<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-Q

<TABLE>
<C>        <S>
   /X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
           OF THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                  FOR THE QUARTERLY PERIOD ENDED JULY 1, 2001
                                       OR

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
           OF THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                           COMMISSION FILE NO. 0-3930

                            ------------------------

                         FRIENDLY ICE CREAM CORPORATION

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                   <C>                                <C>
MASSACHUSETTS                    5812                        04-2053130
  (State of                (Primary Standard              (I.R.S. Employer
Incorporation)                Industrial                 Identification No.)
                      Classification Code Number)
</TABLE>

                                1855 BOSTON ROAD
                         WILBRAHAM, MASSACHUSETTS 01095
                                 (413) 543-2400

         (Address, including zip code, and telephone number, including
            area code, of registrant's principal executive offices)

                            ------------------------

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /

    Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
                    CLASS                              OUTSTANDING AT JULY 20, 2001
                    -----                              ----------------------------
<S>                                            <C>
        Common Stock, $.01 par value                         7,361,865 shares
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                         PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                JULY 1,     DECEMBER 31,
                                                                 2001           2000
                                                              -----------   ------------
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
                           ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................   $  10,346      $  14,584
  Restricted cash...........................................         445          1,737
  Accounts receivable, net..................................      11,813          6,157
  Inventories...............................................      15,445         11,570
  Deferred income taxes.....................................      10,395         10,395
  Prepaid expenses and other current assets.................       2,054          2,799
                                                               ---------      ---------
TOTAL CURRENT ASSETS........................................      50,498         47,242
                                                               ---------      ---------

PROPERTY AND EQUIPMENT, net.................................     201,010        226,865
INTANGIBLES AND DEFERRED COSTS, net.........................      20,569         21,529
OTHER ASSETS................................................       8,608          2,050
                                                               ---------      ---------
TOTAL ASSETS................................................   $ 280,685      $ 297,686
                                                               =========      =========

           LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Current maturities of long-term debt......................   $   3,816      $  13,029
  Current maturities of capital lease and finance
    obligations.............................................       1,927          2,143
  Accounts payable..........................................      24,723         20,100
  Accrued salaries and benefits.............................      11,321         10,956
  Accrued interest payable..................................       1,942          3,515
  Insurance reserves........................................      13,873         13,095
  Restructuring reserve.....................................       3,952          5,571
  Other accrued expenses....................................      15,309         14,262
                                                               ---------      ---------
TOTAL CURRENT LIABILITIES...................................      76,863         82,671
                                                               ---------      ---------

DEFERRED INCOME TAXES.......................................      14,208         13,276
CAPITAL LEASE AND FINANCE OBLIGATIONS, less current
  maturities................................................       7,190          8,223
LONG-TERM DEBT, less current maturities.....................     264,243        275,435
OTHER LONG-TERM LIABILITIES.................................      16,167         18,064

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
  Common stock..............................................          74             74
  Additional paid-in capital................................     139,156        138,988
  Accumulated deficit.......................................    (237,216)      (239,045)
                                                               ---------      ---------
TOTAL STOCKHOLDERS' DEFICIT.................................     (97,986)       (99,983)
                                                               ---------      ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT.................   $ 280,685      $ 297,686
                                                               =========      =========
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       1
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                      FOR THE THREE MONTHS    FOR THE SIX MONTHS
                                                              ENDED                  ENDED
                                                      ---------------------   -------------------
                                                       JULY 1,     JULY 2,    JULY 1,    JULY 2,
                                                        2001        2000        2001       2000
                                                      ---------   ---------   --------   --------
<S>                                                   <C>         <C>         <C>        <C>
REVENUES............................................  $152,202    $159,240    $278,280   $303,420

COSTS AND EXPENSES:
  Cost of sales.....................................    52,857      50,243      94,917     95,065
  Labor and benefits................................    41,334      49,399      81,010     97,575
  Operating expenses................................    30,307      30,968      57,760     61,919
  General and administrative expenses...............     9,345      10,191      18,677     21,567
  Restructuring costs...............................        --          (1)         --     12,056
  Write-downs of property and equipment.............        68         688          68     18,360
  Depreciation and amortization.....................     7,097       7,319      14,649     15,740
(Gain) loss on franchise sales of restaurant
  operations and properties.........................    (3,823)         89      (3,823)    (1,998)
Gain on disposition of other property and
  equipment.........................................      (261)       (509)     (2,242)       (45)
                                                      --------    --------    --------   --------

OPERATING INCOME (LOSS).............................    15,278      10,853      17,264    (16,819)

Interest expense, net...............................     6,918       7,963      14,503     15,901
                                                      --------    --------    --------   --------

INCOME (LOSS) BEFORE (PROVISION FOR) BENEFIT FROM
  INCOME TAXES......................................     8,360       2,890       2,761    (32,720)

(Provision for) benefit from income taxes...........    (3,328)        115        (932)    17,215
                                                      --------    --------    --------   --------
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)...  $  5,032    $  3,005    $  1,829   $(15,505)
                                                      ========    ========    ========   ========
BASIC NET INCOME (LOSS) PER SHARE...................  $   0.68    $   0.40    $   0.25   $  (2.08)
                                                      ========    ========    ========   ========
DILUTED NET INCOME (LOSS) PER SHARE.................  $   0.68    $   0.40    $   0.25   $  (2.08)
                                                      ========    ========    ========   ========

WEIGHTED AVERAGE SHARES:
  Basic.............................................     7,364       7,438       7,370      7,454
                                                      ========    ========    ========   ========
  Diluted...........................................     7,370       7,498       7,377      7,454
                                                      ========    ========    ========   ========
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       2
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              FOR THE SIX MONTHS
                                                                     ENDED
                                                              -------------------
                                                              JULY 1,    JULY 2,
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).........................................  $ 1,829    $(15,505)
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
    Stock compensation expense..............................      168         286
    Depreciation and amortization...........................   14,649      15,740
    Write-downs of property and equipment...................       68      18,360
    Deferred income tax benefit.............................      932     (17,215)
    Gain on asset retirements and sales.....................   (6,023)     (2,677)
    Changes in operating assets and liabilities:
      Accounts receivable...................................   (5,656)     (1,886)
      Inventories...........................................   (3,875)     (4,833)
      Other assets..........................................     (542)      4,186
      Accounts payable......................................    4,623         348
      Accrued expenses and other long-term liabilities......   (3,050)     (4,440)
                                                              -------    --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.........    3,123      (7,636)
                                                              -------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment.......................   (5,726)     (8,261)
  Proceeds from sales of property and equipment.............   19,868      25,919
                                                              -------    --------
NET CASH PROVIDED BY INVESTING ACTIVITIES...................   14,142      17,658
                                                              -------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from borrowings..................................   34,000      56,000
  Repayments of debt........................................  (54,404)    (65,536)
  Repayments of capital lease and finance obligations.......   (1,099)       (876)
                                                              -------    --------
NET CASH USED IN FINANCING ACTIVITIES.......................  (21,503)    (10,412)
                                                              -------    --------

NET DECREASE IN CASH AND CASH EQUIVALENTS...................   (4,238)       (390)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..............   14,584      12,062
                                                              -------    --------

CASH AND CASH EQUIVALENTS, END OF PERIOD....................  $10,346    $ 11,672
                                                              =======    ========

SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
  Interest..................................................  $15,498    $ 15,540
  Income taxes..............................................        3           9
Capital lease obligations incurred..........................       --         909
Capital lease obligations terminated........................      151         711
Note received from sale of property and equipment...........    4,250         577
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       3
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)

1.  BASIS OF PRESENTATION

    INTERIM FINANCIAL INFORMATION--

    The accompanying condensed consolidated financial statements as of July 1,
2001 and for the second quarter and six months ended July 1, 2001 and July 2,
2000 are unaudited, but, in the opinion of management, include all adjustments
which are necessary for a fair presentation of the consolidated financial
position, results of operations, cash flows and comprehensive income (loss) of
Friendly Ice Cream Corporation ("FICC") and subsidiaries (unless the context
indicates otherwise, collectively, the "Company"). Such adjustments consist
solely of normal recurring accruals. Operating results for the three and six
month periods ended July 1, 2001 and July 2, 2000 are not necessarily indicative
of the results that may be expected for the entire year due, in part, to the
seasonality of the Company's business. Historically, higher revenues and
operating income have been experienced during the second and third fiscal
quarters. The Company's Consolidated Financial Statements, including the notes
thereto, which are contained in the 2000 Annual Report on Form 10-K should be
read in conjunction with these Condensed Consolidated Financial Statements.

    INVENTORIES--

    Inventories are stated at the lower of first-in, first-out cost or market.
Inventories as of July 1, 2001 and December 31, 2000 were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                         JULY 1,    DECEMBER 31,
                                                           2001         2000
                                                         --------   ------------
<S>                                                      <C>        <C>
Raw materials..........................................  $ 3,398       $ 1,307
Goods in process.......................................      204            66
Finished goods.........................................   11,843        10,197
                                                         -------       -------
Total..................................................  $15,445       $11,570
                                                         =======       =======
</TABLE>

    DEBT--

    Since 1997, the Company has entered into several amendments related to
covenant violations on its credit facility, which expires in November 2002. In
March 2001, under the terms of the seventh amendment, covenant requirements,
interest rates and principal payments were revised. The Company is in the
process of exploring various refinancing alternatives and has engaged Banc of
America Securities LLC for assistance in this process. The Company believes that
based on the terms of the seventh amendment, the Company has adequate cash and
availability on its revolving credit facility to meet its obligations through
September 30, 2002. Additionally, the Company believes that it can comply with
the revised covenant requirements under the amendment through December 30, 2001.
There is no assurance that the Company will be able to comply with or
renegotiate such covenants for periods after December 30, 2001 or that the
Company will be able to refinance its existing debt facilities.

    RECLASSIFICATIONS--

    Certain prior year amounts have been reclassified to conform with current
year presentation.

                                       4
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

2.  EARNINGS PER SHARE

    Basic net income (loss) per share is calculated by dividing income (loss)
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is calculated by
dividing earnings available to common stockholders by the weighted average
number of shares of common stock and common stock equivalents outstanding during
the period. Common stock equivalents are dilutive stock options and warrants
that are assumed exercised for calculation purposes. The number of common stock
equivalents which could dilute basic earnings per share in the future, that were
not included in the computation of diluted earnings per share because to do so
would have been antidilutive, was 17,406 for the six months ended July 2, 2000.

    Presented below is the reconciliation between basic and diluted weighted
average shares for the three and six months ended July 1, 2001 and July 2, 2000
(in thousands):

<TABLE>
<CAPTION>
                                                                     FOR THE THREE MONTHS ENDED
                                                              -----------------------------------------
                                                                     BASIC                DILUTED
                                                              -------------------   -------------------
                                                              JULY 1,    JULY 2,    JULY 1,    JULY 2,
                                                                2001       2000       2001       2000
                                                              --------   --------   --------   --------
<S>                                                           <C>        <C>        <C>        <C>
Weighted average number of common shares outstanding during
  the period................................................   7,364      7,438      7,364      7,438
Adjustments:
Assumed exercise of stock options...........................      --         --          6         60
                                                               -----      -----      -----      -----
Weighted average number of shares outstanding...............   7,364      7,438      7,370      7,498
                                                               =====      =====      =====      =====
</TABLE>

<TABLE>
<CAPTION>
                                                                      FOR THE SIX MONTHS ENDED
                                                              -----------------------------------------
                                                                     BASIC                DILUTED
                                                              -------------------   -------------------
                                                              JULY 1,    JULY 2,    JULY 1,    JULY 2,
                                                                2001       2000       2001       2000
                                                              --------   --------   --------   --------
<S>                                                           <C>        <C>        <C>        <C>
Weighted average number of common shares outstanding during
  the period................................................   7,370      7,454      7,370      7,454
Adjustments:
Assumed exercise of stock options...........................      --         --          7         --
                                                               -----      -----      -----      -----
Weighted average number of shares outstanding...............   7,370      7,454      7,377      7,454
                                                               =====      =====      =====      =====
</TABLE>

3.  SEGMENT REPORTING

    Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision-maker, or decision-making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating
decision-maker is the Chairman of the Board and Chief Executive Officer of the
Company. The Company's operating segments include restaurant, foodservice and
franchise. The revenues from these segments include both sales to unaffiliated
customers and intersegment sales, which generally are accounted for on a basis
consistent with sales to unaffiliated customers. Intersegment sales and other
intersegment transactions have been eliminated in the accompanying condensed
consolidated financial statements.

                                       5
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

3.  SEGMENT REPORTING (CONTINUED)
    The Company's restaurants target families with children and adults who
desire a reasonably-priced meal in a full-service setting. The Company's menu
offers a broad selection of freshly-prepared foods which appeal to customers
throughout all dayparts. The menu currently features over 100 items comprised of
a broad selection of breakfast, lunch, dinner and afternoon and evening snack
items. Foodservice operations manufactures frozen dessert products and
distributes such manufactured products and purchased finished goods to the
Company's restaurants and franchised operations. Additionally, it sells frozen
dessert products to distributors and retail and institutional locations. The
Company's franchise segment includes a royalty based on franchise restaurant
revenue. In addition, the Company receives rental income from various franchised
restaurants. The Company does not allocate general and administrative expenses
associated with its headquarters operations to any business segment. These costs
include general and administrative expenses of the following functions: legal,
accounting, personnel not directly related to a segment, information systems and
other headquarters activities.

    The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that the
financial results for the foodservice operating segment, prior to intersegment
eliminations, have been prepared using a management approach, which is
consistent with the basis and manner in which the Company's management
internally reviews financial information for the purpose of assisting in making
internal operating decisions. The Company evaluates performance based on
stand-alone operating segment income (loss) before income taxes and generally
accounts for intersegment sales and transfers as if the sales or transfers were
to third parties, that is, at current market prices.

    EBITDA represents net loss before (i) (provision for) benefit from income
taxes, (ii) interest expense, net, (iii) depreciation and amortization and
(iv) write-downs and all other non-cash items plus cash distributions from
unconsolidated subsidiaries. The Company has included information concerning
EBITDA in this Form 10-Q because it 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 operations or other traditional indications of a
company's operating performance.

<TABLE>
<CAPTION>
                                                      FOR THE THREE MONTHS    FOR THE SIX MONTHS
                                                              ENDED                  ENDED
                                                      ---------------------   -------------------
                                                       JULY 1,     JULY 2,    JULY 1,    JULY 2,
                                                        2001        2000        2001       2000
                                                      ---------   ---------   --------   --------
                                                                    (IN THOUSANDS)
<S>                                                   <C>         <C>         <C>        <C>
Revenues:
  Restaurant........................................  $118,953    $136,800    $226,098   $262,223
  Foodservice.......................................    64,627      62,947     112,807    117,940
  Franchise.........................................     3,101       1,765       4,662      4,042
                                                      --------    --------    --------   --------
      Total.........................................  $186,681    $201,512    $343,567   $384,205
                                                      ========    ========    ========   ========
</TABLE>

                                       6
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

3.  SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
                                                      FOR THE THREE MONTHS    FOR THE SIX MONTHS
                                                              ENDED                  ENDED
                                                      ---------------------   -------------------
                                                       JULY 1,     JULY 2,    JULY 1,    JULY 2,
                                                        2001        2000        2001       2000
                                                      ---------   ---------   --------   --------
                                                                    (IN THOUSANDS)
<S>                                                   <C>         <C>         <C>        <C>
Intersegment revenues:
  Restaurant........................................  $     --    $     --    $     --   $     --
  Foodservice.......................................   (34,479)    (42,272)    (65,287)   (80,785)
  Franchise.........................................        --          --          --         --
                                                      --------    --------    --------   --------
      Total.........................................  $(34,479)   $(42,272)   $(65,287)  $(80,785)
                                                      ========    ========    ========   ========

External revenues:
  Restaurant........................................  $118,953    $136,800    $226,098   $262,223
  Foodservice.......................................    30,148      20,675      47,520     37,155
  Franchise.........................................     3,101       1,765       4,662      4,042
                                                      --------    --------    --------   --------
      Total.........................................  $152,202    $159,240    $278,280   $303,420
                                                      ========    ========    ========   ========

EBITDA:
  Restaurant........................................  $ 16,024    $ 16,090    $ 24,792   $ 23,558
  Foodservice.......................................     4,809       7,065       7,888     12,584
  Franchise.........................................     1,927         580       2,421      1,518
  Corporate.........................................    (4,422)     (5,240)     (9,016)   (10,169)
  Gains on property and equipment, net..............     4,180         509       6,064      2,132
  Restructuring costs...............................        --           1          --    (12,056)
                                                      --------    --------    --------   --------
      Total.........................................  $ 22,518    $ 19,005    $ 32,149   $ 17,567
                                                      ========    ========    ========   ========

Interest expense, net...............................  $  6,918    $  7,963    $ 14,503   $ 15,901
                                                      ========    ========    ========   ========

Depreciation and amortization:
  Restaurant........................................  $  4,613    $  4,895    $  9,659   $ 10,930
  Foodservice.......................................       841         856       1,695      1,715
  Franchise.........................................        61         100         121        183
  Corporate.........................................     1,582       1,468       3,174      2,912
                                                      --------    --------    --------   --------
      Total.........................................  $  7,097    $  7,319    $ 14,649   $ 15,740
                                                      ========    ========    ========   ========

Other non-cash expenses:
  Corporate.........................................  $     75    $    145    $    168   $    286
  Write-downs of property and equipment.............        68         688          68     18,360
                                                      --------    --------    --------   --------
      Total.........................................  $    143    $    833    $    236   $ 18,646
                                                      ========    ========    ========   ========
</TABLE>

                                       7
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

3.  SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
                                                      FOR THE THREE MONTHS    FOR THE SIX MONTHS
                                                              ENDED                  ENDED
                                                      ---------------------   -------------------
                                                       JULY 1,     JULY 2,    JULY 1,    JULY 2,
                                                        2001        2000        2001       2000
                                                      ---------   ---------   --------   --------
                                                                    (IN THOUSANDS)
<S>                                                   <C>         <C>         <C>        <C>
Income (loss) before (provision for) benefit from
  income taxes:
  Restaurant........................................  $ 11,411    $ 11,195    $ 15,133   $ 12,628
  Foodservice.......................................     3,968       6,209       6,193     10,869
  Franchise.........................................     1,866         480       2,300      1,335
  Corporate.........................................   (12,997)    (14,816)    (26,861)   (29,268)
  Gains (loss) on property and equipment, net.......     4,112        (179)      5,996    (16,228)
  Restructuring Costs...............................        --           1          --    (12,056)
                                                      --------    --------    --------   --------
      Total.........................................  $  8,360    $  2,890    $  2,761   $(32,720)
                                                      ========    ========    ========   ========

Capital expenditures, including capitalized leases:
  Restaurant........................................  $  2,716    $  5,830    $  4,017   $  6,837
  Foodservice.......................................       725         908       1,215      1,797
  Corporate.........................................       259         205         494        536
                                                      --------    --------    --------   --------
      Total.........................................  $  3,700    $  6,943    $  5,726   $  9,170
                                                      ========    ========    ========   ========
</TABLE>

<TABLE>
<CAPTION>
                                                              JULY 1,    DECEMBER 31,
                                                                2001         2000
                                                              --------   ------------
<S>                                                           <C>        <C>
Total assets:
  Restaurant................................................  $176,939     $199,223
  Foodservice...............................................    42,867       33,880
  Franchise.................................................     6,574        3,745
  Corporate.................................................    54,305       60,838
                                                              --------     --------
      Total.................................................  $280,685     $297,686
                                                              ========     ========
</TABLE>

                                       8
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

4.  NEW ACCOUNTING PRONOUNCEMENTS

    In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangibles." SFAS No. 142 modifies the rules for accounting for goodwill
and other intangible assets. The new rules become effective on January 1, 2002.
The Company does not believe the impact of adopting SFAS No. 142 will have a
material effect on the Company's consolidated financial statements. The Company
will continue to amortize its license agreement related to certain trademarked
products under the new rules.

    In April 2001, the Financial Accounting Standards Board reached consensus on
Emerging Issues Task Force ("EITF") Issue No. 00-25, "Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products," which is effective for quarters beginning
after December 15, 2001, with prior financial statements restated if
practicable. This Issue requires that consideration from a vendor to a retailer
be recorded as a reduction in revenue unless certain criteria are met.
Arrangements within the scope of this Issue include slotting fees, cooperative
advertising arrangements and buy-downs. The Company is required to adopt EITF
No. 00-25 for periods beginning after December 15, 2001. Management has not yet
quantified the impact of implementing Issue No. 00-25 on the Company's financial
statements.

    In May 2000, the Emerging Issues Task Force issued EITF No. 00-14,
"Accounting for Certain Sales Incentives," which provides guidance on the
recognition, measurement and income statement classification for sales
incentives offered voluntarily by a vendor without charge to customers that can
be used in, or that are exercisable by a customer as a result of, a single
exchange transaction. The Company adopted EITF No. 00-14 on July 3, 2000. As a
result, the Company has reclassified certain retail selling expenses against
retail revenue for the three and six months ended July 2, 2000 to conform with
the current period presentation.

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that each derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the statement of operations, and requires that a
Company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. Since the Company's commodity option
contracts do not meet the criteria for hedge accounting, changes in the value of
the commodity option contracts are recognized monthly in earnings. The
cumulative effect upon adoption of approximately $77,000 has been recorded as
income in the accompanying Condensed Consolidated Statement of Operations. It is
not separately reported as a cumulative effect since the amount is not
significant. Additionally, losses totaling $147,000 were recorded during the six
months ended July 1, 2001. The fair market value of derivatives at July 1, 2001
was approximately $89,000.

5.  RESTRUCTURING PLAN

    In March 2000, the Company's Board of Directors approved a restructuring
plan that provided for the immediate closing of 81 restaurants at the end of
March 2000 and the disposition of an additional 70 restaurants over the next
24 months. The 70 locations will remain in operation until they are sold,

                                       9
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

5.  RESTRUCTURING PLAN (CONTINUED)
subleased or closed. In connection with the restructuring plan, the Company
eliminated approximately 150 management and administrative positions in the
field organization and at corporate headquarters. As a result of this plan, the
Company reported a pre-tax restructuring charge of approximately $12,056,000 for
severance pay, rent, utilities and real estate taxes, demarking, lease
termination costs and certain other costs associated with the closing of the
locations, along with a pre-tax write-down of property and equipment for these
locations of approximately $17,008,000 in the first quarter ended April 2, 2000.

    The following represents the restructuring reserve activity (in thousands):

<TABLE>
<CAPTION>
                                                                  COSTS PAID
                                                                  DURING THE
                                             BALANCE AS OF     SIX MONTHS ENDED   BALANCE AS OF
                                           DECEMBER 31, 2000     JULY 1, 2001     JULY 1, 2001
                                           -----------------   ----------------   -------------
<S>                                        <C>                 <C>                <C>
Severance pay............................       $   74              $   (74)         $   --
Rent.....................................        3,585                 (643)          2,942
Utilities and real estate taxes..........        1,105                 (403)            702
Demarking................................          138                  (30)            108
Lease termination costs..................          120                 (120)             --
Inventory................................            5                   (5)             --
Other....................................          544                 (344)            200
                                                ------              -------          ------
Total....................................       $5,571              $(1,619)         $3,952
                                                ======              =======          ======
</TABLE>

    The write-down of property and equipment consisted of $7.8 million for the
81 locations closed at the end of March 2000 and $9.2 million for the 70
locations to be disposed of over the following 24 months. At July 1, 2001, the
aggregate carrying amount of the remaining 29 operating restaurants and 19
closed properties to be disposed of was $4.6 million. At December 31, 2000, the
aggregate carrying value of the 73 properties to be disposed of was
$7.0 million. These amounts are reflected in the condensed consolidated balance
sheets as property and equipment, net.

6.  SALES OF RESTAURANT OPERATIONS AND PROPERTIES TO FRANCHISEES

    On April 13, 2001, the Company entered into an agreement granting J&B
Restaurants Partners of Long Island Holding Co., LLC ("J&B") certain limited
exclusive rights to operate and develop Friendly's full-service restaurants in
the franchising regions of Nassau and Suffolk Counties in Long Island, New York
(the "J&B Agreement"). Pursuant to the J&B Agreement, J&B purchased certain
assets and rights in 31 existing Friendly's restaurants and committed to open an
additional 29 restaurants over the next 12 years. Gross proceeds from the sale
were approximately $19,950,000, of which approximately $4,250,000 was received
in a note and $940,000 was for franchise fees for the initial 31 restaurants.
The $940,000 was recorded as revenue in the second quarter ending July 1, 2001.
The Company recognized a gain of approximately $3,935,000 related to the sale of
the assets for the 31 locations in the second quarter ending July 1, 2001. The
cash proceeds were used to prepay approximately $4,711,000 on the term loans
with the remaining balance being applied to the revolving credit facility. The
5-year note bears interest at an annual rate of 11% using a 20-year amortization
schedule. Payments are due monthly through the five years with a balloon payment
due at the end of

                                       10
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

6.  SALES OF RESTAURANT OPERATIONS AND PROPERTIES TO FRANCHISEES (CONTINUED)
five years. The Company also sold certain assets and rights in two other
restaurants to an additional franchisee resulting in a loss of $16,000.

    On January 19, 2000, the Company entered into an agreement granting Kessler
Family LLC ("Kessler") non-exclusive rights to operate and develop Friendly's
full-service restaurants in the franchising region of Rochester, Buffalo and
Syracuse, New York (the "Kessler Agreement"). Pursuant to the Kessler Agreement,
Kessler purchased certain assets and rights in 29 existing Friendly's
restaurants and committed to open an additional 15 restaurants over the next
seven years. Gross proceeds from the sale were approximately $13,300,000 of
which $735,000 was for franchise fees for the initial 29 restaurants. The
$735,000 was recorded as revenue in the first quarter ending April 2, 2000. The
Company recognized a gain of approximately $1,400,000 related to the sale of the
assets for the 29 locations in the first quarter ending April 2, 2000. The
Company also sold certain assets and rights in six other restaurants to two
additional franchisees resulting in a gain of $687,000.

7.  SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

    FICC's obligation related to the $200 million Senior Notes is guaranteed
fully and unconditionally by one of FICC's wholly- owned subsidiaries. There are
no restrictions on FICC's ability to obtain dividends or other distributions of
funds from this subsidiary, except those imposed by applicable law. The
following supplemental financial information sets forth, on a condensed
consolidating basis, balance sheets, statements of operations and statements of
cash flows for Friendly Ice Cream Corporation (the "Parent Company"), Friendly's
Restaurants Franchise, Inc. (the "Guarantor Subsidiary") and Friendly's
International, Inc., Friendly Holding (UK) Limited, Friendly Ice Cream (UK)
Limited and Restaurant Insurance Corporation (collectively, the "Non-guarantor
Subsidiaries"). Separate complete financial statements and other disclosures of
the Guarantor Subsidiary as of July 1, 2001 and July 2, 2000, and for the
periods ended July 1, 2001 and July 2, 2000, are not presented because
management has determined that such information is not material to investors.

    Investments in subsidiaries are accounted for by the Parent Company on the
equity method for purposes of the supplemental consolidating presentation.
Earnings of the subsidiaries are, therefore, reflected in the Parent Company's
investment accounts and earnings. The principal elimination entries eliminate
the Parent Company's investments in subsidiaries and intercompany balances and
transactions.

                                       11
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

7.  SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
               SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                               AS OF JULY 1, 2001
                                  (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                       PARENT    GUARANTOR    NON-GUARANTOR
                                      COMPANY    SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                      --------   ----------   -------------   ------------   ------------
<S>                                   <C>        <C>          <C>             <C>            <C>
               Assets
Current assets:
  Cash and cash equivalents.........  $  9,008     $    9        $ 1,329        $     --       $ 10,346
  Restricted cash...................        --         --            445              --            445
  Accounts receivable, net..........    10,896        917             --              --         11,813
  Inventories.......................    15,445         --             --              --         15,445
  Deferred income taxes.............    10,258         43             --              94         10,395
  Prepaid expenses and other current
    assets..........................     6,871        610          3,505          (8,932)         2,054
                                      --------     ------        -------        --------       --------
Total current assets................    52,478      1,579          5,279          (8,838)        50,498

Deferred income taxes...............        --        506          1,327          (1,833)            --
Property and equipment, net.........   201,010         --             --              --        201,010
Intangibles and deferred costs,
  net...............................    20,569         --             --              --         20,569
Investments in subsidiaries.........     4,680         --             --          (4,680)            --
Other assets........................     7,692      3,689          6,229          (9,002)         8,608
                                      --------     ------        -------        --------       --------
Total assets........................  $286,429     $5,774        $12,835        $(24,353)      $280,685
                                      ========     ======        =======        ========       ========

Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
  Current maturities of long-term
    obligations.....................  $  9,243     $   --        $    --        $ (3,500)      $  5,743
  Accounts payable..................    24,723         --             --              --         24,723
  Accrued expenses..................    43,317        637          7,690          (5,247)        46,397
                                      --------     ------        -------        --------       --------
Total current liabilities...........    77,283        637          7,690          (8,747)        76,863
Deferred income taxes...............    15,947         --             --          (1,739)        14,208
Long-term obligations, less current
  maturities........................   276,747         --             --          (5,314)       271,433
Other long-term liabilities.........    14,438      1,061          4,541          (3,873)        16,167
Stockholders' (deficit) equity......   (97,986)     4,076            604          (4,680)       (97,986)
                                      --------     ------        -------        --------       --------
Total liabilities and stockholders'
  equity (deficit)..................  $286,429     $5,774        $12,835        $(24,353)      $280,685
                                      ========     ======        =======        ========       ========
</TABLE>

                                       12
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

7.  SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED JULY 1, 2001
                                  (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                       PARENT    GUARANTOR    NON-GUARANTOR
                                      COMPANY    SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                      --------   ----------   -------------   ------------   ------------
<S>                                   <C>        <C>          <C>             <C>            <C>
Revenues............................  $149,478     $2,724          $ --         $    --        $152,202
Costs and expenses:
  Cost of sales.....................    52,857         --            --              --          52,857
  Labor and benefits................    41,334         --            --              --          41,334
  Operating expenses and write-downs
    of property and equipment.......    30,377         --            (2)             --          30,375
  General and administrative
    expenses........................     8,188      1,157            --              --           9,345
  Depreciation and amortization.....     7,097         --            --              --           7,097
Gain on franchise sales of
  restaurant operations and
  properties........................    (3,823)        --            --              --          (3,823)
Gain on dispositions of other
  property and equipment............      (261)        --            --              --            (261)
Interest expense (income)...........     7,094         --          (176)             --           6,918
                                      --------     ------          ----         -------        --------

Income before provision for income
  taxes and equity in net income of
  consolidated subsidiaries.........     6,615      1,567           178              --           8,360

Provision for income taxes..........    (2,623)      (642)          (63)             --          (3,328)
                                      --------     ------          ----         -------        --------

Income before equity in net income
  of consolidated subsidiaries......     3,992        925           115              --           5,032

Equity in net income of consolidated
  subsidiaries......................     1,040         --            --          (1,040)             --
                                      --------     ------          ----         -------        --------
Net income (loss)...................  $  5,032     $  925          $115         $(1,040)       $  5,032
                                      ========     ======          ====         =======        ========
</TABLE>

                                       13
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

7.  SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JULY 1, 2001
                                  (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                       PARENT    GUARANTOR    NON-GUARANTOR
                                      COMPANY    SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                      --------   ----------   -------------   ------------   ------------
<S>                                   <C>        <C>          <C>             <C>            <C>
Revenues............................  $274,363     $3,917         $  --         $    --        $278,280
Costs and expenses:
  Cost of sales.....................    94,917         --            --              --          94,917
  Labor and benefits................    81,010         --            --              --          81,010
  Operating expenses and write-downs
    of property and equipment.......    57,839         --           (11)             --          57,828
  General and administrative
    expenses........................    16,361      2,316            --              --          18,677
  Depreciation and amortization.....    14,649         --            --              --          14,649
Gain on franchise sales of
  restaurant operations and
  properties........................    (3,823)        --            --              --          (3,823)
Gain on dispositions of other
  property and equipment............    (2,242)        --            --              --          (2,242)
Interest expense (income)...........    14,900         --          (397)             --          14,503
                                      --------     ------         -----         -------        --------

Income before provision for income
  taxes and equity in net income of
  consolidated subsidiaries.........       752      1,601           408              --           2,761

Provision for income taxes..........      (132)      (656)         (144)             --            (932)
                                      --------     ------         -----         -------        --------
Income before equity in net income
  of consolidated subsidiaries......       620        945           264              --           1,829

Equity in net income of consolidated
  subsidiaries......................     1,209         --            --          (1,209)             --
                                      --------     ------         -----         -------        --------
Net income (loss)...................  $  1,829     $  945         $ 264         $(1,209)       $  1,829
                                      ========     ======         =====         =======        ========
</TABLE>

                                       14
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

7.  SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JULY 1, 2001
                                  (Unaudited)
                                 (In thousands

<TABLE>
<CAPTION>
                                        PARENT    GUARANTOR    NON-GUARANTOR
                                       COMPANY    SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                       --------   ----------   -------------   ------------   ------------
<S>                                    <C>        <C>          <C>             <C>            <C>
Net cash provided by (used in)
  operating activities...............  $  2,750      $(24)         $1,688        $(1,291)       $  3,123
                                       --------      ----          ------        -------        --------

Cash flows from investing activities:
  Purchases of property and
    equipment........................    (5,726)       --              --             --          (5,726)
  Proceeds from sales of property and
    equipment........................    19,868        --              --             --          19,868
                                       --------      ----          ------        -------        --------
Net cash provided by investing
  activities.........................    14,142        --              --             --          14,142
                                       --------      ----          ------        -------        --------

Cash flows from financing activities:
  Proceeds from borrowings...........    34,000        --              --             --          34,000
  Repayments of obligations..........   (55,503)       --              --             --         (55,503)
  Reinsurance deposits received......        --        --             505           (505)             --
  Reinsurance payments made from
    deposits.........................        --        --          (1,796)         1,796              --
                                       --------      ----          ------        -------        --------
Net cash used in financing
  activities.........................   (21,503)       --          (1,291)         1,291         (21,503)
                                       --------      ----          ------        -------        --------

Net (decrease) increase in cash and
  cash equivalents...................    (4,611)      (24)            397             --          (4,238)

Cash and cash equivalents, beginning
  of period..........................    13,619        33             932             --          14,584
                                       --------      ----          ------        -------        --------

Cash and cash equivalents, end of
  period.............................  $  9,008      $  9          $1,329        $    --        $ 10,346
                                       ========      ====          ======        =======        ========

Supplemental disclosures:
  Interest paid (received)...........  $ 15,895      $ --          $ (397)       $    --        $ 15,498
  Income taxes refunded..............         1         2              --             --               3
  Capital lease obligations
    terminated.......................       151        --              --             --             151
  Note received from the sale of
    property and equipment...........     4,250        --              --             --           4,250
</TABLE>

                                       15
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

7.  SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

               SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                            AS OF DECEMBER 31, 2000
                                 (In thousands)

<TABLE>
<CAPTION>
                                       PARENT    GUARANTOR    NON-GUARANTOR
                                      COMPANY    SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                      --------   ----------   -------------   ------------   ------------
<S>                                   <C>        <C>          <C>             <C>            <C>
               Assets
Current assets:
  Cash and cash equivalents.........  $ 13,619     $   33        $   932        $     --       $ 14,584
  Restricted cash...................        --         --          1,737              --          1,737
  Accounts receivable, net..........     5,649        508             --              --          6,157
  Inventories.......................    11,570         --             --              --         11,570
  Deferred income taxes.............    10,258         43             --              94         10,395
  Prepaid expenses and other current
    assets..........................     7,435        551          4,057          (9,244)         2,799
                                      --------     ------        -------        --------       --------
Total current assets................    48,531      1,135          6,726          (9,150)        47,242
Deferred income taxes...............        --        506          1,327          (1,833)            --
Property and equipment, net.........   226,865         --             --              --        226,865
Intangible assets and deferred
  costs, net........................    21,529         --             --              --         21,529
Investments in subsidiaries.........     3,500         --             --          (3,500)            --
Other assets........................     1,135      3,614          5,729          (8,428)         2,050
                                      --------     ------        -------        --------       --------
Total assets........................  $301,560     $5,255        $13,782        $(22,911)      $297,686
                                      ========     ======        =======        ========       ========

Liabilities and Stockholders' (Deficit) Equity
Current liabilities:
  Current maturities of long-term
    obligations.....................  $ 19,172     $   --        $    --        $ (4,000)      $ 15,172
  Accounts payable..................    20,100         --             --              --         20,100
  Accrued expenses..................    43,683        648          8,082          (5,014)        47,399
                                      --------     ------        -------        --------       --------
Total current liabilities...........    82,955        648          8,082          (9,014)        82,671
Deferred income taxes...............    15,015         --             --          (1,739)        13,276
Long-term obligations, less current
  maturities........................   288,472         --             --          (4,814)       283,658
Other liabilities...................    15,101      1,475          5,332          (3,844)        18,064
Stockholders' (deficit) equity......   (99,983)     3,132            368          (3,500)       (99,983)
                                      --------     ------        -------        --------       --------
Total liabilities and stockholders'
  equity (deficit)..................  $301,560     $5,255        $13,782        $(22,911)      $297,686
                                      ========     ======        =======        ========       ========
</TABLE>

                                       16
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

7.  SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED JULY 2, 2000
                                  (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                       PARENT    GUARANTOR    NON-GUARANTOR
                                      COMPANY    SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                      --------   ----------   -------------   ------------   ------------
<S>                                   <C>        <C>          <C>             <C>            <C>
Revenues............................  $157,934     $1,306         $  --          $  --         $159,240
Costs and expenses:
  Cost of sales.....................    50,243         --            --             --           50,243
  Labor and benefits................    49,399         --            --             --           49,399
  Operating expenses and write-downs
    of property and equipment.......    31,711         --           (55)            --           31,656
  General and administrative
    expenses........................     9,345        845            --             --           10,190
  Depreciation and amortization.....     7,319         --            --             --            7,319
Loss on franchise sales of
  restaurant operations and
  properties........................        89         --            --             --               89
Gain on dispositions of other
  property and equipment............      (509)        --            --             --             (509)
Interest expense (income)...........     8,136         --          (173)            --            7,963
                                      --------     ------         -----          -----         --------

Income before benefit from
  (provision for) income taxes and
  equity in net income of
  consolidated subsidiaries.........     2,201        461           228             --            2,890

Benefit from (provision for) income
  taxes.............................       385       (190)          (80)            --              115
                                      --------     ------         -----          -----         --------

Income before equity in net income
  of consolidated subsidiaries......     2,586        271           148             --            3,005

Equity in net income of consolidated
  subsidiaries......................       419         --            --           (419)              --
                                      --------     ------         -----          -----         --------

Net income (loss)...................  $  3,005     $  271         $ 148          $(419)        $  3,005
                                      ========     ======         =====          =====         ========
</TABLE>

                                       17
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

7.  SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JULY 2, 2000
                                  (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                       PARENT    GUARANTOR    NON-GUARANTOR
                                      COMPANY    SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                      --------   ----------   -------------   ------------   ------------
<S>                                   <C>        <C>          <C>             <C>            <C>
Revenues............................  $300,240     $3,180         $  --         $    --        $303,420
Costs and expenses:
  Cost of sales.....................    95,065         --            --              --          95,065
  Labor and benefits................    97,575         --            --              --          97,575
  Operating expenses and write-downs
    of property and equipment.......    80,394         --          (115)             --          80,279
  General and administrative
    expenses........................    20,296      1,271            --              --          21,567
  Restructuring costs...............    12,056         --            --              --          12,056
  Depreciation and amortization.....    15,740         --            --              --          15,740
Gain on franchise sales of
  restaurant operations and
  properties........................    (1,998)        --            --              --          (1,998)
Gain on dispositions of other
  property and equipment............       (45)        --            --              --             (45)
Interest expense (income)...........    16,246         --          (345)             --          15,901
                                      --------     ------         -----         -------        --------

(Loss) income before benefit from
  (provision for) income taxes and
  equity in net income of
  consolidated subsidiaries.........   (35,089)     1,909           460              --         (32,720)

Benefit from (provision for) income
  taxes.............................    18,159       (783)         (161)             --          17,215
                                      --------     ------         -----         -------        --------

(Loss) income before equity in net
  income of consolidated
  subsidiaries......................   (16,930)     1,126           299              --         (15,505)

Equity in net income of consolidated
  subsidiaries......................     1,425         --            --          (1,425)             --
                                      --------     ------         -----         -------        --------

Net (loss) income...................  $(15,505)    $1,126         $ 299         $(1,425)       $(15,505)
                                      ========     ======         =====         =======        ========
</TABLE>

                                       18
<PAGE>
                FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

7.  SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JULY 2, 2000

    (Unaudited) (In thousands)

<TABLE>
<CAPTION>
                                        PARENT    GUARANTOR    NON-GUARANTOR
                                       COMPANY    SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                       --------   ----------   -------------   ------------   ------------
<S>                                    <C>        <C>          <C>             <C>            <C>
Net cash (used in) provided by
  operating activities...............  $ (8,133)     $ 37         $ 1,420        $  (960)       $ (7,636)
                                       --------      ----         -------        -------        --------
Cash flows from investing activities:
  Purchases of property and
    equipment........................    (8,261)       --              --             --          (8,261)
  Proceeds from sales of property and
    equipment........................    25,919        --              --             --          25,919
                                       --------      ----         -------        -------        --------
  Net cash provided by investing
    activities.......................    17,658        --              --             --          17,658
                                       --------      ----         -------        -------        --------

Cash flows from financing activities:
  Proceeds from borrowings...........    56,000        --              --             --          56,000
  Repayments of obligations..........   (66,412)       --              --             --         (66,412)
  Reinsurance deposits received......        --        --           1,600         (1,600)             --
  Reinsurance payments made from
    deposits.........................        --        --          (2,560)         2,560              --
                                       --------      ----         -------        -------        --------
Net cash (used in) provided by
  financing activities...............   (10,412)       --            (960)           960         (10,412)
                                       --------      ----         -------        -------        --------

Net (decrease) increase in cash and
  cash equivalents...................      (887)       37             460             --            (390)

Cash and cash equivalents, beginning
  of period..........................     9,674        14           2,374             --          12,062
                                       --------      ----         -------        -------        --------

Cash and cash equivalents, end of
  period.............................  $  8,787      $ 51         $ 2,834        $    --        $ 11,672
                                       ========      ====         =======        =======        ========

Supplemental disclosures:
  Interest paid (received)...........  $ 16,069      $ --         $  (529)       $    --        $ 15,540
  Income taxes (refunded) paid.......    (1,022)      866             165             --               9
Capital lease obligations incurred...       909        --              --             --             909
Capital lease obligations
  terminated.........................       711        --              --             --             711
Note received from the sale of
  property and equipment.............       577        --              --             --             577
</TABLE>

                                       19
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

    THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO INCLUDED
ELSEWHERE HEREIN.

    FORWARD LOOKING STATEMENTS

    Statements contained herein that are not historical facts, constitute
"forward looking statements" as that term is defined in the Private Securities
Litigation Reform Act of 1995. 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, uncertainty with respect to the Company's ongoing
compliance with covenants and its existing debt facilities and its ability to
refinance its existing debt facilities, exposure to commodity prices, risks
associated with the foodservice industry, the ability to retain and attract new
employees, government regulations, the Company's high geographic concentration
in the Northeast and its attendant weather patterns, conditions needed to meet
re-imaging and new opening and franchising targets and risks associated with
improved service and other 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.

    OVERVIEW

    As of July 1, 2001, the Company owns and operates 403 restaurants,
franchises 158 restaurants and 5 cafes and manufactures and distributes a full
line of frozen dessert products. These products are distributed to Friendly's
restaurants and through more than 3,500 supermarkets and other retail locations
in 15 states. The restaurants offer a wide variety of reasonably priced
breakfast, lunch and dinner menu items as well as the frozen dessert products.

<TABLE>
<CAPTION>
                                                             FOR THE THREE          FOR THE SIX
                                                             MONTHS ENDED          MONTHS ENDED
                                                          -------------------   -------------------
                                                          JULY 1,    JULY 2,    JULY 1,    JULY 2,
                                                            2001       2000       2001       2000
                                                          --------   --------   --------   --------
<S>                                                       <C>        <C>        <C>        <C>
COMPANY UNITS:
Beginning of period.....................................    438        502        449        618
Openings................................................     --          1         --          2
Re-franchised...........................................    (33)        (2)       (33)       (37)
Closings................................................     (2)       (15)       (13)       (97)
                                                            ---        ---        ---        ---
End of period...........................................    403        486        403        486
                                                            ===        ===        ===        ===

FRANCHISED UNITS:
Beginning of period.....................................    128        109        127         69
Re-franchised openings..................................     33          2         33         37
Openings................................................      2          4          3         10
Closings................................................     --         (1)        --         (2)
                                                            ---        ---        ---        ---
End of period...........................................    163        114        163        114
                                                            ===        ===        ===        ===
</TABLE>

                                       20
<PAGE>
    REVENUES:

    Total revenues decreased $7.0 million, or 4.4%, to $152.2 million for the
second quarter ended July 1, 2001 from $159.2 million for the same quarter in
2000. Restaurant revenues decreased $17.8 million, or 13.0%, to $119.0 million
for the second quarter of 2001 from $136.8 million for the same quarter in 2000.
Restaurant revenues decreased by $19.7 million due to the closing of 53 under-
performing restaurants and the re-franchising of 47 additional locations over
the past 15 months. Closing of restaurants accounted for $7.3 million of the
restaurant revenue decline and re-franchising reduced restaurant revenues by an
additional $12.4 million. Partially offsetting this decrease was a 1.4% increase
in comparable restaurant revenues. Revenues from the one location open less than
one year were $0.2 million. Foodservice (product sales to franchisees, retail
and institutional) revenues increased by $9.4 million, or 45.4%, to
$30.1 million for the second quarter of 2001 from $20.7 million for the same
quarter in 2000. The increase was due to the increase in the number of
franchised units and higher sales to foodservice retail supermarket customers.
The Company's foodservice division sells a variety of products to the Company's
franchisees and ice cream products to supermarkets and other retail locations.
Franchise revenues increased $1.3 million, or 72.2%, to $3.1 million for the
three months ended July 1, 2001 compared to $1.8 million for the three months
ended July 2, 2000. The increase is primarily due to an increase of
$0.9 million in initial fees as 35 new locations were added in the second
quarter of 2001 and only six locations were added in the same period in 2000.

    Total revenues decreased $25.1million, or 8.3%, to $278.3 million for the
six months ended July 1, 2001 from $303.4 million for the same period in 2000.
Restaurant revenues decreased $36.1 million, or 13.8%, to $226.1 million for the
six months of 2001 from $262.2 million for the same period in 2000. Restaurant
revenues decreased by $39.3 million due to the closing of 135 under-performing
restaurants and the re-franchising of 82 additional locations over the past
18 months. Closing of restaurants accounted for $21.4 million of the restaurant
revenue decline and re-franchising reduced restaurant revenues by an additional
$17.9 million. Partially offsetting this decrease was a 1.2% increase in
comparable restaurant revenues. Revenues from the one location open less than
one year were $0.5 million. Foodservice (product sales to franchisees, retail
and institutional) and other revenues increased by $10.3 million, or 27.7%, to
$47.5 million for the six months ended July 2, 2001 from $37.2 million for the
same period in 2000. The increase was due to the increase in the number of
franchised units and higher sales to foodservice retail supermarket customers.
Franchise revenue increased $0.6 million, or 14.6%, to $4.7 million for the six
months ended July 1, 2001 compared to $4.1 million for the six months ended
July 2, 2000. The increase is primarily the result of the fact that there are
163 franchise units open at the end of the second quarter ended July 1, 2001
compared to 114 franchise units open at the end of the second quarter ended
July 2, 2000.

    COST OF SALES:

    Cost of sales increased $2.7 million, or 5.4%, to $52.9 million for the
second quarter ended July 1, 2001 from $50.2 million for the same quarter in
2000. Cost of sales as a percentage of total revenues increased to 34.8% for the
second quarter of 2001 from 31.6% for the second quarter of 2000. The higher
food cost as a percentage of total revenue was partially due to a shift in sales
mix from Company-owned restaurant sales to foodservice sales. Foodservice sales
to franchisees and retail customers have a higher food cost as a percentage of
revenue than sales in Company-owned restaurants to restaurant patrons. The cost
of cream, the principal ingredient used in making ice cream, was higher in the
second quarter of 2001 when compared to the second quarter of 2000 and
contributed to the rise in cost of sales as a percentage of total revenues,
especially in foodservice's retail supermarket business. The Company believes
that cream prices will continue to rise and will peak during the summer months.
To minimize risk, alternative supply sources continue to be pursued.
Additionally in May 2001, the Company raised prices to its retail customers.

                                       21
<PAGE>
    Cost of sales decreased $0.2 million, or 0.2%, to $94.9 million for the six
months ended July 1, 2001 from $95.1 million for the same period in 2000. Cost
of sales as a percentage of total revenues increased to 34.1% for the six months
in 2001 from 31.3% for the same period in 2000. The higher food cost as a
percentage of total revenue was partially due to a shift in sales mix from
Company-owned restaurant sales to foodservice sales. Foodservice sales to
franchisees and retail customers have a higher food cost as a percentage of
revenue than sales in Company-owned restaurants to restaurant patrons. The cost
of cream, the principal ingredient used in making ice cream, was higher in the
first six months of 2001 when compared to the first six months of 2000 and
contributed to the rise in cost of sales as a percentage of total revenues,
especially in foodservice's retail supermarket business. The Company believes
that cream prices will continue to rise and will peak during the summer months.
To minimize risk, alternative supply sources will continue to be pursued.
Additionally in May 2001, the Company raised prices to its retail customers.

    LABOR AND BENEFITS:

    Labor and benefits decreased $8.1 million, or 16.4%, to $41.3 million for
the second quarter ended July 1, 2001 from $49.4 million for the same quarter in
2000. Labor and benefits as a percentage of total revenues decreased to 27.2%
for the second quarter of 2001 from 31.0% for the same quarter in 2000. The
lower labor cost as a percentage of total revenue is partially the result of
revenue increases derived from additional franchised locations and higher sales
to foodservice retail supermarket customers, which do not have any associated
restaurant labor and benefits. In addition, the closing of 38 under-performing
Company-owned units over the past 15 months improved the relationship of
restaurant labor and benefits to restaurant sales as well as to total revenues.

    Labor and benefits decreased $16.6 million, or 17.0%, to $81.0 million for
the six months ended July 1, 2001 from $97.6 million for the same period in
2000. Labor and benefits as a percentage of total revenues decreased to 29.1%
for the six months of 2001 from 32.2% for the same period in 2000. The lower
labor cost as a percentage of total revenue is partially the result of revenue
increases derived from additional franchised locations and higher sales to
foodservice retail supermarket customers, which do not have any associated
restaurant labor and benefits. In addition, the closing of 135 under-performing
Company-owned units over the past 18 months improved the relationship of
restaurant labor and benefits to restaurant sales as well as to total revenues.
Partially offsetting the decreases were higher group insurance costs in 2001
when compared to the same period in 2000.

    OPERATING EXPENSES:

    Operating expenses decreased $0.7 million, or 2.3%, to $30.3 million for the
second quarter ended July 1, 2001 from $31.0 million for the same quarter in
2000. Operating expenses as a percentage of total revenues were 19.9% and 19.4%
for the second quarters ended July 1, 2001 and July 2, 2000, respectively. The
increase as a percentage of total revenues resulted from higher costs for
foodservice retail promotions, restaurant maintenance and utilities in the 2001
quarter when compared to the 2000 quarter.

    Operating expenses decreased $4.1 million, or 6.6%, to $57.8 million for the
six months ended July 1, 2001 from $61.9 million for the same period in 2000.
Operating expenses as a percentage of total revenues were 20.8% and 20.4% for
the six months ended July 1, 2001 and July 2, 2000, respectively. The increase
as a percentage of total revenues resulted from higher costs for restaurant
advertising, foodservice retail promotions, utilities and restaurant maintenance
including snowplowing in the 2001 period when compared to the 2000 period.

                                       22
<PAGE>
    GENERAL AND ADMINISTRATIVE EXPENSES:

    General and administrative expenses were $9.3 million for the second quarter
ended July 1, 2001 and $10.2 million for the same period in 2000. General and
administrative expenses as a percentage of total revenues decreased to 6.1% in
the second quarter of 2001 from 6.4% for the same period in 2000. The decrease
is primarily the result of a hiring freeze that was implemented after the
Company's announcement of the immediate closing of 81 restaurants and the
planned closing of 70 additional restaurants in March 2000.

    General and administrative expenses were $18.7 million and $21.6 million for
the six months ended July 1, 2001 and July 2, 2000, respectively. General and
administrative expenses as a percentage of total revenues decreased to 6.7% in
the six months ended July 1, 2001 from 7.1% for the same period in 2000. The
decrease is primarily the result of the elimination of certain management and
administrative positions associated with the Company's announcement of the
immediate closing of 81 restaurants and the planned closing of 70 additional
restaurants in March 2000 and an on-going hiring freeze.

    EBITDA:

    As a result of the above, EBITDA (EBITDA represents net income (loss) before
(i) benefit from (provision for) income taxes, (ii) interest expense, net,
(iii) depreciation and amortization and (iv) write-downs and all other non-cash
items plus cash distributions from unconsolidated subsidiaries) increased
$3.5 million, or 18.4%, to $22.5 million for the second quarter ended July 1,
2001 from $19.0 million for the same quarter in 2000. EBITDA as a percentage of
total revenues was 14.8% and 11.9% for the second quarters of 2001 and 2000,
respectively.

    EBITDA increased $14.5 million, or 82.4%, to $32.1 million for the six
months ended July 1, 2001 from $17.6 million for the same period in 2000. EBITDA
as a percentage of total revenues was 11.6% and 5.8% for the six months ended
July 1, 2001 and July 2, 2000, respectively.

    RESTRUCTURING COSTS:

    Restructuring costs were $12.1 million for the six months ended July 2, 2000
as a result of the costs associated with the Company's decision to reorganize
its restaurant field and headquarters organizations in conjunction with the
closing of 81 under-performing restaurants and the planned closing of an
additional 70 restaurants over the next 24 months. Included in these costs are
severance, rent on closed units until lease termination, utilities and real
estate taxes, demarking, lease termination, environmental and other
miscellaneous costs.

    WRITE-DOWNS OF PROPERTY AND EQUIPMENT:

    Write-downs of property and equipment were $0.1 million and $0.7 million for
the three months ended July 1, 2001 and July 2, 2000, respectively. Write-downs
of property and equipment were $0.1 million and $18.4 million for the six months
ended July 1, 2001 and July 2, 2000, respectively. The decrease in write-downs
is primarily the result of the non-cash write-down of the 81 under-performing
restaurants which were closed at the end of March 2000 and the non-cash
write-down of the additional 70 restaurants which will be closed over the next
24 months to their estimated net realizable value. As of July 1, 2001, 29 of
these 70 restaurants are still operating.

    DEPRECIATION AND AMORTIZATION:

    Depreciation and amortization decreased $0.2 million, or 2.7%, to
$7.1 million for the second quarter ended July 1, 2001 from $7.3 million for the
same quarter in 2000. Depreciation and amortization as a percentage of total
revenues was 4.7% and 4.6% for the second quarters of 2001 and 2000,
respectively.

                                       23
<PAGE>
    Depreciation and amortization decreased $1.1 million, or 7.0%, to
$14.6 million for the six months ended July 1, 2001 from $15.7 million for the
same period in 2000. Depreciation and amortization as a percentage of total
revenues was 5.3% and 5.2% for the six months ended July 1, 2001 and July 2,
2000, respectively.

    (GAIN) LOSS ON FRANCHISE SALES OF RESTAURANT OPERATIONS AND PROPERTIES:

    Gain on franchise sales of restaurant operations and properties for the
second quarter ended July 1, 2001 was $3.8 million compared to a loss on sales
of restaurant operations and properties of $0.1 million for the second quarter
ended July 2, 2000. The increase was the result of the gain of $3.9 million
associated with the sale of 31 restaurants to a franchisee during the second
quarter ended July 1, 2001. The gain on sales of restaurant operations and
properties was $3.8 million and $2.0 million for the six months ended July 1,
2001 and July 2, 2000, respectively. The increase was primarily the result of
the gain of $3.9 million associated with the sale of 31 restaurants to a
franchisee during the second quarter ended July 1, 2001 as compared to the gain
of $1.4 million associated with the sale of 29 restaurants to a franchisee on
January 19, 2000. The Company also sold certain assets and rights in eight other
restaurants to three additional franchisees resulting in a gain of $0.7 million
during the six months ended July 2, 2000.

    GAIN ON DISPOSITION OF OTHER PROPERTY AND EQUIPMENT:

    The gain on disposition of other property and equipment was $0.3 million and
$0.5 million for the quarters ended July 1, 2001 and July 2, 2000, respectively.
The gain on disposition of other property and equipment was $2.2 million for the
six months ended July 1, 2001. The gain in 2001 resulted from the sale of 17
closed locations during the six month period ended July 1, 2001 compared to the
sale of 10 closed locations during the six month period ended July 2, 2000.

    INTEREST EXPENSE, NET:

    Interest expense, net of capitalized interest and interest income, decreased
by $1.1 million, or 13.1%, to $6.9 million for the second quarter ended July 1,
2001 from $8.0 million for the same quarter in 2000. The decrease is primarily
due to a reduction in the average outstanding debt.

    Interest expense, net of capitalized interest and interest income, decreased
by $1.4 million, or 8.8%, to $14.5 million for the six months ended July 1, 2001
from $15.9 million for the same period in 2000. The decrease is primarily
impacted by the decrease in the average outstanding balance on the term loans
for the six months ended July 1, 2001 compared to the six months ended July 2,
2000. Total outstanding debt, including capital leases, was reduced from
$305.5 million at July 2, 2000 to $277.2 million at July 1, 2001.

    (PROVISION FOR) BENEFIT FROM INCOME TAXES:

    The provision for income taxes was $3.3 million, or 39.8%, for the second
quarter ended July 1, 2001 compared to a benefit from income taxes of
$0.1 million, or 4.0%, for the second quarter ended July 2, 2000. The provision
for income taxes was $0.9 million, or 33.8%, for the six months ended July 1,
2001 compared to a benefit from taxes of $17.2 million, or 52.6%, for the six
months ended July 2, 2000. The Company records income taxes based on the
effective rate expected for the year with any changes in the valuation allowance
reflected in the period of change. The sales of the land and buildings to
franchisees during the six months ended July 2, 2000 favorably impacted the
provision for income taxes as it triggered built-in gains, which allowed for a
reduction in the valuation allowance on certain net operating loss
carryforwards.

                                       24
<PAGE>
    NET INCOME (LOSS):

    Net income was $5.0 million and $3.0 million for the second quarters ended
July 1, 2001 and July 2, 2000, respectively. Net income was $1.8 million for the
six months ended July 1, 2001 compared to a net loss of $15.5 million for the
six months ended July 2, 2000.

    LIQUIDITY AND CAPITAL RESOURCES

    The Company's primary sources of liquidity and capital resources are cash
generated from operations and borrowings under its revolving credit facility.
Net cash provided by operating activities was $3.1 million for the six months
ended July 1, 2001 compared to net cash used in operating activities of
$7.6 million in the six months ended July 2, 2000. During the six months ended
July 1, 2001, inventories increased $3.9 million as a result of increased retail
and restaurant promotional activity during the summer months. Accounts Payable
increased $4.6 million primarily as a result of increased inventory purchases.
Accounts Receivable increased $5.7 million primarily due to increased retail
supermarket sales along with the increase in volume of Foodservice product sales
to franchisees. Accrued expenses and other long term-liabilities decreased
$3.1 million as a result of a $1.5 million reduction in accrued interest on the
revolver and term loans due to the timing of interest payments and $1 million of
payments made against the captive insurance company's reserves for workers
compensation claims. Available borrowings under the revolving credit facility
were $11.7 million as of July 1, 2001.

    Additional sources of liquidity consist of capital and operating leases for
financing leased restaurant locations (in malls and shopping centers and land or
building leases), restaurant equipment, manufacturing equipment, distribution
vehicles and computer equipment. Additionally, sales of under-performing
existing restaurant properties and other assets (to the extent the Company's and
its subsidiaries' debt instruments, if any, permit) are sources of cash. The
amounts of debt financing that the Company will be able to incur under capital
leases and for property and casualty insurance financing and the amount of asset
sales by the Company are limited by the terms of its credit facility and Senior
Notes.

    Net cash provided by investing activities was $14.1 million and
$17.7 million in the six months ended July 1, 2001 and July 2, 2000,
respectively. Capital expenditures for restaurant operations were approximately
$4.0 million and $5.9 million for the six months ended July 1, 2001 and July 2,
2000, respectively. Other capital expenditures were $1.7 million and
$2.3 million for the six months ended July 1, 2001 and July 2, 2000,
respectively. The decrease in capital expenditures was primarily due to the
reduction in new units, replacements and re-imaging projects. Proceeds from the
sale of property and equipment were $19.9 million and $25.9 million in the six
months ended July 1, 2001 and July 2, 2000, respectively. The decrease in
proceeds was primarily due to the receipt of $12.9 million in 2001 compared to
$17.1 million in 2000 related to sales of restaurants to franchisees.

    Net cash used in financing activities was $21.5 million and $10.4 million in
the six months ended July 1, 2001 and July 2, 2000, respectively.

    The Company had a working capital deficit of $26.4 million as of July 1,
2001. The Company is able to operate with a substantial working capital deficit
because: (i) restaurant operations are conducted primarily on a cash (and cash
equivalent) basis with a low level of accounts receivable; (ii) rapid turnover
allows a limited investment in inventories and (iii) cash from sales is usually
received before related expenses for food, supplies and payroll are paid.

    The Company's credit facility imposes significant operating and financial
restrictions on the Company's ability to, among other things, incur
indebtedness, create liens, sell assets, engage in mergers or consolidations,
pay dividends and engage in certain transactions with affiliates. The credit
facility limits the amount which the Company may spend on capital expenditures
and requires the

                                       25
<PAGE>
Company to comply with certain financial covenants. The Company's credit
facility also restricts the use of proceeds from asset sales. Proceeds, as
defined in the credit agreement and subject to certain exceptions, in excess of
stated maximum allowable amounts must be used to permanently reduce outstanding
obligations under the credit facility. During the six months ended July 1, 2001,
the Company received $10.6 million of asset sale proceeds which were used to
reduce the amount outstanding on the term loans.

    The Company entered into its existing credit facility in November 1997.
Since 1997, the Company has executed several amendments to the credit facility.
The most recent amendment occurred on March 19, 2001. All of the existing
financial covenants were amended and a new financial covenant was added
requiring minimum cumulative Consolidated EBITDA, as defined, on a monthly
basis. Interest rates on term loans, borrowings under the revolving credit
facility and issued letters of credit increased 0.25%. In addition, automatic
increases in the interest rates will occur on August 2, 2001, January 2, 2002,
April 1, 2002, July 1, 2002 and October 1, 2002 of 0.25%, 0.50%, 0.25%, 0.25%
and 0.25%, respectively. Interest payments on all ABR loans, Eurodollar loans
and issued letters of credit are required on a monthly basis rather than
quarterly.

    Also due to the March 19, 2001 amendment, the maturity dates of Tranche B
and Tranche C of the term loans were changed to November 15, 2002 from their
original maturity dates of November 15, 2004 and November 15, 2005,
respectively. Annual scheduled principal payments due through October 15, 2002
did not change. However, the amendment requires additional minimum cumulative
prepayments on the term loans by the dates specified below as follows:

<TABLE>
<S>                                                       <C>
October 15, 2001........................................  $6,000,000
January 15, 2002........................................   7,500,000
April 15, 2002..........................................   8,500,000
July 15, 2002...........................................  10,000,000
</TABLE>

    Any remaining unpaid balances due on Tranches B and C of the term loans will
be paid on November 15, 2002.

    FICC paid a fee of approximately $256,000 to the lenders in connection with
this amendment. Also, unless all obligations under the credit facility are
satisfied prior to September 30, 2001, FICC will pay an additional fee of
approximately $512,000 on that date. If all obligations under the credit
facility are satisfied prior to September 30, 2001, the additional fee will be
payable at that time and will be reduced to approximately $128,000.

    The Company is in the process of exploring various refinancing alternatives
and has engaged Banc of America Securities LLC for assistance in this process.
The Company believes that based on the terms of the seventh amendment, the
Company has adequate cash and availability on its revolving credit facility to
meet its obligations through September 30, 2002. Additionally, the Company
believes that it can comply with the revised covenant requirements under the
amendment through December 30, 2001. There is no assurance that the Company will
be able to comply with or renegotiate such covenants for periods after
December 30, 2001 or that the Company will be able to refinance its existing
debt facilities.

    The Company anticipates requiring capital in the future principally to
maintain existing restaurant and plant facilities and to continue to renovate
and re-image existing restaurants. Capital expenditures for 2001 are anticipated
to be $12.0 million in the aggregate, of which $8.8 million is expected to be
spent on restaurant operations. The Company's actual 2001 capital expenditures
may vary from these estimated amounts. The Company believes that the combination
of the funds anticipated to be generated from operating activities and borrowing
availability under the credit facility will be sufficient to meet the Company's
anticipated operating requirements, capital requirements and obligations
associated with the restructuring.

                                       26
<PAGE>
    On April 13, 2001, the Company executed an agreement granting J&B
Restaurants Partners of Long Island Holding Co., LLC ("J&B") certain limited
exclusive rights to operate and develop Friendly's full-service restaurants in
the franchising regions of Nassau and Suffolk Counties in Long Island, New York
(the "J&B Agreement"). Pursuant to the J&B Agreement, J&B purchased certain
assets and rights in 31 existing Friendly's restaurants and committed to open an
additional 29 restaurants over the next 12 years. The transaction price was
approximately $19,950,000, of which approximately $4,250,000 was received in a
note. The cash proceeds were used to prepay approximately $4.7 million on the
term loans with the remaining balance being applied to the revolving credit
facility. The 5-year note bears interest at an annual rate of 11% using a
20-year amortization schedule. Payments are due monthly through the five years
with a balloon payment due at the end of five years.

    SEASONALITY

    Due to the seasonality of frozen dessert consumption and the effect from
time to time of weather on patronage in its restaurants, the Company's revenues
and EBITDA are typically higher in its second and third quarters.

    GEOGRAPHIC CONCENTRATION

    Approximately 89% of the Company owned restaurants are located, and
substantially all of its retail sales are generated, in the Northeast. As a
result, a severe or prolonged economic recession or changes in demographic mix,
employment levels, population density, weather, real estate market conditions or
other factors specific to this geographic region may adversely affect the
Company more than certain of its competitors which are more geographically
diverse.

    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

    In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangibles." SFAS No. 142 modifies the rules for accounting for goodwill
and other intangible assets. The new rules become effective on January 1, 2002.
The Company does not believe the impact of adopting SFAS No. 142 will have a
material effect on the Company's consolidated financial statements. The Company
will continue to amortize its license agreement related to certain trademarked
products under the new rules.

    In April 2001, the Financial Accounting Standards Board reached consensus on
Emerging Issues Task Force ("EITF") Issue No. 00-25, "Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products," which is effective for quarters beginning
after December 15, 2001, with prior financial statements restated if
practicable. This Issue requires that consideration from a vendor to a retailer
be recorded as a reduction in revenue unless certain criteria are met.
Arrangements within the scope of this Issue include slotting fees, cooperative
advertising arrangements and buy-downs. The Company is required to adopt EITF
No. 00-25 for periods beginning after December 15, 2001. Management has not yet
quantified the impact of implementing Issue No. 00-25 on the Company's financial
statements.

    In May 2000, the Emerging Issues Task Force issued EITF No. 00-14,
"Accounting for Certain Sales Incentives," which provides guidance on the
recognition, measurement, and income statement classification for sales
incentives offered voluntarily by a vendor without charge to customers that can
be used in, or that are exercisable by a customer as a result of, a single
exchange transaction. The Company adopted EITF No. 00-14 on July 3, 2000. As a
result, the Company has reclassified certain retail selling expenses against
retail revenue for the three months ended April 2, 2000 to conform with the
current period presentation.

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that each derivative

                                       27
<PAGE>
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statement of operations, and requires that a Company formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. Since the Company's commodity option contracts do not meet the
criteria for hedge accounting, changes in the value of the commodity option
contracts are recognized monthly in earnings. The cumulative effect upon
adoption of approximately $77,000 has been recorded as income in the
accompanying Condensed Consolidated Statement of Operations. It is not
separately reported as a cumulative effect since the amount is not significant.
Additionally, losses totaling $147,000 were recorded during the six months ended
July 1, 2001. The fair market value of derivatives at July 1, 2001 was
approximately $89,000.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    There has been no material change in the Company's market risk exposure
since the filing of the Annual Report on Form 10K.

                                       28
<PAGE>
                           PART II--OTHER INFORMATION

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) An annual meeting of Company's shareholders was held on May 16, 2001.

(b) Not applicable.

(c) The election of two nominees for directors of the Company was voted upon at
    the meeting. The number of affirmative votes and the number of votes
    withheld with respect to such approvals are as follows:

<TABLE>
<CAPTION>
               NOMINEE                 AFFIRMATIVE VOTES   VOTES WITHHELD
               -------                 -----------------   --------------
<S>                                    <C>                 <C>
Michael J. Daly......................      5,521,075         1,356,041
Burton J. Manning....................      5,531,600         1,345,516
</TABLE>

    The results of the voting to approve the appointment of Arthur Andersen LLP
to audit the accounts of the Company and its subsidiaries for 2001 are as
follows:

<TABLE>
<CAPTION>
                 FOR                     AGAINST        ABSTAIN
                 ---                     -------        -------
<S>                                    <C>            <C>
              6,767,341                 104,375         5,400
</TABLE>

    There were no matters voted upon at the Company's annual meeting to which
broker non-votes applied.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

    None

(b) No report on Form 8-K was filed during the three months and six months ended
    July 1, 2001.

                                   SIGNATURES

    Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

<TABLE>
<S>                                                    <C>  <C>
                                                       FRIENDLY ICE CREAM CORPORATION

                                                       By:  /s/ PAUL V. HOAGLAND
                                                            -----------------------------------------
                                                            Name: Paul V. Hoagland
                                                            Title:  Senior Vice President, Chief
                                                            Financial Officer, Treasurer and Assistant
                                                            Clerk
</TABLE>

                                       29