Jamba Juice 2007 Annual Report Download - page 48

Table of Contents
are estimated in part, by considering historical claims experience, demographic factors, severity factors, and other actuarial assumptions. The estimated
accruals for these liabilities, portions of which are calculated by third party actuarial firms who utilize estimates of expected losses, are based on statistical
analyses of historical industry data as well as our actual historical trends. If actual claims experience differs from our assumptions, historical trends, and
estimates, changes in our insurance reserves would impact the expense recorded in our consolidated statements of operations.
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In establishing deferred income tax assets and liabilities, management of the Company makes judgments and interpretations based on enacted tax laws
and published tax guidance applicable to the Company’s operations. The Company records deferred tax assets and liabilities and evaluates the need for
valuation allowances to reduce deferred tax assets to realizable amounts. Changes in the Company’s valuation of the deferred tax assets or changes in the
income tax provision may affect its annual effective income tax rate.
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The Company grants stock options for a fixed number of shares to certain employees and directors with an exercise price based on an average of the
closing price of the Company’s common stock for five trading days, consisting of the two days immediately following the date of grant, the day of the grant,
and the two days immediately before the date of grant. The Company also grants restricted stock with a fair value determined based on the closing price of the
Company’s common stock on the date of grant. Stock options and restricted stock generally vest over a four-year period. Stock-based compensation expense is
recognized ratably over the service period.
On January 1, 2006, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standard No. 123 (revised 2004) (“SFAS 123R”), , and SEC Staff Accounting Bulletin No. 107 (“SAB 107”), 
, requiring the measurement and recognition of all share-based compensation under the fair value method. The Company implemented SFAS 123R
using the modified prospective transition method, which does not result in the restatement of previously issued financial statements. The Company had not
issued options prior to its acquisition of Jamba Juice Company in November 2006.
The fair value of options granted is estimated at the date of grant using a Black-Scholes option-pricing model. Option valuation models, including
Black-Scholes, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an
award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility, and the expected life of the award. The risk-free
rate of interest is based on the zero coupon U.S. Treasury rates appropriate for the expected term of the award. Expected dividends are zero based on history of
not paying cash dividends on the Company’s common stock. Expected volatility is based on a 50/50 blend of historic, daily stock price observations of the
Company’s common stock since its inception and historic, daily stock price observations of the Company’s peers during the period immediately preceding the
share-based award grant that is equal in length to the award’s expected term. SFAS 123R also requires that estimated forfeitures be included as a part of the
grant date estimate. We use historical data to estimate expected employee behaviors related to option exercises and forfeitures. There is currently no market-
based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models or assumptions,
nor is there a means to compare and adjust the estimates to actual values, except for annual adjustments to reflect actual forfeitures.
We granted options to purchase 2,031,933 shares of our common stock and issued restricted stock totaling 137,500 shares during fiscal 2006. Stock-
based compensation expense totaled approximately $0.4 million for stock options and approximately $46,000 for restricted stock for fiscal 2006.
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