FRN Invesco Frontier Markets ETF

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. -0- *T 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. *T