Jamba Juice 2014 Annual Report Download - page 66

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Revenue from jambacards is recognized upon redemption in exchange for product. Until redemption, outstanding customer balances are recorded as a
liability. See “jambacards” section above for discussion on recognition of jambacard breakage.
The Company generally executes franchise agreements for each store that establishes the terms of its arrangement with the franchisee. The franchise
agreements typically require the franchisee to pay an initial, non-refundable fee and continuing fees based upon a percentage of sales. Subject to the
Company’s approval and the franchisee’s payment of a renewal fee, a franchisee may generally renew the franchise agreement upon its expiration.
Franchise revenue is generated from royalties, development fees, initial franchise fees and revenue from sales at franchise-operated Smoothie Stations and
JambaGO® units. Royalties from Franchise Stores are determined as a percentage of Franchise Store revenue and are recognized in the same period as the
related Franchise Store sales occur. If collection of the franchise royalty fee is doubtful, revenue is recognized at the time of collection.
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 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 2).
The Company charges an initial franchise fee for providing operational materials, new store opening planning, and functional training courses. Initial
franchise fees, if any, are due for payment 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. Revenue
from sales at the Company’s flexible format franchise locations are recognized when the products are delivered to the operators of the Smoothie Stations or
JambaGO® units.
Other revenue primarily consists of revenue from sales of CPG products sold to retail outlets and online and royalties from licensed CPG products.
Revenue from sale of CPG products is recognized when the products are delivered to the customer. License revenue from CPG products is based on a
percentage of product sales and is recognized as revenue upon the sale of the product to retail outlets.
Cost of Sales — The Company includes in cost of sales, costs incurred to acquire fruit, dairy and other products used to make smoothies and juices, other
food offerings, paper products, as well as the costs related to managing our system-wide procurement program, and payments received from vendors.
Advertising Fund — The Company participates with its franchisees in an advertising fund, established in fiscal 2010, to collect and administer funds
contributed for use in advertising and promotional programs, which are designed to increase sales and enhance the reputation of the Company and its
franchise owners. Contributions to the advertising fund are required for Company Stores and traditional Franchise Stores and are generally based on a percent
of store sales. The Company has control of the advertising fund. The fund is consolidated and the Company reports all assets and liabilities of the fund.
The advertising fund assets, consisting primarily of cash received from the Company and franchisees and accounts receivable from franchisees, can only
be used for selected purposes and are considered restricted. The advertising fund liabilities represent the corresponding obligation arising from the receipts of
the marketing program. In accordance with ASC Topic 952-605-25, Franchisors – Revenue Recognition, the receipts from the franchisees are recorded as a
liability against which specified advertising costs are charged. The Company does not reflect franchisee contributions to the fund as revenue in its
consolidated statements of operations or consolidated statements of cash flows.
F-10