Jamba Juice 2008 Annual Report Download - page 52

Table of Contents
change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The required two-step approach uses accounting
judgments and estimates of future operating results. Changes in estimates or the application of alternative assumptions could produce significantly different
results. Impairment testing is done at a reporting unit level. An impairment loss generally is recognized when the carrying amount of the reporting unit’s net
assets exceeds the estimated fair value of the reporting unit. The estimates and judgments that most significantly affect the fair value calculation are
assumptions related to revenue growth, discount rate, public market trading multiples and control premiums. The fair value of the reporting unit is reconciled
to the Company’s market capitalization plus an estimated control premium.
Trademarks are not subject to amortization and are tested for impairment annually (at year-end), or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The Company performed its test for impairment on trademarks by comparing the fair value of the
trademarks to their carrying amounts. An impairment loss is generally recognized when the carrying amount of the trademarks is less than the fair value. The
fair value of trademarks was estimated using the income approach-relief from royalty method, which is based on the projected cost savings attributable to the
ownership of the trademarks.
As a result of the evaluation of goodwill and trademarks, the Company recorded a non-cash impairment charge of $111.0 million and $89.6 million
related to goodwill and trademarks, respectively, in fiscal 2007. Future changes in the market or a decline in business conditions could result in further
impairment charges related to trademarks.
Intangible assets subject to amortization (primarily franchise agreements, employment/nonsolicitation agreements, reacquired franchise rights and a
favorable lease portfolio) are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
Intangible assets are amortized over their estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of the
intangible assets are consumed or otherwise realized. Useful lives for the franchise agreements and employment agreements are 13.4 years and 4.0 years,
respectively. The useful life of reacquired franchise rights represents the remaining term of the franchise agreement. The useful life of the favorable lease
portfolio is based on the related lease term.
The Company performed impairment tests on its intangible assets subject to amortization as of January 1, 2008 and no impairment loss was recognized
in fiscal 2007.
Rent Expense
Minimum rental expenses are recognized over the term of the lease. We recognize minimum rent starting when possession of the property is taken from
the landlord, which normally includes a construction period prior to store opening. When a lease contains a predetermined fixed escalation of the minimum
rent, we recognize the related rent expense on a straight-line basis and record the difference between the recognized rental expense and the amounts payable
under the lease as deferred rent liability. We also receive tenant allowances which are included in deferred rent liability. Tenant allowances are amortized as a
reduction to rent expense in the consolidated statements of operation over the term of the lease.
Certain leases provide for contingent rents that are not measurable at inception. These contingent rents are primarily based on a percentage of revenue that
are in excess of a predetermined level. These amounts are excluded from minimum rent and are included in the determination of rent expense when it is
probable that the expense has been incurred and the amount can be reasonably estimated.
Jambacard Revenue Recognition
The Company, through its subsidiary Jamba Juice Company, sells jambacards to its customers in its retail stores and through its website. The
Company’s jambacards do not have an expiration date. The Company recognizes income from jambacards when (i) the jambacard is redeemed by the
customer or (ii) the likelihood of the jambacard being redeemed by the customer is remote (also referred to as “breakage”) and it determines that it does not have
a legal obligation to remit the value of unredeemed jambacards to the relevant jurisdictions.
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