Jamba Juice 2009 Annual Report Download - page 78

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Table of Contents
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
required ARO when such obligation is incurred. The Company’s AROs are primarily associated with leasehold improvements which, at the end of a lease, the
Company is contractually obligated to remove in order to comply with the lease agreement. At the inception of a lease with such conditions, the Company
records an ARO liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. The liability is accreted to its
projected future value over time. The capitalized asset is depreciated using the convention for depreciation of leasehold improvement assets. Upon satisfaction
of the ARO conditions, any difference between the recorded ARO liability and the actual retirement costs incurred is recognized as an operating gain or loss in
the consolidated statements of operations.
In accordance with FASB Statement No. 143, Accounting for Asset Retirement Obligations, as interpreted by FIN No. 47, the Company has
recognized asset retirement obligations for the future cost to comply with lease obligations at the end of a lease. The liability as of December 30, 2008 and
January 1, 2008 was $0.4 million and $0.3 million, respectively, and is included in other long-term liabilities.
Revenue Recognition—Revenue from Company Stores is recognized when product is sold. Revenue is presented net of any taxes collected from
customers and remitted to government entities. Revenue from jambacards is recognized upon redemption. Until redemption, outstanding customer balances are
recorded as a liability. See above for discussion on recognition of jambacard breakage.
Franchise revenue is generated from three sources: 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 the
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. The Company purchased the Midwest franchisee in December 2006 (see Note 2) and is now party to one management agreement.
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