 1,715
Franchise 61 100 121 183
Corporate 1,582 1,468 3,174 2,912
Total $ 7,097 $ 7,319 $ 14,649 $ 15,740

Other non cash expenses:
Corporate $ 75 $ 145 $ 168 $ 286
Write-downs of property
and equipment 68 688 68 18,360
Total $ 143 $ 833 $ 236 $ 18,646

Income (loss) before
income taxes:
Restaurant (3) $ 11,411 $ 11,195 $ 15,133 $ 12,628
Foodservice (3) 3,968 6,209 6,193 10,869
Franchise (3) 1,866 480 2,300 1,335
Corporate (3) (12,997) (14,816) (26,861) (29,268)
Subtotal 4,248 3,068 (3,235) (4,436)
Gains on property and
equipment, net 4,112 (179) 5,996 (16,228)
Restructuring costs — 1 — (12,056)
Total $ 8,360 $ 2,890 $ 2,761 $ (32,720)

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

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

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