Exhibit 99.1
Friendly Ice Cream Corporation Reports Second Quarter 2006 Results; Net Income
Increases to $4.7 Million or 58 Cents Per Diluted Share
WILBRAHAM, Mass.--(BUSINESS WIRE)--Aug. 7, 2006--Friendly Ice
Cream Corporation (AMEX: FRN) today reported financial results for the
second quarter and six months ended July 2, 2006. Financial and
performance highlights include:
-- Net income in the second quarter was $4.7 million, or $0.58
per share, compared to net income of $2.5 million, or $0.32
per share, reported in the prior year. Total revenues were
$141.5 million, a decrease of $3.6 million as compared to
total revenues of $145.1 million for the prior year.
Comparable restaurant sales decreased 1.8% for
company-operated restaurants and 3.9% for franchised
restaurants.
-- Year-to-date, net income was $2.8 million, or $0.35 per share,
compared to a net loss of $0.5 million, or $0.06 per share,
reported for the prior year. Total revenues were $267.2
million, an increase of $0.4 million as compared to total
revenues of $266.8 million for the prior year. Comparable
restaurant sales increased 1.2% for company-operated
restaurants and decreased 1.9% for franchised restaurants.
-- One new company-operated restaurant and one new franchise
restaurant were opened during the second quarter of 2006.
-- In the second quarter, three company-operated restaurants were
re-franchised, resulting in a gain on franchise sales of
restaurant operations and properties of $1.1 million.
-- Twenty-two company-operated restaurants were remodeled during
the second quarter.
John L. Cutter, Chief Executive Officer and President, said, "The
second quarter was particularly challenging with high gasoline prices
affecting consumer spending, combined with record June rainfall in
many of our Northeast and Mid-Atlantic operating areas. In spite of
these challenges, we are pleased with our ability to maintain margins
and grow our net income in the second quarter. We believe that our
marketing message is especially relevant in the current consumer
environment as each promotion features new products with a focus on
our value-added free sundae."
Cutter continued, "Despite the current economic environment, we
feel strongly that the key to long-term sales and profitability growth
at Friendly's is to stay focused on our key strategic objectives which
are to: stabilize and improve profit in company-operated restaurants,
grow through franchising and stabilize and improve profit in our
retail business."
Second Quarter Results
The review of second quarter results includes references to
Adjusted EBITDA for each of the Company's business segments which are
non-GAAP financial measures. Please see the note below for an
explanation of the use of non-GAAP financial measures and the
supplemental disclosure attached to this press release for a
reconciliation of these measures to the most directly comparable GAAP
financial measure.
Restaurant revenues were $105.3 million in the second quarter of
2006 as compared to restaurant revenues of $109.5 million for the
prior year second quarter. Restaurant revenues declined by $4.2
million due to a 1.8% decrease in comparable sales and due to a $2.5
million decline from the re-franchising of 12 company-operated
restaurants over the past 15 months. Adjusted restaurant EBITDA was
$11.9 million, or 11.3% of restaurant revenues, in the second quarter
of 2006 compared to $12.4 million, or 11.3% of restaurant revenues, in
the prior year. Cost of sales as a percentage of restaurant revenues
decreased slightly when compared to the prior year due to increased
menu prices, product re-formulations and flat commodity costs. Labor
and benefits, as a percentage of restaurant revenues, were the same in
both years. Operating expenses decreased by $0.7 million to $25.2
million due to favorable advertising costs that were partially offset
by higher utilities. Also, general and administrative expenses were
unfavorable versus the prior year due to the costs associated with
hiring additional multi-unit district managers.
In the second quarter of 2006, Foodservice revenues were $32.1
million as compared to $31.7 million in the second quarter of 2005.
Revenues increased by $0.4 million primarily due to an increase of
$0.3 million in sales to retail supermarket customers. A decline in
retail supermarket case volume of 2.7% due to the exiting of
unprofitable accounts was offset by reductions in trade spending and
sales allowances. Franchise restaurant product revenue increased by
$0.1 million as increased revenue from additional franchise
restaurants was partially offset by a decline in franchise comparable
sales. Adjusted foodservice EBITDA increased by $1.4 million from the
prior year to $5.6 million due to the increase in sales and lower
cream prices.
Franchise revenues were $4.1 million in the second quarter of 2006
as compared to $3.9 million in the prior year. The $0.2 million
increase in revenue was primarily due to an increase in rental income
from leased and sub-leased franchise locations. Increased franchise
royalties from the opening of seven new franchised restaurants and the
re-franchising of 12 restaurants over the past fifteen months were
offset by a 3.9% decline in comparable franchise sales. Comparable
franchise sales increased by 5.4% in the second quarter of 2005.
Adjusted franchise EBITDA was $2.9 million as compared to $2.8 million
in the prior year.
Corporate expenses of $6.0 million in the second quarter of 2006
increased by $0.5 million as compared to the prior year primarily due
to increases in salaries, pension, and legal expenses.
As of January 1, 2006, the Company had 11 restaurants that were
reported as "held for sale" in accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". During the quarter ended July 2, 2006,
the Company sold two of these restaurants. These transactions resulted
in gross proceeds of $1.6 million and a net gain on disposal of $1.2
million. The net gain on disposal, along with the operating results of
these two properties and the properties held for sale, was reported
separately as discontinued operations. Income from discontinued
operations was $0.7 million in the 2006 second quarter as compared to
a loss from discontinued operations of $0.1 million in the prior year.
As a result of the Company's intent to continue recording a full
valuation allowance on tax benefits until an appropriate level of
profitability can be sustained, the provision for income taxes was
based on an estimate of current taxes payable through the second
quarter of 2006. Accordingly, the income tax provision was $0.3
million for the three months ended July 2, 2006 as compared to $1.2
million for the three months ended July 3, 2005.
Revolving Credit Facility
On August 1, 2006, the Company amended its $35 million Credit
Facility with Wells Fargo Foothill to, among other things, (i) extend
the maturity date from June 30, 2007 to June 30, 2010, (ii) eliminate
the interest coverage requirement and (iii) reduce the applicable
margin rates at which the revolving credit loans bear interest by
0.50% to 0.75% to a range of 3.00% to 4.00%. The Company expects to
incur approximately $0.5 million in costs associated with the
amendment to the $35 million Credit Facility which will be deferred
and amortized over the life of the amended facility.
References to Non-GAAP Financial Measures
This press release includes references to the non-GAAP financial
measure "adjusted EBITDA." The Company defines "adjusted EBITDA" for a
given period as net income(loss) before (i) (provision for) benefit
from income taxes, (ii) interest expense, net, (iii) depreciation and
amortization, (iv) write-downs of property and equipment, (v) net
periodic pension cost and (vi) other non-cash items. The Company has
included information concerning adjusted EBITDA for the Company and
each of its business segments in this release because the Company's
incentive plan pays bonuses based on achieving EBITDA targets and the
Company's management believes that such information is used by certain
investors as one measure of a company's historical ability to service
debt. Adjusted EBITDA should not be considered as an alternative to,
or more meaningful than, earnings (loss) from continuing operations
before provision for income taxes or other traditional indications of
a company's operating performance.
Investor Conference Call
An investor conference call to review 2006 second quarter results
will be held on Tuesday, August 8, 2006 at 9:00 A.M. Eastern Time. The
conference call will be broadcast live over the Internet and will be
hosted by John Cutter, Chief Executive Officer and President. To
listen to the call, go to the Investor Relations section of the
Company's website located at friendlys.com, or go to streetevents.com.
An online replay will be available approximately one hour after the
conclusion of the call.
About Friendly's
Friendly Ice Cream Corporation is a vertically integrated
restaurant company serving signature sandwiches, entrees and ice cream
desserts in a friendly, family environment in over 525 company and
franchised restaurants throughout the Northeast. The Company also
manufactures ice cream, which is distributed through more than 4,500
supermarkets and other retail locations. With a 70-year operating
history, Friendly's enjoys strong brand recognition and is currently
remodeling its restaurants and introducing new products to grow its
customer base. Additional information on Friendly Ice Cream
Corporation can be found on the Company's website (friendlys.com).
Forward Looking Statements
Statements contained in this release that are not historical facts
constitute "forward looking statements" as that term is defined in the
Private Securities Litigation Reform Act of 1995. These statements
include statements relating to the anticipated impact of the Company's
key strategic objectives. All forward looking statements are subject
to risks and uncertainties which could cause results to differ
materially from those anticipated. These factors include risks and
uncertainties arising from accounting adjustments, the Company's
highly competitive business environment, exposure to fluctuating
commodity prices, risks associated with the foodservice industry, the
ability to retain and attract new employees, new or changing
government regulations, the Company's high geographic concentration in
the Northeast and its attendant weather patterns, conditions needed to
meet restaurant re-imaging and new opening targets, the Company's
ability to continue to develop and implement its franchising program,
the Company's ability to service its debt and other obligations, the
Company's ability to meet ongoing financial covenants contained in the
Company's debt instruments, loan agreements, leases and other
long-term commitments, unforeseen costs and expenses associated with
litigation, and costs associated with improved service and other
similar initiatives. Other factors that may cause actual results to
differ from the forward looking statements contained herein and that
may affect the Company's prospects in general are included in the
Company's other filings with the Securities and Exchange Commission.
As a result the Company can provide no assurance that its future
results will not be materially different from those projected. The
Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any such forward looking
statement to reflect any change in its expectations or any change in
events, conditions or circumstances on which any such statement is
based.
Friendly Ice Cream Corporation
Consolidated Statements of Operations
(In thousands, except per share and unit data)
(unaudited)
Quarter Ended Six Months Ended
------------------- -------------------
July 2, July 3, July 2, July 3,
2006 2005 2006 2005
---------------------------------------
Restaurant Revenues $105,271 $109,469 $200,547 $202,576
Foodservice Revenues 32,137 31,748 59,031 57,054
Franchise Revenues 4,082 3,876 7,627 7,126
--------- --------- --------- ---------
REVENUES 141,490 145,093 267,205 266,756
COSTS AND EXPENSES:
Cost of sales 51,939 54,585 100,324 101,474
Labor and benefits 36,943 38,476 72,955 73,560
Operating expenses 26,816 27,488 50,815 50,889
General and administrative
expenses 11,449 10,528 22,546 19,977
Write-downs of property and
equipment - 289 215 289
Depreciation and
amortization 5,740 5,632 11,520 11,783
Gain on franchise sales of
restaurant operations and
properties (1,145) (1,219) (2,011) (2,528)
Loss on disposals of other
property and equipment, net 366 273 475 342
--------- --------- --------- ---------
OPERATING INCOME 9,382 9,041 10,366 10,970
Interest expense, net 5,147 5,229 10,567 10,515
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE PROVISION
FOR INCOME TAXES 4,235 3,812 (201) 455
Provision for income taxes (250) (1,163) (250) (424)
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 3,985 2,649 (451) 31
Income (loss) from discontinued
operations, net of income tax
effect 674 (132) 3,290 (500)
--------- --------- --------- ---------
NET INCOME (LOSS) $4,659 $2,517 $2,839 $(469)
========= ========= ========= =========
BASIC NET INCOME (LOSS) PER
SHARE:
Income (loss) from
continuing operations $0.50 $0.34 $(0.06) $-
Income (loss) from
discontinued operations 0.09 (0.02) 0.42 (0.06)
--------- --------- --------- ---------
Net income (loss) $0.59 $0.32 $0.36 $(0.06)
========= ========= ========= =========
DILUTED NET INCOME (LOSS) PER
SHARE:
Income (loss) from
continuing operations $0.50 $0.34 $(0.06) $-
Income (loss) from
discontinued operations 0.08 (0.02) 0.41 (0.06)
--------- --------- --------- ---------
Net income (loss) $0.58 $0.32 $0.35 $(0.06)
========= ========= ========= =========
WEIGHTED AVERAGE SHARES:
Basic 7,913 7,753 7,907 7,735
========= ========= ========= =========
Diluted 8,044 7,893 8,048 7,735
========= ========= ========= =========
NUMBER OF COMPANY UNITS:
Beginning of period 312 337 314 347
Openings 1 1 2 1
Refranchised closings (3) (3) (4) (10)
Closings (1) (3) (3) (6)
--------- --------- --------- ---------
End of period 309 332 309 332
========= ========= ========= =========
NUMBER OF FRANCHISED UNITS:
Beginning of period 214 201 213 195
Refranchised openings 3 3 4 10
Openings 1 1 1 2
Closings (1) - (1) (2)
--------- --------- --------- ---------
End of period 217 205 217 205
========= ========= ========= =========
Friendly Ice Cream Corporation
Consolidated Statements of Operations
Percentage of Total Revenues
(unaudited)
Quarter Ended Six Months Ended
------------- ---------------
July 2, July 3, July 2, July 3,
2006 2005 2006 2005
------- ------- ------- -------
Restaurant Revenues 74.4 % 75.4 % 75.0 % 75.9 %
Foodservice Revenues 22.7 % 21.9 % 22.1 % 21.4 %
Franchise Revenues 2.9 % 2.7 % 2.9 % 2.7 %
------- ------- ------- -------
REVENUES 100.0 % 100.0 % 100.0 % 100.0 %
COSTS AND EXPENSES:
Cost of sales 36.7 % 37.6 % 37.5 % 38.0 %
Labor and benefits 26.1 % 26.5 % 27.3 % 27.6 %
Operating expenses 19.0 % 18.9 % 19.0 % 19.1 %
General and administrative expenses 8.1 % 7.3 % 8.4 % 7.5 %
Write-downs of property and
equipment - 0.2 % 0.1 % 0.1 %
Depreciation and amortization 4.1 % 3.9 % 4.3 % 4.4 %
Gain on franchise sales of restaurant
operations and properties (0.8)% (0.8)% (0.8)% (0.9)%
Loss on disposals of other property
and equipment, net 0.2 % 0.2 % 0.2 % 0.1 %
------- ------- ------- -------
OPERATING INCOME 6.6 % 6.2 % 4.0 % 4.1 %
Interest expense, net 3.6 % 3.6 % 4.0 % 3.9 %
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE PROVISION FOR
INCOME TAXES 3.0 % 2.6 % - 0.2 %
Provision for income taxes (0.2)% (0.8)% (0.1)% (0.2)%
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 2.8 % 1.8 % (0.1)% -
Income (loss) from discontinued
operations,
net of income tax effect 0.5 % (0.1)% 1.2 % (0.2)%
------- ------- ------- -------
NET INCOME (LOSS) 3.3 % 1.7 % 1.1 % (0.2)%
======= ======= ======= =======
Friendly Ice Cream Corporation
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
July 2, January 1,
2006 2006
--------- ---------
Assets
---------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $24,373 $14,597
Other current assets 41,681 35,282
--------- ---------
Total Current Assets 66,054 49,879
Property and Equipment, net 137,017 143,290
Intangibles and Other Assets, net 19,933 25,073
--------- ---------
$223,004 $218,242
========= =========
Liabilities and Stockholders' Deficit
---------------------------------------------------------------------
Current Liabilities:
Current maturities of debt, capital
lease and finance obligations $2,959 $2,845
Other current liabilities 66,696 63,444
--------- ---------
Total Current Liabilities 69,655 66,289
Capital Lease and Finance Obligations 5,436 6,173
Long-Term Debt 224,101 224,894
Other Long-Term Liabilities 62,546 62,724
Stockholders' Deficit (138,734) (141,838)
--------- ---------
$223,004 $218,242
========= =========
Friendly Ice Cream Corporation
Selected Segment Reporting Information
(in thousands)
For the Three For the Six
Months Ended Months Ended
------------------ ------------------
July 2, July 3, July 2, July 3,
2006 2005 2006 2005
------------------ ------------------
Revenues before elimination of
intersegment revenues:
Restaurant $105,271 $109,469 $200,547 $202,576
Foodservice 62,891 65,220 117,849 119,384
Franchise 4,082 3,876 7,627 7,126
------------------ ------------------
Total $172,244 $178,565 $326,023 $329,086
================== ==================
Intersegment revenues:
Foodservice $(30,754)$(33,472) $(58,818)$(62,330)
================== ==================
Revenues:
Restaurant $105,271 $109,469 $200,547 $202,576
Foodservice 32,137 31,748 59,031 57,054
Franchise 4,082 3,876 7,627 7,126
------------------ ------------------
Total $141,490 $145,093 $267,205 $266,756
================== ==================
Adjusted EBITDA (1):
Restaurant (2) $11,929 $12,382 $18,764 $19,658
Foodservice (2) 5,638 4,234 8,185 6,382
Franchise (2) 2,889 2,845 5,307 5,112
Corporate (2) (5,963) (5,434) (11,542) (10,279)
Gain on property and equipment,
net 629 935 1,387 2,169
Less pension cost included in
reporting segments 308 199 778 143
------------------ ------------------
Total $15,430 $15,161 $22,879 $23,185
================== ==================
Interest expense, net $5,147 $5,229 $10,567 $10,515
================== ==================
Depreciation and amortization:
Restaurant $4,021 $3,992 $8,164 $8,462
Foodservice 720 803 1,456 1,627
Franchise 70 40 138 79
Corporate 929 797 1,762 1,615
------------------ ------------------
Total $5,740 $5,632 $11,520 $11,783
================== ==================
Other non-cash expense:
Net periodic pension cost $308 $199 $778 $143
Write-downs of property and
equipment - 289 215 289
------------------ ------------------
Total $308 $488 $993 $432
================== ==================
Income (loss) before (provision
for) benefit from income taxes:
Restaurant $7,908 $8,390 $10,600 $11,196
Foodservice 4,918 3,431 6,729 4,755
Franchise 2,819 2,805 5,169 5,033
Corporate (12,039) (11,460) (23,871) (22,409)
------------------ ------------------
3,606 3,166 (1,373) (1,425)
Gain on property and equipment,
net 629 646 1,172 1,880
------------------ ------------------
Total $4,235 $3,812 $(201) $455
================== ==================
(1) Adjusted EBITDA represents net income (loss) before (i) (provision
for) benefit from income taxes, (ii) interest expense, net, (iii)
depreciation and amortization, (iv) write-downs of property and
equipment, (v) net periodic pension cost and (vi) other non-cash
items. The Company has included information concerning adjusted
EBITDA for the Company and each of its business segments in this
schedule because the Company's incentive plan pays bonuses based
on achieving EBITDA targets and the Company's management believes
that such information is used by certain investors as one measure
of a company's historical ability to service debt. EBITDA should
not be considered as an alternative to, or more meaningful than,
earnings (loss) from continuing operations before provision for
income taxes or other traditional indications of a company's
operating performance.
(2) Amounts are prior to gain (loss) on property and equipment, net.
CONTACT: Friendly Ice Cream Corporation
Investment Contact:
Deborah Burns, 413-731-4124
or
Media Contact:
Maura Tobias, 413-731-4238