Jamba Juice 2007 Annual Report Download - page 63

Table of Contents
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Franchise revenue is generated from three basic forms: development fees, initial franchise fees, and royalties. Development fees are paid to the Company
as part of an agreement to open and operate a specific number of stores in a specified territory. The amount of the fee is based on the number of stores to be
opened pursuant to the development agreement and secures the territory for exclusivity during the development. The nonrefundable fees collected for these
services are recognized ratably as the franchise stores under these agreements open. The Company’s multi-unit development agreements specify the number of
stores to be opened. Any changes to the specific number of stores would be stated in a subsequent contractual agreement (see Note 3).
The Company charges an initial franchise fee for providing operational materials, new store opening planning, and functional training courses. Initial
franchise fees are paid for every store the franchisee opens and are due at the time the franchise agreement for a particular store is executed. Franchise fees are
recognized as revenue when all material services or conditions have been substantially performed or satisfied and no other material conditions or obligations
related to the determination of substantial performance exist. Duties and services that are completed prior to approval include training, facilities inspection,
receipt of operating license(s), and clearance from appropriate agencies. These duties and services are substantially complete prior to the approval of opening of
a store. Duties and services relating to the earning of the franchise fees are necessary for the stores to open. Revenue is recognized when the store opens.
Royalties are determined as a percentage of revenue and are recognized in the same period as the related franchise store revenue. If collection of the
franchise royalty fee is doubtful, a receivable and an allowance are recorded by the Company without any revenue recognition and revenue is recognized at the
time such receivables are collected.
In addition, as part of two different management agreements the Company has assigned employees full time to support two area developers in accordance
with an area development affiliation agreement (see Note 3). The Company bears all the responsibilities and obligations related to these employees and records
the employee costs as franchise support expense and the reimbursement from the area developers as franchise and other revenue. Employee costs are charged at
cost. Due to uncertainty of collection of the reimbursement from these two area developers, the revenue is recognized on a cash basis. The Company purchased
the Midwest franchisee in December 2006 (See Note 2), and will be party to one management agreement going forward.
Advertising Costs —Advertising costs are expensed as incurred and were $1.6 million in fiscal 2006, and are classified as store operating expenses.
The Company also receives advertising contributions from its franchisees. These contributions are a contractual obligation of the franchisee and are recorded
as an offset to advertising expense and were $1.5 million for fiscal 2006.
Store Pre-opening Costs—Costs incurred in connection with start-up and promotion of new store openings as well as rent from possession date to
store opening date are expensed as incurred.
Comprehensive Income—Comprehensive income is defined as the change in equity during a period from transactions and other events, excluding
changes resulting from investments from owners and distributions to owners. Comprehensive income equals net income for all periods presented.
Income Taxes—Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. In estimating
future tax consequences, the Company generally considers all expected future events other than changes in the tax law or rates. A valuation allowance is
recorded when it is deemed more likely than not that a deferred tax asset will be not realized.
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