Jamba Juice 2007 Annual Report Download - page 35

Table of Contents
$2.9 million in wages and payroll related expenses, $1.2 million in accounting and legal fees, $0.5 million in stock-based compensation expense, and $0.6
million in outside services. The remaining $0.9 million include recruiting, relocating and contractor fees, and other recurring general and administrative
expenses.
Store pre-opening costs are largely costs incurred for training new store personnel and pre-opening marketing. Store pre-opening costs for fiscal 2006
were $0.3 million, or 1.2% of total revenue.
Other operating expenses consist primarily of franchise support expenses, losses on disposals, asset impairment and store closures, and income from
jambacard breakage. Other operating expenses for fiscal 2006 were $0.7 million, and as a percentage of total revenue were 2.9%. Of the $0.7 million, $0.4
million was due to franchise support expenses, which are costs associated with our Midwest franchisee and Florida joint venture stores. This franchise
support is directly related to employment services and is offset by franchise support revenue. Seven of the eight stores owned by the Midwest franchisee were
acquired by the Company in December 2006. The one remaining Midwest franchisee store was closed in January 2007. Also contributing to other operating
expenses were losses on disposal of assets of $0.6 million for fiscal 2006. Offsetting these costs was $0.3 million of income from jambacard breakage
recognized during fiscal 2006.
Jambacards have been sold since November 2002, the cards have no expiration date and are reloadable. Jambacard breakage income is recognized when
the Company determines the likelihood of a jambacard being redeemed by a customer is remote based on an analysis of redemption data and redemption
patterns. The Company collected monthly redemption data, analyzed the redemption pattern since the introduction of the jambacard program in November of
2002, and determined that with approximately four years of data it could forecast anticipated redemptions with sufficient accuracy to determine when
redemptions were remote. In determining the amount of the liability to relieve, in addition to the redemption analysis, the Company requested counsel to
perform an analysis of the Company’s requirement to remit unclaimed property or escheat in the states where the Company does business. Based on a review
of the application of various state unclaimed property laws, the Company estimated its escheat requirement and determined the appropriate liability for both
estimated future redemptions and escheat requirements. The balance of the jambacard liability as of January 9, 2007 was $19.7 million.
Loss from derivative instruments of $57.4 million for fiscal 2006 represents the unrealized loss due to the change in the fair value of the Company’s
warrants. The Company’s warrants are recorded as derivative liabilities, instead of equity instruments. For more information, please refer to the discussion
under “ ” included within Note 1 to the
consolidated financial statements of Jamba, Inc. appearing elsewhere in this annual report on Form 10-K.
Interest income for fiscal 2006 of $4.2 million represents interest earned on cash held in the Company’s trust account. The interest income was a
consequence of both funds raised through the initial public offering of Jamba, Inc. in July 2005 of approximately $127.9 million, as well as proceeds from
the Company’s private sale of securities in November 2006 of approximately $224.9 million. Of that amount, approximately $251.8 million in cash was
used by Jamba, Inc. to acquire Jamba Juice Company in November 2006. Cash on hand as of January 9, 2007 is $87.4 million.
Income tax benefit for fiscal 2006 was $2.5 million. The effective tax rate was (4.1)%. The most significant item affecting the Company’s effective tax
rate is the unrealized loss on its derivative liability of $57.4 million. The unrealized change in fair value recorded in the consolidated financial statements will
not be realized for tax purposes.
The net deferred tax liability as of January 9, 2007 was $54.2 million. This liability represents differences between book and taxable income that will
result in tax deductions in future years. Management currently believes and expects that it will achieve pre-tax book income in the upcoming years. The
Company recorded a loss before income taxes of $61.6 million in fiscal 2006.
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