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.

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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.