Jamba Juice 2009 Annual Report Download - page 97

Table of Contents
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SFAS 109 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that
management assesses the realization is “more likely than not”. Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient
taxable income within the carryforward period. A valuation allowance is provided for deferred tax assets when it is “more likely than not” that some portion of
the deferred tax asset will not be realized. Because of the Company’s recent history of operating losses, management believes the recognition of the deferred tax
assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance. A full
valuation allowance has been recorded for the net deferred tax assets at December 30, 2008, which increases the valuation allowance by $59.7 million for the
fiscal year ended December 30, 2008. A deferred tax asset of $354,000 remains due to the impact that a FIN 48 liability has on deferred taxes.
On September 11, 2008, the Company entered into a Financing Agreement with Victory Park Management, LLC, as agent, and its affiliated funds as
lenders whereby the Lenders purchased $25 million two-year senior secured term notes from the Company. Pursuant to the Financing Agreement, on
September 11, 2008, the Company issued to the Lenders two million shares of its common stock with certain registration rights, and entered into a Common
Stock Put and Call Agreement with the Lenders. As the Put and Call Rights are considered a freestanding instrument and accounted for under SFAS 150, the
two million shares issued are classified as equity and recorded at fair value. The allocation of the proceeds to equity creates a temporary difference between the
financial statement carrying amount of the debt and the tax basis of the debt, giving rise to a deferred tax liability. At December 30, 2008 the related deferred
liability of $0.7 million has been treated as a charge to shareholder’s equity. The deferred liability established and charged to shareholder equity related to the
financing arrangement has reduced the valuation allowance necessary at December 30, 2008. The impact of this reduction has been allocated to shareholder
equity and, therefore, there was no net effect on shareholder equity at the end of the year.
The Company adopted the provisions of FIN No. 48, on January 10, 2007. FIN No. 48 prescribes a recognition threshold and measurement attributes
for financial statement disclosure of tax positions taken or expected to be taken on a tax return. In addition, FIN No. 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
Although the implementation of FIN No. 48 did not impact the amount of the Company’s liability for unrecognized tax benefits nor did it impact
beginning retained earnings, the Company reclassified its liability for uncertain tax positions from deferred income tax to other long-term liabilities to conform
with the balance sheet presentation requirements of FIN No. 48. The Company expects no reversals within the next 12 months.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year (in thousands):
Unrecognized Tax Benefit, January 1, 2008 $1,470
Increases—tax positions in prior period 42
Unrecognized Tax Benefit, December 30, 2008 $1,512
Included in the unrecognized tax benefits of $1.5 million at December 30, 2008 was $0.4 million that, if recognized, would impact the Company’s
annual effective tax rate. The Company recognizes interest accrued related to unrecognized tax benefits in the tax provision. As of the adoption of FIN 48 on
January 10, 2007, the Company’s liability for unrecognized tax benefits included an accrual for interest in the amount of $78,000. The Company recognized
$46,000 and $82,000 of interest in connection with uncertain tax positions during 2008 and 2007 respectively. As of December 30, 2008, approximately $0.4
million of unrecognized tax benefits related to certain state tax credits are expected to reverse in the next twelve months due to the expiration of the statute of
limitations.
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