UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 28, 2005
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FRIENDLY ICE CREAM CORPORATION
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(Exact Name Of Registrant As Specified In Its Charter)
MASSACHUSETTS
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(State or Other Jurisdiction of Incorporation)
001-13579 04-2053130
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(Commission File Number) (I.R.S. Employer Identification No.)
1855 Boston Road, Wilbraham, MA 01095
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(Address of Principal Executive Offices) (Zip Code)
(413) 543-2400
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
On March 3, 2005, Friendly Ice Cream Corporation (the "Company") issued a press
release announcing selected financial results of the Company for the fourth
quarter and year ended January 2, 2005, included herewith as Exhibit 99.1.
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a
Related Audit Report or Completed Interim Review
(a) This filing describes certain adjustments which the Company has determined
to make in the course of restating certain of its prior period financial
statements to correct certain errors in the application of existing generally
accepted accounting principles applicable to leases and leasehold depreciation.
The Company is unaware of any evidence that the restatement is due to any
material noncompliance by the Company, as a result of misconduct, with any
financial reporting requirements under the securities laws. The restatement has
no impact on the Company's previously reported cash flows, revenue or same-store
sales, or on the Company's compliance with covenants under its current credit
facilities or other debt instruments.
Historically, when accounting for lease renewal options, the Company recorded
rent expense on a straight-line basis over the non-cancelable lease term. The
depreciable lives of certain leasehold improvements and other long-lived assets
on those properties were not aligned with the non-cancelable lease term.
The Company believed that its accounting treatment was permitted under generally
accepted accounting principles ("GAAP") and that such treatment was consistent
with the practices of other public companies. Following a review of its lease
accounting treatment and relevant accounting literature in consultation with
Ernst & Young LLP ("E&Y"), its current independent registered public accounting
firm, the Company determined that it should: i) conform the depreciable lives
for buildings on leased land and other leasehold improvements to the shorter of
the economic life of the asset or the lease term used for determining the
capital versus operating lease classification and calculating straight-line rent
and ii) include option periods in the depreciable lives assigned to leased
buildings and leasehold improvements and in the calculation of straight-line
rent expense only in instances in the which the exercise of the option period
can be reasonably assured and failure to exercise such options would result in
an economic penalty (the "Accounting Treatment").
On February 28, 2005, the Audit Committee of the Company's Board of Directors
(the "Committee"), its senior management and E&Y met to discuss the results of
the Company's review of its accounting practices, the analysis of its records
and the authoritative accounting literature with respect to the treatment of
lease accounting and leasehold depreciation and the other matters discussed in
this Current Report on Form 8-K. At that meeting, it was determined that the
Company's accounting practices for leases and leasehold improvements should be
corrected in accordance with the Accounting Treatment. The Commitee determined
that the correction relating to fiscal years 1988 through 2003 should be
presented through the restatement of previously issued financial statements for
the Company's 2003 and 2002 fiscal years. As a result, the Committee concluded
at that time that the previously issued financial statements covering these
periods should no longer be relied upon.
The application of the Accounting Treatment resulted in the acceleration of
depreciation for certain leasehold improvements and additional rent expense. The
cumulative balance sheet effect of the restatement related to the Accounting
2
Treatment was an increase in accumulated depreciation of $7,438,000 and an
increase in the deferred rent liability of $1,251,000 as of December 28, 2003
relating to fiscal years 1988 through 2003. Of these amounts, $848,000 and
$627,000 ($500,000 and $370,000 net of taxes) was recorded as additional
depreciation and amortization expense and $310,000 and $266,000 ($183,000 and
$157,000 net of taxes) was recorded as additional rent expense for the years
ended December 28, 2003 and December 29, 2002, respectively.
The impact of the restatement to previously reported interim periods of 2004 and
2003 was not material.
The following schedules reflect the adjustments described above:
3
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS RESTATED
December 28, 2003
(In thousands, except share and per share data)
As Reported Adjustments Restated
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 25,631 $ - $ 25,631
Restricted cash 1,671 - 1,671
Accounts receivable, net 10,384 - 10,384
Inventories 15,669 - 15,669
Deferred income taxes 6,647 513 7,160
Prepaid expenses and other current assets 1,539 - 1,539
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TOTAL CURRENT ASSETS 61,541 513 62,054
DEFERRED INCOME TAXES - 1,761 1,761
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization 167,109 (7,438) 159,671
INTANGIBLE ASSETS AND DEFERRED COSTS, net of accumulated
amortization of $12,122 17,890 - 17,890
OTHER ASSETS 5,912 - 5,912
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TOTAL ASSETS $ 252,452 $ (5,164) $ 247,288
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,127 $ - $ 1,127
Current maturities of capital lease and finance obligations 911 - 911
Accounts payable 22,475 - 22,475
Accrued salaries and benefits 9,635 - 9,635
Accrued interest payable 2,033 - 2,033
Insurance reserves 10,041 - 10,041
Restructuring reserves 441 - 441
Other accrued expenses 19,055 1,251 20,306
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TOTAL CURRENT LIABILITIES 65,718 1,251 66,969
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DEFERRED INCOME TAXES 1,289 (1,289) -
CAPITAL LEASE AND FINANCE OBLIGATIONS, less current maturities 5,773 - 5,773
LONG-TERM DEBT, less current maturities 227,937 - 227,937
ACCRUED PENSION COST 16,127 - 16,127
OTHER LONG-TERM LIABILITIES 33,634 - 33,634
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, par value $.01 per share; authorized 50,000,000
shares 7,489,478 shares issued and outstanding 75 - 75
Preferred stock, par value $.01 per share; authorized 1,000,000
shares; no shares issued and outstanding - - -
Additional paid-in capital 140,826 - 140,826
Accumulated other comprehensive loss (19,922) - (19,922)
Accumulated deficit (219,005) (5,126) (224,131)
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TOTAL STOCKHOLDERS' DEFICIT (98,026) (5,126) (103,152)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 252,452 $ (5,164) $ 247,288
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4
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AS RESTATED
FOR THE YEAR ENDED DECEMBER 28, 2003
(In thousands, except per share data)
As Reported Adjustments Restated
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REVENUES:
Restaurant $ 459,758 $ - $ 459,758
Foodservice 110,190 - 110,190
Franchise 9,822 - 9,822
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TOTAL REVENUES 579,770 - 579,770
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COSTS AND EXPENSES:
Cost of sales 207,071 - 207,071
Labor and benefits 166,982 - 166,982
Operating expenses 108,322 310 108,632
General and administrative expenses 41,657 - 41,657
Pension curtailment gain (8,113) - (8,113)
Write-downs of property and equipment 26 - 26
Depreciation and amortization 22,539 848 23,387
Loss on disposals of other property and equipment, net 2,044 - 2,044
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OPERATING INCOME 39,242 (1,158) 38,084
Interest expense, net of capitalized interest of $144
and interest income of $838 24,157 - 24,157
INCOME BEFORE PROVISION FOR INCOME TAXES 15,085 (1,158) 13,927
Provision for income taxes (4,899) 475 (4,424)
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NET INCOME $ 10,186 $ (683) $ 9,503
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BASIC NET INCOME PER SHARE $ 1.37 $ (0.09) $ 1.28
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DILUTED NET INCOME PER SHARE $ 1.34 $ (0.09) $ 1.25
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WEIGHTED AVERAGE SHARES:
Basic 7,447 - 7,447
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Diluted 7,609 - 7,609
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5
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AS RESTATED
FOR THE YEAR ENDED DECEMBER 29, 2002
(In thousands, except per share data)
As Reported Adjustments Restated
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REVENUES:
Restaurant $ 454,569 $ - $ 454,569
Foodservice 106,331 - 106,331
Franchise 9,472 - 9,472
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TOTAL REVENUES 570,372 - 570,372
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COSTS AND EXPENSES:
Cost of sales 202,418 - 202,418
Labor and benefits 161,647 - 161,647
Operating expenses 108,829 266 109,095
General and administrative expenses 39,462 - 39,462
Reversal of restructuring expenses, net (400) - (400)
Write-downs of property and equipment 976 - 976
Depreciation and amortization 24,521 627 25,148
Gain on franchise sales of restaurant operations and
properties (675) - (675)
Loss on disposals of other property and equipment, net 578 - 578
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OPERATING INCOME 33,016 (893) 32,123
Interest expense net of interest income of $808 24,870 - 24,870
INCOME BEFORE PROVISION FOR INCOME TAXES 8,146 (893) 7,253
Provision for income taxes (1,959) 366 (1,593)
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NET INCOME $ 6,187 $ (527) $ 5,660
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BASIC NET INCOME PER SHARE $ 0.84 $ (0.07) $ 0.77
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DILUTED NET INCOME PER SHARE $ 0.82 $ (0.07) $ 0.75
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WEIGHTED AVERAGE SHARES:
Basic 7,372 - 7,372
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Diluted 7,551 - 7,551
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6
Item 9.01 Financial Statements and Exhibits
(c) Exhibits
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Exhibit Exhibit Description
Number
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99.1 Friendly Ice Cream Corporation Press Release dated March 3, 2005
announcing its financial results for the fourth quarter and year ended
January 2, 2005. (This press release is attached hereto as Exhibit
99.1 and is being furnished, not filed, pursuant to Item 2.02, Results
of Operations and Financial Condition, to this Report on Form 8-K).
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 3, 2005 FRIENDLY ICE CREAM CORPORATION
By: /s/ PAUL V. HOAGLAND
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Name: Paul V. Hoagland
Title: Executive Vice President of
Administration and Chief
Financial Officer
EXHIBIT INDEX
Exhibit Exhibit Description
Number
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99.1 Friendly Ice Cream Corporation Press Release dated March 3, 2005
announcing its financial results for the fourth quarter and year ended
January 2, 2005. (This press release is attached hereto as Exhibit
99.1 and is being furnished, not filed, pursuant to Item 2.02, Results
of Operations and Financial Condition, to this Report on Form 8-K).