Jamba Juice 2008 Annual Report Download - page 97

Table of Contents
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
cards for $2.7 million, $3.9 million and $5.0 million during the 22 Week Period, fiscal 2006 and fiscal 2005, respectively. Customers redeemed $10.8
million, $20.4 million and $19.0 million during the 22 Week Period, fiscal 2006 and fiscal 2005, respectively, at the stores, which is included in revenue in
the consolidated statements of income.
—Jamba Juice Company’s lease agreements generally provide for scheduled rent increases during the lease terms, or for rental payments
commencing at a date other than the date of possession. Rent expense is recognized on a straight-line basis over the respective terms of the leases. The difference
between the amount charged to operations and cash paid under the leases is recorded as deferred rent.
—Jamba Juice Company receives construction allowances from landlords, which are deferred and amortized on a straight-
line basis over the life of the lease as a reduction of rent expense. Construction allowances are recorded in deferred rent and other long-term liabilities.
—Revenue from Jamba Juice Company owned and operated stores is recognized when product is sold. Revenue from store value
cards, such as the “jambacard” and gift certificates are recognized upon redemption. Until redemption, outstanding customer balances are recorded as a
liability. See above for discussion on recognition of gift certificates and jambacard breakage.
Franchise revenue is generated from three basic forms: development fees, initial franchise fees, and royalties. Development fees are paid to Jamba Juice
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. Jamba Juice 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 2).
Jamba Juice 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 Jamba Juice 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 Jamba Juice Company has assigned employees full time to support two area developers in
accordance with an area development affiliation agreement (see Note 2). Jamba Juice Company bears all the responsibilities and obligations related to these
employees and records the employee costs as other operating expense and the reimbursement from the area developers as franchise and other revenue. Due to
uncertainty of collection of the reimbursement from these two area developers, the revenue is recognized on a cash basis.
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