Exhibit 99.1
Friendly Ice Cream Corporation Reports Second Quarter 2007 Results
WILBRAHAM, Mass.--(BUSINESS WIRE)--Aug. 3, 2007--Friendly Ice
Cream Corporation (AMEX: FRN) today announced financial results for
the second quarter and six months ended July 1, 2007.
Highlights - Second Quarter Results
-- Net revenues increased by $0.7 million, or 0.5%, to $142.2
million.
-- Comparable restaurant sales were relatively flat for
company-operated restaurants (decrease of 0.3%).
-- Franchised restaurants comparable sales decreased 2.7%.
-- The net loss was $0.04 per share versus net income of $0.58 in
the prior year second quarter.
-- Excluding net gains on property and equipment, adjusted EBITDA
declined by $4.5 million. Included in adjusted EBITDA were
$1.3 million in expenses for the proposed merger with an
affiliate of Sun Capital Partners.
-- Friendly's completed the conversion of its 56 ounce retail
package to the more contemporary sqround format. Second
quarter costs associated with the conversion were
approximately $0.3 million.
-- At the end of the quarter, cash and cash equivalents were
$21.9 million and during the quarter, there were no borrowings
against the revolving credit facility.
-- Friendly's franchisees opened three new franchise restaurants
during the quarter.
George M. Condos, President and Chief Executive Officer, said,
"The second quarter remained challenging for Friendly's. However, we
continue to be optimistic about the impact of our key initiatives. For
example, company-operated restaurant comparable sales trends improved
in the second quarter of 2007 compared to the first quarter of 2007
and appear to be responding to our modified and more contemporary
marketing messages. We have also begun to introduce new products in
our restaurants, such as our new line of cold beverages, that we
believe are more exciting and core to the Friendly's brand. We
recently introduced a branded Ghirardelli chocolate ice cream that is
only available in our restaurants. In September, we are planning to
upgrade our hamburger products to Black Angus beef. The completion of
the sqround packaging conversion was also an important milestone in
our retail and manufacturing businesses."
Financial Results
The net loss for the second quarter of 2007 was $0.3 million, or
$0.04 per share, compared to net income of $4.7 million, or $0.58 per
share, reported for the second quarter of 2006. Total revenues were
$142.2 million compared to total revenues of $141.5 million for the
prior year. Comparable restaurant sales decreased 0.3% for
company-operated restaurants and 2.7% for franchised restaurants.
Adjusted EBITDA was $10.5 million for the second quarter of 2007
compared to adjusted EBITDA of $15.4 million for the second quarter of
2006. Excluding net gains on property and equipment, adjusted EBITDA
was $10.1 million compared to $14.7 million for the prior year second
quarter.
The net loss for the first six months of 2007 was $6.2 million, or
$0.77 per share, compared to net income of $2.8 million, or $0.35 per
share, reported for the first six months of 2006. The net loss for the
first six months of 2006 included $3.3 million, or $0.41 per share, in
net income from discontinued operations. Total revenues in the first
six months of 2007 were $264.5 million compared to total revenues of
$267.2 million for the first six months of 2006. Year-to-date,
comparable restaurant sales decreased 2.1% for company-operated
restaurants and 3.7% for franchised restaurants.
For the first six months of 2007, adjusted EBITDA was $16.3
million compared to adjusted EBITDA of $22.9 million for the first six
months of 2006. Excluding net gains on property and equipment,
adjusted EBITDA was $15.9 million compared to $21.3 million for the
prior year. An explanation of the use of non-GAAP financial measures
is explained in the note below and in the supplemental disclosure
attached to this press release.
Business Segments - Second Quarter Results
Restaurant revenues were $107.2 million for the second quarter of
2007, an increase of $1.9 million, as compared to restaurant revenues
of $105.3 million for the prior year second quarter. Comparable
restaurant sales decreased slightly by 0.3%. The opening of two new
restaurants and the assumption of the operation of twelve formerly
franchised restaurants over the past 15 months resulted in increased
restaurant revenues of $3.8 million. The closing of five restaurants
and the acquisition of five restaurants by franchisees over the past
15 months resulted in revenue declines of $0.8 million and $1.1
million, respectively.
Adjusted restaurant EBITDA was $9.8 million, or 9.2% of restaurant
revenues, for the second quarter of 2007 compared to $11.9 million, or
11.3% of restaurant revenues, in the prior year. Cost of sales, as a
percentage of restaurant revenues, increased by 0.5% as compared to
the prior year primarily due to increased commodity prices, as year
over year menu pricing was minimal. A menu price increase of 1.4% is
expected to be implemented during the third quarter to offset higher
commodity prices. Labor and benefits, as a percentage of restaurant
revenues, increased by 0.9% as a result of additional labor hours
associated with the rollout of a new line of cold beverages in June
along with normal wage rate pressures. These increases were partially
offset by lower general manager bonus expense and reduced group
insurance costs. Operating expenses of $26.8 million were $1.6 million
higher than for the prior year second quarter mainly due to costs
associated with one additional week of television advertising and
higher supplies associated with the rollout of cold beverages. These
costs were partially offset by a $0.3 million decline in field
overhead expenses due to a reduction in the number of field support
positions.
For the second quarter of 2007, Foodservice revenues decreased
$1.0 million to $31.1 million from $32.1 million in the second quarter
of 2006. Franchise restaurant product revenues increased by $0.8
million due to higher prices for commodities that are passed onto
franchised restaurants. This increase was partially offset by a lower
average number of operating franchise restaurants during the quarter
and from the decrease in franchise comparable sales of 2.7%. Sales to
retail supermarket customers decreased by $1.8 million primarily due
to a reduction in retail supermarket case volume of 10.4% and
increased trade spending and sales allowances. The Company is in the
process of evaluating its level of trade spending and sales allowances
to offset higher commodity prices. Foodservice EBITDA decreased by
$2.1 million from the prior year to $3.7 million mainly due to lower
sales volumes and higher costs of dairy related raw material
ingredients (milk and cream) and whey protein.
The lower average number of operating franchise restaurants during
the second quarter of 2007 was primarily the result of the Company's
assumption of the operations of 11 previously franchised restaurants
following the franchisee's non-payment of rents and royalties. The
Company has been operating these restaurants since December 2006 while
looking for a new franchisee to take over their operation.
Franchise revenues of $3.9 million for the second quarter of 2007
decreased slightly from $4.1 million for the second quarter of 2006.
Comparable franchise sales decreased by 2.7%. Franchise royalties
decreased by $0.1 million due to a lower average number of operating
franchise restaurants during the quarter combined with the decrease in
comparable franchise sales. Initial franchise fees and rental income
were unchanged from the second quarter of 2006. Adjusted franchise
EBITDA was $2.7 million as compared to $2.9 million for the prior
year.
Corporate expenses of $6.4 million for the second quarter of 2007
were unfavorable by $0.2 million as compared to the second quarter of
2006 primarily due to costs of $1.3 million related to the proposed
merger with an affiliate of Sun Capital Partners and increased stock
compensation costs. These expenses were partially offset by lower
salaries and bonus expenses.
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.
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 515 company and
franchised restaurants throughout the Northeast. The Company also
manufactures ice cream, which is distributed through more than 4,000
supermarkets and other retail locations. With a 72-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 (www.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 trends in company-operated
restaurant sales, the anticipated impact, benefits and results from
the Company's key initiatives and trends relating to menu prices. 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, 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 other similar matters, and costs associated with improved service
and other similar initiatives, and risks relating to the proposed
merger of the Company with an affiliate of Sun Capital Partners. 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
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Consolidated Statements of Operations
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(In thousands, except per share and unit data)
(unaudited)
Quarter Ended Six Months Ended
------------------- -------------------
July 1, July 2, July 1, July 2,
2007 2006 2007 2006
--------- --------- --------- ---------
Restaurant Revenues $107,173 $105,271 $199,970 $200,547
Foodservice Revenues 31,132 32,137 57,075 59,031
Franchise Revenues 3,937 4,082 7,432 7,627
--------- --------- --------- ---------
REVENUES 142,242 141,490 264,477 267,205
COSTS AND EXPENSES:
Cost of sales 54,642 51,939 101,627 100,324
Labor and benefits 38,577 36,943 72,824 72,955
Operating expenses 27,954 26,817 52,825 50,815
General and administrative
expenses 11,291 11,448 21,925 22,546
Write-downs of property and
equipment 409 - 615 215
Depreciation and
amortization 5,554 5,740 11,696 11,520
Gain on franchise sales of
restaurant
operations and properties - (1,146) - (2,011)
(Gain) loss on disposals of
other property and equipment,
net (404) 366 (370) 475
--------- --------- --------- ---------
OPERATING INCOME 4,219 9,383 3,335 10,366
Interest expense, net 4,952 5,147 9,876 10,567
--------- --------- --------- ---------
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE PROVISION
FOR INCOME TAXES (733) 4,236 (6,541) (201)
Provision for income taxes (48) (250) (142) (250)
--------- --------- --------- ---------
(LOSS) INCOME FROM CONTINUING
OPERATIONS (781) 3,986 (6,683) (451)
Income from discontinued
operations, net of income tax
effect 493 673 442 3,290
--------- --------- --------- ---------
NET (LOSS) INCOME $ (288) $ 4,659 $ (6,241) $ 2,839
========= ========= ========= =========
BASIC AND DILUTED NET
(LOSS) INCOME PER SHARE:
(Loss) income from
continuing operations $ (0.10) $ 0.50 $ (0.82) $ (0.06)
Income from discontinued
operations 0.06 0.09 0.05 0.42
--------- --------- --------- ---------
Net (loss) income $ (0.04) $ 0.59 $ (0.77) $ 0.36
========= ========= ========= =========
DILUTED NET (LOSS) INCOME PER
SHARE:
(Loss) income from
continuing operations $ (0.10) $ 0.50 $ (0.82) $ (0.06)
Income from discontinued
operations 0.06 0.08 0.05 0.41
--------- --------- --------- ---------
Net (loss) income $ (0.04) $ 0.58 $ (0.77) $ 0.35
========= ========= ========= =========
WEIGHTED AVERAGE SHARES:
Basic 8,136 7,913 8,129 7,907
========= ========= ========= =========
Diluted 8,136 8,044 8,129 8,048
========= ========= ========= =========
NUMBER OF COMPANY UNITS:
Beginning of period 317 312 316 314
Openings - 1 1 2
Acquired from franchisees - - 1 -
Acquired by franchisees - (3) - (4)
Closings (1) (1) (2) (3)
--------- --------- --------- ---------
End of period 316 309 316 309
========= ========= ========= =========
NUMBER OF FRANCHISED UNITS:
Beginning of period 205 214 205 213
Openings 3 1 4 1
Acquired by franchisees - 3 - 4
Acquired from franchisees - - (1) -
Closings (2) (1) (2) (1)
--------- --------- --------- ---------
End of period 206 217 206 217
========= ========= ========= =========
Friendly Ice Cream Corporation
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Consolidated Statements of Operations
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(In thousands, except per share and unit data)
(unaudited)
Quarter Ended Six Months Ended
--------------- ----------------
July 1, July 2, July 1, July 2,
2007 2006 2007 2006
------- ------- -------- -------
Restaurant Revenues 75.4% 74.4% 75.6% 75.1%
Foodservice Revenues 21.8% 22.7% 21.6% 22.1%
Franchise Revenues 2.8% 2.9% 2.8% 2.8%
------- ------- -------- -------
REVENUES 100.0% 100.0% 100.0% 100.0%
COSTS AND EXPENSES:
Cost of sales 38.4% 36.7% 38.4% 37.6%
Labor and benefits 27.1% 26.1% 27.4% 27.2%
Operating expenses 19.7% 19.0% 20.0% 19.0%
General and administrative expenses 7.9% 8.1% 8.3% 8.4%
Write-downs of property and
equipment 0.3% 0.0% 0.2% 0.1%
Depreciation and amortization 3.9% 4.1% 4.4% 4.3%
Gain on franchise sales of restaurant
operations and properties 0.0% -0.8% 0.0% -0.8%
(Gain) loss on disposals of other
property and equipment, net -0.3% 0.2% 0.0% 0.3%
------- ------- -------- -------
OPERATING INCOME 3.0% 6.6% 1.3% 3.9%
Interest expense, net 3.5% 3.6% 3.7% 4.0%
------- ------- -------- -------
(LOSS) INCOME FROM CONTINUING
FOR INCOME TAXES -0.5% 3.0% -2.5% -0.1%
Provision for income taxes 0.0% -0.2% 0.0% -0.1%
------- ------- -------- -------
(LOSS) INCOME FROM CONTINUING
OPERATIONS -0.5% 2.8% -2.5% -0.2%
Income from discontinued operations,
net of income tax effect 0.3% 0.5% 0.1% 1.3%
------- ------- -------- -------
NET (LOSS) INCOME -0.2% 3.3% -2.4% 1.1%
======= ======= ======== =======
Friendly Ice Cream Corporation
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Condensed Consolidated Balance Sheets
- ----------------------------------------------------------------------
(In thousands)
(unaudited)
July 01, December 31,
2007 2006
---------- ------------
Assets
---------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 21,927 $ 25,077
Other current assets 35,283 33,034
---------- ------------
Total Current Assets 57,210 58,111
Property and Equipment, net 132,329 137,425
Intangibles and Other Assets, net 24,205 24,631
---------- ------------
$ 213,744 $ 220,167
========== ============
Liabilities and Stockholders' Deficit
---------------------------------------------------------------------
Current Liabilities:
Current maturities of debt, capital
lease and finance obligations $ 3,294 $ 3,104
Other current liabilities 64,972 65,587
---------- ------------
Total Current Liabilities 68,266 68,691
Capital Lease and Finance Obligations 3,847 4,682
Long-Term Debt 221,816 222,650
Other Long-Term Liabilities 52,480 51,040
Stockholders' Deficit (132,665) (126,896)
---------- ------------
$ 213,744 $ 220,167
========== ============
Friendly Ice Cream Corporation
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Selected Segment Reporting Information
- ----------------------------------------------------------------------
(in thousands)
- ----------------------------------------------------------------------
For the Three For the Six Months
Months Ended Ended
---------------------------------------
July 1, July 2, July 1, July 2,
2007 2006 2007 2006
--------- --------- --------- ---------
Revenues before elimination of
intersegment revenues:
Restaurant $107,173 $105,271 $199,970 $200,547
Foodservice 63,422 62,891 117,009 117,849
Franchise 3,937 4,082 7,432 7,627
--------- --------- --------- ---------
Total $174,532 $172,244 $324,411 $326,023
========= ========= ========= =========
Intersegment revenues:
Foodservice $(32,290) $(30,754) $(59,934) $(58,818)
========= ========= ========= =========
Revenues:
Restaurant $107,173 $105,271 $199,970 $200,547
Foodservice 31,132 32,137 57,075 59,031
Franchise 3,937 4,082 7,432 7,627
--------- --------- --------- ---------
Total $142,242 $141,490 $264,477 $267,205
========= ========= ========= =========
Adjusted EBITDA (1):
Restaurant (2) $ 9,819 $ 11,929 $ 15,564 $ 18,764
Foodservice (2) 3,677 5,748 6,853 8,415
Franchise (2) 2,720 2,889 4,836 5,307
Corporate (2) (6,440) (6,223) (11,980) (11,922)
Gain on property and
equipment, net 406 779 373 1,537
Less pension cost included in
reporting segments 337 308 674 778
--------- --------- --------- ---------
Total $ 10,519 $ 15,430 $ 16,320 $ 22,879
========= ========= ========= =========
Interest expense, net $ 4,952 $ 5,147 $ 9,876 $ 10,567
========= ========= ========= =========
Depreciation and amortization:
Restaurant $ 3,839 $ 4,021 $ 7,717 $ 8,164
Foodservice 762 720 2,037 1,456
Franchise 112 70 249 138
Corporate 841 929 1,693 1,762
--------- --------- --------- ---------
Total $ 5,554 $ 5,740 $ 11,696 $ 11,520
========= ========= ========= =========
Other non-cash expense:
Net periodic pension cost $ 337 $ 308 $ 674 $ 778
Write-downs of property and
equipment 409 - 615 215
--------- --------- --------- ---------
Total $ 746 $ 308 $ 1,289 $ 993
========= ========= ========= =========
Income (loss) before(provision
for) benefit from income
taxes:
Restaurant $ 5,980 $ 7,908 $ 7,847 $ 10,600
Foodservice 2,915 5,028 4,816 6,959
Franchise 2,608 2,819 4,587 5,169
Corporate (12,233) (12,299) (23,549) (24,251)
--------- --------- --------- ---------
(730) 3,456 (6,299) (1,523)
Gain on property and
equipment, net (3) 779 (242) 1,322
--------- --------- --------- ---------
Total $ (733) $ 4,235 $ (6,541) $ (201)
========= ========= ========= =========
(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 in this schedule because the Company's incentive plan pays
bonuses based on achieving operating segment adjusted 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
operations 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
Deborah Burns, 413-731-4124
Senior Director, Investor Relations