THE ROSENBERG CENTER FRANCHISE 50 INDEX SLIDES 2.2% IN SECOND QUARTER 2004 AS KRISPY KREME TUMBLES 44.4% The Rosenberg Center Franchise 50 Index1 dropped 2.2 percent in the second quarter of 2004 (April - June 2004) due to large losses by Krispy Kreme, McDonald’s and others. The S&P 500, on the other hand, grew 1.3 percent over the same period (see table and chart below). Total Returns: RCF 50 Index vs. S&P 500 Index Period Rosenberg Center Franchise S&P 500 Index 50 Index 2nd Quarter 2004 -2.2% +1.3% Year-to-Date 2004 +4.3% +2.6% 2000-2004 +34.0% -18.2% Rosenberg Center Franchise 50 Index 2000 - 2004 RICF50 S&P500 160.0% 140.0% 120.0% 100.0% Index (%) 80.0% 60.0% 40.0% 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 Quarter CKE Restaurants Inc (CKR), Aaron Rents (RNT) and Jack in the Box (JBX) are the best performers of the index this quarter. Following last quarter’s 54.9 percent jump in its stock price, CKE Restaurants is again the best performer of the index this quarter with a 34.6 percent increase. CKR is the owner, operator, and /or franchisor of Hardee’s, Carl’s Jr and La Salsa Fresh Mexican Grill restaurant chains. CKR soared almost 20 percent on June 23 after reporting much better than expected financial results, driven by strong same-store sales increases at its two major brands Carl’s Jr and Hardees. Carl’s Jr launched The 1 lb. Double Six Dollar Burger ™ and the Low Carb Charbroiled Chicken Club ™. They also introduced two new entrée salads. Hardee’s strong sales are fueled by the popularity of their Angus beef Thickburger ™ menus. Aaron Rents (RNT), up 33.1 percent, is the second-strongest performer of the index this quarter. RNT focuses on the rental and sale of residential and office furniture, accessories, consumer electronics and household appliances. Record revenues (+27%) and earnings (+47%) drove the stock price jump. The company upgraded its forecast for the full year, and announced the opening of approximately 140 new stores in 2004. RNT’s stock price shot up over 13 percent the day the financial results were announced. Jack in the Box (JBX), the owner, operator and/or franchisor of the Jack in the Box quick-serve hamburger restaurants and Qdoba Mexican Grill fast-casual restaurants, is the third-strongest performer this quarter with an 18.9 percent increase in its stock price. This performance was the result of higher than expected profits driven by lower costs and stronger revenues led by higher demand for new menu choices, such as salad entrees, the new Pannido sandwiches, and chicken tacos. Many of these new menu choices reflect a focus on low-carb diets. The strong financial results are confirming that the company is succeeding in its restructuring efforts. The company also announced the introduction of a new, more upscale restaurant concept called JBX. Krispy Kreme (KKD), TBC Corporation (TBCC), and Darden Restaurants Inc (DRI) turned in the weakest performances this quarter. A victim of the current popularity of low carbohydrate diets, such as the Atkins and South Beach diets, Krispy Kreme plunged 44.4 percent this quarter and is the worst performer of the index. It dropped over 29 percent on May 7 after it reduced its profit forecast for the year by 10 percent. Krispy Kreme is responding to weaker doughnut sales by expanding its packaged doughnut business to new retail customers, introducing new doughnut products (sugar-free doughnuts, doughnut holes, mini-doughnut rings), and launching a new line of frozen drinks and its own brand of coffee beans. TBC Corporation (TBCC), a leading marketer of automotive replacement tires, slid 19 percent this quarter after repeatedly hitting 52-week highs early in the quarter. TBCC operates the Tire Kingdom, Merchant’s Tire & Auto Centers, and National Tire & Battery brands and franchises retail tire stores under the Big O Tires brand. Though reporting positive financial and operational results (successful conversion and integration of the 225 National Tire and Battery (NTB) stores acquired from Sears last year, record sales and earnings, strong same store sales increases, more upbeat profit forecast,…), TBCC stock price started dropping after it released its first quarter earnings report in late April as investors took profits. Another large decliner this quarter is Darden Restaurants Inc (DRI) with a 17 percent drop. Darden Restaurants is the owner and/or franchiser of the Olive Garden, Red Lobster, Bahama Breeze, Smokey Bones, and Seasons 52 restaurant chains. Declining overall profits, lower same-store sales at its struggling Red Lobster chain, the closures of several (mostly Bahama Breeze) restaurants drove down its stock price. McDonald’s (MCD), the largest component of the RCF50 Index with over 19 percent of the market capitalization of the index, dropped 9 percent this quarter due mainly to concerns over future sales growth and the health of its top executives. In late April McDonald’s then-chairman and CEO James R. Cantalupo died unexpectedly of a heart attack. Only two weeks later, it was reported that the new CEO and president Charles H. Bell had colorectal cancer. Though this quarter’s financial results are strong (highest global comparable sales increase in 20 years, growing US market share, 14th consecutive month of positive comparable sales,…), investors are now more focused on the future prospects of the company. The current anti-obesity backlash (as illustrated by the recently released documentary “Super Size Me”), tough year-over-year growth comparisons, and macroeconomic factors that may negatively impact discretionary spending on fast food (higher interest rates and fuel prices) are expected to lead to lower sales growth in the near future. Also this quarter, index components Applebee’s International, Inc (APPB) and Sonic Corp. (SONC) each implemented 3:2 stock splits, while Sylvan Learning Centers (SLVN) changed its corporate name to Laureate Education, Inc (LAUR). Over the January 2000 – June 2004 period, the RCF 50 Index is up 34.0 percent, while the S&P 500 Index is down 18.2 percent. Note: 1. The Rosenberg Center Franchise 50 Index, developed by the University of New Hampshire’s William Rosenberg International Center for Franchising, is an index that tracks the market performance of the top 50 US public franchisors. These 50 franchisors represent over 98 percent of the market capitalization of all US public companies engaged in business format franchising. For more information on the William Rosenberg International Center of Franchising or the Rosenberg Center Franchise 50 Index, please visit the Center’s web site at http://franchising.unh.edu. .